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Suspended real estate enterprises to obtain land compensation was approved income tax and fines, not required to make up the land increase tax

Nov. 30, 2023, 12:11 p.m.
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Recently, an inspection bureau of Hainan Provincial Taxation Bureau announced a Notice of Administrative Penalties, which characterized the tax evasion of a real estate enterprise that had been revoked for 12 years and refused to declare enterprise income tax and urban land use tax after being notified to do so by the tax authorities, and proposed to impose a fine of 50% of the amount of the enterprise income tax to be paid within the period of the recovery of the penalty. Based on the factual information disclosed in the notification letter, this article will summarize and analyze the facts of this case.

I. Introduction of the case

(I) Basic facts of the case

Company A of Hainan Province is a real estate company.In 1994, Company A acquired a state-owned land with an area of 66,580 square meters in City C. In 2011, the company's business license was revoked due to violations of law, and it is still in the business status of revoked and not yet canceled.On June 26, 2016, Company A and the Bureau of Land and Resource of City C entered into an Agreement for the Recovery of State-owned Land Use Right to 34,945,500 yuan to recover the land in the case.On March 15, 2017, after deducting the price of 4,727,200 yuan for the letter of interest for land exchange that had already been appropriated by the Bureau of Treasury and Payment of Municipality C, the Bureau of Treasury and Payment of Municipality C paid the remaining compensation for land resumption in the amount of 30,227,300 yuan to Company A's liquidation group. Upon investigation, an inspection bureau of Hainan Provincial Taxation Bureau held that:

First, the land resumption compensation obtained by Company A belonged to financial funds and should be included in the total income of the enterprise for the year, and since the total costs and expenses of Company A could not be correctly accounted for, it was authorized to collect its enterprise income tax of RMB 1,573,000 in accordance with the taxable income rate of 18% for other industries.

Second, the land recovery agreement was signed in June 2016, and the termination time of Company A's land use tax payment obligation should be the month following the effective date of the agreement. in the first half of 2016, Company A held the land in question, and it should still calculate and collect the urban land use tax on the basis of the taxable area of the land that it had actually occupied, and Company A was required to make a retroactive payment of urban land use tax of RMB199,800,000.

(II) Penalties to be imposed

The tax authorities were of the view that Company A's refusal to make declaration after being notified to do so by the tax authorities constituted tax evasion. As the illegal fact of Company A's underpayment of urban land use tax occurred more than five years from the date of discovery by the tax authorities, it is proposed that no administrative penalty be imposed on Company A for underpayment of urban land use tax. A fine of 0.5 times, i.e. 786,500 Yuan, is proposed to be imposed on Company A for obtaining land resumption compensation amounting to 34,954,500 Yuan without making declaration, resulting in underpayment of enterprise income tax of 1,573,000 Yuan.

II. Analysis of the case

(I) Whether the land compensation payment belongs to the income during the liquidation period

First, The company in question entered liquidation in 2011

According to the provisions of Article 183 of the Company Law, if the company is dissolved due to the expiration of the business period stipulated in the articles of association or the emergence of other reasons for dissolution stipulated in the articles of association, the resolution of the shareholders' meeting or general meeting of shareholders to dissolve, the revocation of business license, the order of closure, or revocation of the people's court in accordance with the request of eligible shareholders to be dissolved, the company shall set up a liquidation group within fifteen days from the date of emergence of the reasons for dissolution and start the liquidation. commence liquidation. In this case, company A was revoked business license in 2011 due to violations of the law, should be revoked within fifteen days from the effective date of the decision to set up a liquidation group to start liquidation. 2011, company A is still in the revocation of the state of the company's liquidation activities continue to date.

Second, Separate declaration of liquidation income

According to Article 1 of the Circular of the State Administration of Taxation on Relevant Issues of Income Tax on Enterprise Liquidation (Guo Shui Han [2009] No. 684, hereinafter referred to as "No. 684"), an enterprise shall be dissolved and liquidated, and the liquidation period shall be treated as a separate tax year. Within 15 days from the date of liquidation and before the enterprise is registered for deregistration, the enterprise shall submit the income tax return for enterprise liquidation to the competent tax authorities and settle the tax in accordance with the law. Accordingly, if an enterprise terminates its operation within a tax year, the tax law draws up a separate tax period for the enterprise income tax arising from the liquidation process. During the normal operation period, the enterprise income tax is levied on an annual basis, prepaid in monthly or quarterly installments, and remitted at the end of the year, with the excess being refunded or compensated. If an enterprise is in continuous operation, the remittance will be made within five months from the date of the year-end. If an enterprise terminates its business activities in the middle of the year, it shall, within 60 days from the date of termination of its actual business operations, make the current enterprise income tax remittance to the tax authorities. Different from the normal operation period, the enterprise income tax obligation generated during the liquidation period occurs only from the date of liquidation.

Third, The land compensation payment belongs to the income during the liquidation period

In this case, Company A actually obtained land compensation payment of RMB 34,954,500 in 2017, which belongs to the income obtained during the liquidation period, and the liquidation group should include it in the list of liquidation property according to the law, and use it to pay the liquidation expenses, employees' wages, social insurance costs and statutory compensation, pay the owed taxes, settle the company's debts and dividend and bonus distribution. As the liquidation of Company A has not yet been completed in 2017, the income from land compensation obtained by it should belong to the income during the liquidation period.

Fourth, Can the liquidation income be authorized for taxation?

As mentioned earlier, the liquidation period is a taxable period independent of the current period of operation, and even though the enterprise has obtained the approved levy policy during the normal period of operation, the scope of application of the policy does not include the liquidation period. Economic behaviors such as ending one's own business, disposing assets, repaying debts, and distributing residual property to shareholders, which occur after the commencement of liquidation and before write-off, need to be calculated separately for the liquidation income and the applicable levy method determined separately. Some provinces have issued enterprise income tax administrative measures to clarify that the enterprise income tax during the liquidation period is, in principle, levied by way of checking accounts, e.g., Liaoning and Hainan. Unless the enterprise's income during the liquidation period meets the conditions for approved levy and the application for approved levy is submitted and approved by the competent tax authorities, the enterprise income tax payment on the liquidation income shall not be subject to approved levy.

(II) Idle land does not affect the exemption of land value-added tax for land resumption

From 2011 to the present, the enterprise in question has been in a revoked and unregistered business status, i.e. during the liquidation period. According to the provisions of Article 186 of the Company Law, during the liquidation period, the company survives, but may not carry out business activities unrelated to the liquidation. In other words, the land in question was in an idle state from the time it was revoked until it was repossessed in 2016. According to the Measures for the Disposal of Idle Land, land suspected of being idle is first required to be investigated and verified by the competent department of land and resources, and a Certificate of Determination of Idle Land is issued. In the Certificate of Idle Land Determination, it is necessary to identify the reasons for the land to be idle, which are specifically categorized into idle for governmental reasons and idle for landowner's reasons. Subsequently, according to the reasons for idling, different treatment methods will be chosen. If the land is idle for the reason of the landowner, the land idle fee will be charged for one year, and the land will be resumed directly without compensation for two years. Idle due to government reasons, equivalent to idle due to public interest, according to the specific circumstances of the land, the land management department approved the implementation of the extension of the period of construction and development, adjust the land use or planning conditions, arrangements for the temporary use, replacement, agreement on paid resumption of the disposal of such ways. Land resumption, should be registered for state-owned construction land use right cancellation, return the land rights certificate. In this case, the Notice of Administrative Penalty Matters did not disclose the reasons for the land resumption, but it is clear that the land idleness itself will not affect the land resumption exemption from land value-added tax.

III. Can the authorized taxable amount be used as the amount for determining tax evasion?

In this case, the tax authorities, in addition to the liquidation income of Company A as the income of the current period of operation, but also the application of the approved levy to determine the amount of tax payable, and as a basis for calculating the penalty for tax evasion. So, can the approved taxable amount be used as the amount of tax evasion? In this regard, there are different views in practice.

(I) The approved tax amount can be used as the amount of tax evasion

The main body of this point of view that, on the one hand, whether it is the checking and collection or the approved collection, are the tax authorities tax collection and tax investigation of the legal way, the approved collection has the "Tax Collection and Administration Law" Article 35 and other legal basis, checking and collection and approved collection are the proof of the facts of the case of the scientific method of calculation. In terms of evidence, the determination of clear facts of tax evasion in administrative procedures requires compliance with the preponderance of evidence rule. In comparison, the checking of accounts for collection is based on the accounting information of the taxpayer, such as book vouchers, to calculate the amount of tax payable, so as to determine the unpaid or underpaid tax; while the authorized collection is also based on the accounting information of other local taxpayers in the same type of industry, of the same size and with similar income levels, and is calculated in accordance with the approach of the rules of taxation. Although there may be some deviation from the objective facts compared with the checking of accounts, the taxpayers may not be able to pay the tax when the relative adopts the measures of "forgery, alteration, concealment, unauthorized destruction of account books and vouchers", "refusing to make declaration after being notified to do so by the tax authorities", or "making false tax declaration". False tax declaration" and other means of tax evasion, the tax authorities in accordance with the checking method to determine the taxable amount of the existence of objectively unfavorable conditions, the second best through the statutory procedures, the use of legal methods to determine the amount of tax evasion by the amount of taxable amount approved, should also belong to the "facts are clear".

On the other hand, the taxpayer's unpaid or underpaid tax is determined through the approved method, but it is contrary to the principle of equalization of penalties to penalize the tax evasion without recognizing it as such. In the case of tax evasion by taxpayers in the manner enumerated in the law, if only in accordance with the approved conclusions to recover the tax and late payment fees, it is the same as the result of handling in accordance with Article 35 of the Tax Collection and Administration Law. Obviously, if the taxpayer has the right to be authorized by the tax authorities, it may not constitute tax evasion. If the taxpayer's tax evasion is not punished accordingly, it will form an unbalanced behavioral evaluation of the benefits obtained through its illegal behavior, which is contrary to the principle of equal punishment and the principle of fairness in taxation.

(II) Approved tax amount can not be used as the amount for determining tax evasion

In practice, there are people who hold opposing views to the enforcement behavior of using the approved tax amount as the basis of penalty. The reasons are:

For one thing, approved levy is a sub-program adopted when the tax authorities are unable to accurately determine the amount of tax payable. Approved levy refers to a form of levy in which the taxpayer's taxable amount is approved by the tax authorities in accordance with the law when the taxpayer's accounting books are unsound, the information is incomplete and difficult to check, or it is difficult to accurately determine the taxable amount for other reasons. There is often a lack of factual evidence in the statutory circumstances that enable the authorized collection. According to the provisions of Article 35 of the Tax Collection and Administration Law, among the six statutory circumstances in which the tax authorities have the right to authorize the amount of tax payable, five of them belong to the lack of factual evidence such as information in the books of accounts, income vouchers, expense vouchers and so on. In accordance with the provisions of Article 47 of the Implementation Rules of the Tax Collection and Administration Law, the tax authorities have greater discretion in the application of the approved methods, and the common approved methods reflect analogies, projections and other characteristics, and if a fine is arbitrarily imposed in accordance with the approved tax amount, it may exacerbate the tax risk of the taxpayer and the resulting loss of economic interests and goodwill (reputation).

Secondly, the use of the authorized tax amount as the basis for fines is contrary to the provisions of the Administrative Punishment Law. According to Article 40 of the Law on Administrative Penalties, "Where a citizen, legal person or other organization violates the administrative order and should be given an administrative penalty in accordance with the law, the administrative organ must ascertain the facts; where the facts of the violation are unclear and there is insufficient evidence, no administrative penalty shall be given." That is to say, the tax authorities to taxpayers to make a penalty decision, should have the facts clear, the evidence is indeed sufficient basis. However, the authorized tax itself is precisely the method of collection adopted under the condition that the tax authorities are unable to obtain all the tax information of the enterprise and have difficulty in ascertaining all the facts of the enterprise's operation, and the tax authorities' imposition of a fine on the basis of the authorized tax is contrary to the provisions of the Law on Administrative Penalties.

IV. Summary

In this case, the tax authority made a Notice of Administrative Penalty Matters to Company A before making a decision on administrative penalty, informing Company A of the content of the administrative penalty to be imposed as well as the facts, reasons and legal basis, but it was not informed of the evidential materials for its determination of the facts, which may affect the taxpayer's exercise of the right to make statements and pleadings. Therefore, if a taxpayer is audited for tax-related violations, especially if it has already received notification of penalties, it should take the initiative to seek and actively grasp the opportunity to communicate with the tax authorities, exercise the right to make statements and pleadings by submitting a statement of the situation, requesting a hearing, etc., and if necessary, it can hire tax professionals to express their opinions to the tax authorities on the determination of facts of the case and the understanding of the application of the law in order to strive for a favorable outcome for the enterprise and to avoid the enterprise from being penalized for the violations. If necessary, you can hire tax professionals to express your opinions to the tax authorities on the determination of facts and the understanding of the application of laws, so as to strive for a favorable result for the enterprise and avoid the expansion of tax-related risks.

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Copyright@2019 Aequity.ALL rights reserved京CP备17073992号-1