Court Case: Late Payment? Legal consequences and responses to tax recovery periods

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In the work of tax collection and administration, taxpayers and withholding agents frequently fail to pay or underpay taxes, and the tax authorities need to exercise the right of recovery to recover the taxes, which involves the issue of the statute of limitations for tax collection, that is, the tax recovery period.

Case review

This case involves an administrative dispute between the appellant Zhang ** and the appellee, the State Administration of Taxation ** Municipal Taxation Bureau, for failing to perform the statutory duty of tax collection. Zhang ** reported that Liu ** and Liu ** obtained income in the process of equity transfer in 2008 but did not declare taxes, and believed that the ** Municipal Taxation Bureau and the Inspection Bureau did not perform its duties of collection in accordance with the law.

On September 30, 201*, due to the complexity of the case, the defendant's time limit for inspection was extended to December 7, 201*. On November 14, 201*, the defendant prepared the "Investigation and Verification Report on the Tax-related Report on the Equity Transfer of Liu ** and His Wife Liu **". On November 18, 201*, the Defendant's Reporting Center informed the Plaintiff of the decision to investigate and handle the matter by telephone.

The court of first instance ascertained that on July 9, 201*, the inspection bureau of the defendant ** Taxation Bureau received a report from the plaintiff Zhang **, which stated that "Liu * and Liu * received a total of 55 million yuan in equity transfer fees, excluding capital contributions and other expenses of more than 9 million yuan, they received a total of more than 45 million yuan in dividends and needed to pay more than 9 million yuan in individual income tax." "After accepting the report, the defendant made a registration form for reporting tax violations, an approval form for tax inspection investigation and verification, and a notice of tax inspection investigation and verification tasks, and issued a Notice of Tax Inspection to Liu*, Liu*, Zibo ** Co., Ltd., Zibo ** Co., Ltd., and Zibo ** Co., Ltd. on July 23, 201*. The defendant obtained the relevant account books and accounting vouchers of Zibo ** Co., Ltd., Zibo ** Co., Ltd., and Zibo ** Co., Ltd., the audit report on the capital changes of Zibo ** Co., Ltd., the Civil Mediation Statement, the Explanation, and the Payment Receipt of the People's Court of Zibo High-tech Industrial Development Zone, the Agreement signed by the above three companies with Liu*, Liu*, and Liu*, the Equity Transfer Agreement signed by Liu*, Liu*, and Liu*, the Equity Transfer Agreement signed by Liu* and Liu*, and the Resolution of the Shareholders' Meeting.

The defendant ascertained that on April 29, 200*, Liu* and Liu* entered into an equity transfer agreement with Zibo ** Co., Ltd., Zibo ** Co., Ltd., Zibo ** Co., Ltd., and Liu * to transfer all the equity (including registered equity) held by Zibo ** Co., Ltd., Zibo ** Co., Ltd., and Zibo ** Co., Ltd. to Liu*, and Zibo ** Co., Ltd., Zibo ** Co., Ltd., Zibo ** Co., Ltd., and Liu* from May 19, 200* to December 31, 201* to Liu* The payment includes, but is not limited to, the investment funds, fund-raising funds, loans and 55 million yuan lent by Liu * to the above three companies in the name of the team.

On September 30, 201*, due to the complexity of the case, the defendant's time limit for inspection was extended to December 7, 201*. On November 14, 201*, the defendant prepared the "Investigation and Verification Report on the "Tax-related Report on the Equity Transfer of Liu* and His Wife Liu*". On November 18, 201*, the Defendant's Reporting Center informed the Plaintiff of the decision to investigate and handle the matter by telephone. It was also ascertained that on July 15, 200*, the shares of Zibo ** Co., Ltd. and Zibo ** Co., Ltd. held by Liu * went through the registration procedures for the change of shareholders with the industrial and commercial registration department.

The court of first instance held that, in accordance with Article 5 of the Law of the People's Republic of China on the Administration of Tax Collection and Administration and the Interim Provisions on the Establishment and Staffing of the Functional Allocation Institutions of the Zibo Municipal Taxation Bureau of the State Administration of Taxation, the defendant in this case was responsible for the administration of tax collection in six areas of Zibo City, including Zichuan District, Boshan District and Zhoucun District, and had the statutory duty to accept reports of tax violations reported by the plaintiff.

Article 52 of the Law of the People's Republic of China on the Administration of Tax Collection stipulates the time limit for tax collection, and the first paragraph of the law stipulates that if a taxpayer or withholding agent fails to pay or underpays the tax due to the responsibility of the tax authorities, the tax authorities may, within three years, require the taxpayer or withholding agent to pay the tax back, but shall not impose a late payment penalty. The second paragraph stipulates that if the taxpayer or withholding agent fails to pay or underpays the tax due to miscalculation or other mistakes, the tax authorities may recover the tax and late payment penalty within three years; In special circumstances, the retrospective period may be extended to five years. Paragraph 3 stipulates that the tax authorities shall not be subject to the time limit specified in the preceding paragraph in the pursuit of unpaid or underpaid taxes, overdue fines or taxes obtained by fraud in the case of tax evasion, tax resistance or tax fraud. Articles 63, 66 and 67 of the Law respectively define tax evasion, tax fraud and tax resistance, in which tax evasion refers to the taxpayer falsifying, altering, concealing, or destroying account books and accounting vouchers without authorization, or listing more expenses or omitting or understating income in the account books, or refusing to file or making false tax declarations after being notified by the tax authorities, and failing to pay or underpaying the tax payable; Tax fraud refers to the use of false export declarations or other deceptive means to defraud the state of export tax rebates; Tax resistance refers to the refusal to pay taxes by means of violence or threats.

According to the above-mentioned legal provisions, the failure to declare tax payment does not belong to the tax evasion, tax resistance and tax fraud that the tax authorities may indefinitely pursue the unpaid or underpaid taxes and late fees as provided for in paragraph 3 of Article 52 of the Law. The failure to file tax returns shall be a case of non-payment or underpayment of tax payable caused by the taxpayer's failure to file tax returns as stipulated in the second paragraph of Article 64 of the Law, and the recovery period shall be handled in accordance with the provisions of the second paragraph of Article 52 of the Tax Administration Law, which is generally three years, and may be extended to five years under special circumstances.

The equity transfer involved in this case occurred on April 29, 200*, the procedures for the change of shareholders were handled at the industrial and commercial registration department on July 15, 200*, and the payment of the transfer money was completed on December 31, 201*, while the defendant accepted and investigated the plaintiff's report in 201*, and the period of undeclared tax payment for the income obtained by the transfer of equity by Liu* and Liu* has exceeded the maximum period of 5 years. The defendant's decision not to pursue the individual income tax paid by Liu* and Liu* and Liu* was in accordance with the law.

In this case, the defendant orally informed the plaintiff that the handling and investigation results were in accordance with Article 30 of the Administrative Measures for the Reporting of Tax Violations, and the defendant's law enforcement procedures were lawful. The plaintiff's claim in this case is not sustained and is not supported in accordance with law. The plaintiff in this case grasped the fact that the reported persons Liu * and Liu * needed to pay individual income tax and made a real-name report, and if the tax collection was successful, he could get a reward for reporting in accordance with the law, and he had an interest in the defendant's tax collection and performance of duties, and had the qualification of the plaintiff, and the defendant's defense that the plaintiff had no interest in the administrative act involved in the case was not established and was not accepted in accordance with law.

Accordingly, in accordance with the provisions of Article 69 of the Administrative Litigation Law of the People's Republic of China, the judgment rejects the plaintiff Zhang*'s litigation claim.

After the judgment was pronounced, the plaintiff in the original trial, Zhang*, was dissatisfied with the first-instance judgment and appealed to this court, requesting that the administrative judgment of the Zichuan District People's Court of Zibo City (202*) Lu 030* Xingchu No. 5* be revoked and changed in accordance with law; The Appellee bears the litigation costs of this case.

Grounds of Appeal:

1. The judgment erred in determining the facts. The judgment describes that "after cross-examination at trial, the defendant submitted evidence No. 1 to No. 9, which can prove the facts of the case that the defendant accepted, investigated and verified the plaintiff's matter in accordance with the law, and this court affirms it." The Appellant held that the judgment was correct in its determination that the Appellee had accepted the plaintiff's report, that it was wrong in proving that the Appellee had investigated and verified in accordance with the law, and that it was wrong in determining Evidence 9 and the matters proved by the Appellee.

The reasons are as follows: (1) Evidence No. 1-8 submitted by the Appellee proves that the matters reported by the Appellant were accepted and some of the matters were verified, and it also proves that the Appellee has selectively performed his duties. The law stipulates that the equity transfer between the internal shareholders of the enterprise shall be carried out in accordance with the law under the management and legal framework of the relevant departments, and the equity transfer is not carried out privately by the internal shareholders of the enterprise, and there is also a third-party manager, that is, the Boshan Local Taxation Bureau, the competent tax authority at that time, and the Appellee did not investigate and verify the management information of the competent tax authorities on the equity transfer of the enterprise in accordance with the law, and this evidence can prove that the tax authorities "discovered" that Liu* and Liu* had not filed tax returns for less than 5 years. The Notice of the State Administration of Taxation on Strengthening the Administration of Individual Income Tax on Income from Equity Transfer (Guo Shui Han [2009] No. 285) and the Measures for the Administration of Individual Income Tax on Income from Equity Transfer (for Trial Implementation) implemented in 2015 all stipulate matters related to the filing of tax changes after the transfer of equity of enterprises, and also stipulate how the tax authorities should manage them. The "Work Specification for Tax Administrators of Shandong Provincial Local Taxation Bureau" (Lu Di Shui Fa [2005] No. 25) also clearly stipulates the responsibilities of tax administrators to verify the authenticity of enterprise changes and to urge and collect tax returns if they fail to file tax returns within the time limit. According to the above-mentioned legal provisions, the Appellee should investigate and verify whether the Appellee has made an application for shareholder change with the tax authorities in accordance with the law after the transfer of the enterprise's equity, whether the tax authorities have reviewed and approved the change materials submitted by the enterprise, whether it agrees with the change of shareholders of the enterprise in accordance with the law, and whether the competent tax authorities should have "discovered" Liu Yanjiang and Liu Hongrui's failure to declare and pay taxes in the course of performing their duties after the transfer of the enterprise's equity. Selective enforcement is also an illegal act, and selective performance of duties is also a manifestation of non-performance.

(2) Part of Exhibit 9 is not supported by evidence and part of it violates legal provisions.

1. The Appellee argued in Evidence 9 that the reason why Liu* and Liu* failed to declare tax returns was due to a calculation error. Article 81 of the Detailed Rules for the Implementation of the Tax Administration Law explains the second paragraph of Article 52 of the Tax Administration Law. The Appellee had no evidence to prove that Liu* and Liu*'s failure to file tax returns complied with this clause, and it was illegal to use the recovery period stipulated in this clause to deal with their non-payment of taxes.

2. The Administrative Litigation Law stipulates that the basis of administrative acts must be laws, regulations, rules, and normative documents.

2. The court of first instance violated legal procedures. The court of first instance organized two court sessions, and the appellant submitted evidence in person, but the court only allowed the plaintiff in the original trial to cross-examine the defendant's evidence, but did not allow the defendant in the original trial to cross-examine the plaintiff's evidence. The judgment also only mentioned the evidence of the defendant in the original trial, and did not mention anything about the evidence submitted by the plaintiff in the original trial.

3. The conduct of the Zichuan District People's Court of the first instance exceeded its statutory authority. In addition to Article 86 of the Tax Collection and Administration Law, which stipulates an administrative penalty period of 5 years for tax violations, other tax normative documents, including the above documents, do not stipulate the recovery period of Article 64, and so far the recovery period of this article is a legal blank. The Zichuan District Court held that the use of the time limit for recovering from the second paragraph of Article 52 of the Law on the Administration of Taxation to deal with violations of the second paragraph of Article 64 was ultra vires.

4. The court of first instance violated the facts and the law.

(1) Contrary to the facts.

1. The court of first instance violated the fact that the Boshan Taxation Bureau had "discovered" that Liu * and Liu * had not declared tax returns in the course of performing their duties in accordance with the law and managing the equity transfer of enterprises in the course of performing their duties in accordance with the law and in the work of carrying out the income tax verification of equity transfer in the province in 200*.

2. After the completion of the equity transfer, he and Zibo shall register the change of shareholders with the tax authorities in accordance with the law and submit relevant supporting materials. The Boshan Taxation Bureau reviewed and approved the change in accordance with the law.

3. The time when the tax authorities "discovered" that Liu * and Liu * had not paid taxes should be the time when the in-charge tax authorities reviewed and approved the change of shareholders of the enterprise and the tax officer's performance of the duty of reminder and collection, and the time when Shandong Local Taxation implemented the Notice of the State Taxation Bureau on Strengthening the Administration of Individual Income Tax on Income from Equity Transfer (Guo Shui Han [2009] No. 285) in 2009 to carry out the verification of equity transfer income tax in the province, not the time when the appellee accepted the report and investigated it.

(2) Violating the law. Where there are no tax laws or regulations that provide for circumstances other than those provided for in paragraph 3 of Article 52 of the Tax Collection and Administration Law, the provisions of paragraph 2 of Article 52 shall apply to the recovery period. The Constitution and the Detailed Rules for the Implementation of the Tax Administration Law stipulate that paying taxes in accordance with the law is the basic obligation of citizens, and the obligation is lifelong and irreplaceable, and the court of first instance held that the circumstances of violating the second paragraph of Article 64 should be dealt with with by the recovery period of the second paragraph of Article 52, and ruled that the decision of the defendants of the original trial not to pursue the tax payable by Liu Yanjiang and Liu Hongrui was in accordance with the law, and violated the provisions of Article 3 of the Tax Collection and Administration Law.

During the second-instance trial, the appellant Zhang* submitted to this court a number of replies to the relevant provisions on tax work and the application for open government information, but they did not belong to the new evidence provided for in Article 52 of the "Provisions of the Supreme People's Court on Several Issues Concerning Evidence in Administrative Litigation", and this court did not organize cross-examination. The facts ascertained by this court through trial are consistent with the facts ascertained in the original judgment, and are to be confirmed in accordance with law.

The Court is of the view that,

(1) On the issue of whether Zhang* has an interest in the decision not to pursue the expropriation of the sued. According to Article <中华人民共和国行政诉讼法>12(5) of the Interpretation of the Supreme People's Court on Application, if an administrative organ with the duty to handle the complaint makes or fails to make a complaint to an administrative organ in order to protect its own legitimate rights and interests, and the complainant files a lawsuit against it, it is "interested in the administrative act", and the complainant has the qualification to be the plaintiff. In this case, the appellant Zhang * made a report based on the benefits of obtaining tax reporting rewards, and provided corresponding preliminary facts and evidence clues for the reported matters, and he had an interest in the appellee's decision not to pursue the tax collection of the Second Inspection Bureau of the Municipal Taxation Bureau, and he had the qualifications to be the plaintiff in the administrative litigation in this case. Therefore, this court does not accept the Appellee's argument that the Appellant does not have the qualifications to be the plaintiff in this case.

(2) On the issue of the legality of the decision not to pursue the charge. Paragraph 2 of Article 52 of the Law of the People's Republic of China on the Administration of Tax Collection stipulates that if a taxpayer or withholding agent fails to pay or underpays the tax due to miscalculation or other errors, the tax authorities may recover the tax and late payment penalty within three years; In special circumstances, the retrospective period may be extended to five years. The third paragraph of this article stipulates that the tax authorities shall not be subject to the time limit specified in the preceding paragraph in the pursuit of unpaid or underpaid taxes, overdue fines or taxes fraudulently obtained by tax evasion, tax resistance or tax fraud. Paragraph 2 of Article 64 of the Law stipulates that if a taxpayer fails to file a tax return or fails to pay or underpays the tax payable, the tax authorities shall recover the tax not paid or underpaid and the late payment fine, and impose a fine of not less than 50 percent but not more than five times the amount of the tax not paid or underpaid. Referring to the reply of the State Administration of Taxation on the issue of the time limit for the recovery of undeclared taxes (Guo Shui Han [2009] No. 326), "Article 52 of the Tax Administration Law stipulates that the tax authorities may indefinitely recover the unpaid or underpaid taxes, late fines or taxes obtained by fraud against tax evasion, tax resistance and tax fraud. The failure to pay or underpayment of the tax payable as a result of a taxpayer's failure to file a tax declaration as provided for in the second paragraph of Article 64 of the Tax Administration Law does not constitute tax evasion, tax resistance or tax fraud, and the recovery period is generally three years in accordance with the spirit of Article 52 of the Tax Administration Law, and may be extended to five years under special circumstances. "In this case, the report submitted by the appellant Zhang * to the Second Inspection Bureau of the Appellee Municipal Taxation Bureau was aimed at the failure of Liu * and Liu * and his wife to declare and pay taxes on the income from the transfer of equity, which belonged to the situation of "taxpayers do not make tax declarations, do not pay or underpay the tax payable" as stipulated in the second paragraph of Article 64 of the Law of the People's Republic of China on the Administration of Tax Collection, and did not belong to the tax evasion, tax resistance and tax fraud that can be recovered indefinitely as stipulated in the third paragraph of Article 52 of the Law. The recovery period for the failure to file a tax return resulting in non-payment or underpayment of the tax payable shall be three years, which may be extended to five years in special circumstances. The acts of equity transfer, shareholder change registration, and payment of transfer money involved in the appellant Zhang Lingsong's report occurred between 2008 and 2012, and the appellant's report to the appellee was made in June 2019, at which time the maximum period of five years for recovering was exceeded, and the appellee's decision not to pursue the exposition was clear and in accordance with the law. In accordance with Article 30 of the Administrative Measures for the Reporting of Tax Violations, the Appellee orally informed the Appellant of the handling and the results of the investigation, which did not violate the legal procedures.

In summary, the original trial court rejected Zhang*'s litigation claim, finding that the facts were clear, the law was correctly applied, and the trial procedures were lawful, and this court upheld it in accordance with law. Appellant Zhang*'s grounds of appeal cannot be sustained, and this court does not support them in accordance with law. Accordingly, in accordance with the provisions of Article 89, Paragraph 1 (1) of the Administrative Litigation Law of the People's Republic of China, the judgment is as follows: the appeal is rejected and the original judgment is upheld.

Case Study

The focus of the dispute in this case is whether the Second Inspection Bureau of the ** Municipal Taxation Bureau has performed its statutory duty of collecting and paying taxes in accordance with the law. According to the relevant provisions of the Law of the People's Republic of China on the Administration of Tax Collection, the tax authorities generally no longer pursue the tax if the tax is not declared beyond the statutory recovery period. Therefore, after investigation and verification, the Second Inspection Bureau of the Municipal Taxation Bureau did not pursue the tax collection of Liu* and Liu*, and its handling decision was in accordance with the law.

In summary, the trial court found that the facts were clear, the law was correctly applied, and the judgment rejecting Zhang*'s claim was not improper.

Knowledge extension

(1) Law of the People's Republic of China on the Administration of Tax Collection

Article 52 Where a taxpayer or withholding agent fails to pay or underpays the tax due to the responsibility of the tax authorities, the tax authorities may, within three years, require the taxpayer or withholding agent to pay the tax in retroactive amount, but shall not impose a penalty for late payment. If the taxpayer or withholding agent fails to pay or underpays the tax due to miscalculation or other mistakes, the tax authorities may recover the tax and late payment penalty within three years; In special circumstances, the retrospective period may be extended to five years. In the case of tax evasion, tax resistance or tax fraud, the tax authorities shall not be subject to the time limit specified in the preceding paragraph in recovering the unpaid or underpaid taxes, overdue fines or taxes obtained by fraud.

Article 64 Where a taxpayer or withholding agent fabricates a false basis for tax calculation, the taxation authorities shall order it to make corrections within a specified period of time and impose a fine of not more than 50,000 yuan. If a taxpayer fails to file a tax return and fails to pay or underpays the tax payable, the tax authorities shall recover the tax not paid or underpaid and the overdue fine, and impose a fine of not less than 50% but not more than five times the amount of the tax not paid or underpaid.

(2) Administrative Litigation Law of the People's Republic of China

Article 69: Where the evidence for an administrative act is conclusive, the laws and regulations are correctly applied, and legally-prescribed procedures are complied with, or the plaintiff's reasons for applying for the defendant's performance of legally-prescribed duties or payment obligations are not sustained, the people's court makes a judgment rejecting the plaintiff's litigation demands.

epilogue

The tax recovery period is an important part of tax collection and administration, which ensures the timeliness and fairness of tax collection. When collecting taxes, tax authorities need to follow legal procedures and standards to ensure the legality and fairness of the collection acts. At the same time, it is also necessary to strengthen communication and coordination with taxpayers to jointly maintain the stability and healthy development of the tax system.

The results of this case reflect the positive role of accurate application of law, legal procedures, protection of taxpayers' rights and interests, and promotion of the rule of law in taxation. At the same time, it also provides us with valuable inspiration and reflection, reminding us that we must strictly follow the legal provisions and procedural requirements in the process of tax collection and management to ensure the legitimacy and fairness of tax law enforcement.

Source: China Tax Q&A (case reference China Judgment Network)