Recently, a local tax bureau issued two Notices of Tax Matters, ordering the individual who acquired the land use right and transferred it to the outside world to declare and pay the taxes and late fees involved in the two transactions. Based on the background of this case, this article will analyze the differences between civil law and tax law, the tax basis of the transactions involved, and whether the recovery period is applicable.

I. Introduction of the case

(I) Basic background of the case

First, the process of Zhang's acquisition of land

Michael company is a Qingdao City, a company operating lights, Jiang was the company's deputy general manager. 2006 June 24, Zhang on behalf of the Michael company to repay company A and company B payment of 522,500 yuan. On September 1 of the same year, Zhang and Michael signed an agreement, agreed that the company with its 6.5 acres of land use rights against the above payment, from the date of signing the agreement within one year will be the land use rights for Zhang's name.

In 2008, because of the michael company has not been able to perform the relevant agreement, zhang mou sued, asked michael company to perform the agreement signed by the two sides on September 1, 2006, and according to the agreement for the transfer of land use right procedures. 2008 August 20, the court made (2008) that is the business of the initial word No. 593 civil judgment, confirming that the above said 6.5 acres of land use right belongs to zhang mou.

Second, the process of Zhang Mou's external land transfer

On November 26, 2010, Zhang Mou and Xinying Company signed a "land transfer agreement", agreed to 400,000 yuan price will be located in Michael's 6.5 acres of land use rights transferred to the Xinying Company, the agreement was signed, the land transfer price has been fulfilled, but Zhang refused to fulfill its obligations. 2012 July 17, the Xinying Company sued Zhang Mou, requesting the court to order Zhang Mou to assist the Xinying The company for land use right transfer procedures, litigation costs borne by Zhang. In the course of the trial, the court presided over mediation, the parties voluntarily reached an agreement, the court issued a mediation confirming that Zhang should assist Xinying Company to handle the land use right transfer registration formalities and so on.

(II) The results of the trial of this case

On April 28, 2022, the court made (2022) Lu 0215 Execution Ruling No. 2932, ruling that the right to use 6.5 acres of land registered in the name of Michael Company will be transferred to the name of Hanjia Company (formerly Xinying Company).

(III) Taxes involved in the case

On October 27, 2022, Qingdao Jimo District Tax Bureau made a Notice of Tax Matters to Michael Company, requesting it to file a tax declaration on the transfer of the right to use the land to Zhang within 3 days.

On February 8, 2023, Qingdao Jimo District Tax Bureau made a Notice of Tax Matters to Zhang respectively, requesting him to apply for tax declaration on the transfer of the land use right of 6.5 acres under his name to Hanjia Company (former Xinying Company) within 3 days.

On October 11, 2023, Qingdao Jimo District Tax Bureau made a Notice of Tax Matters to Zhang Mou and Michael Company respectively, ordering Zhang Mou to pay a total of RMB15,779.39 in deed tax and stamp duty in respect of the transfer of the land in the case from the name of Michael Company to its name, and ordering Michael Company to pay value-added tax, urban construction tax, surcharge on education fee, surcharge on local education, stamp duty and land value-added tax totaling 523,016.59 yuan. With respect to the transfer of the land in question from Zhang's name to the name of Hanjia Company (formerly Xinying Company), Zhang was ordered to pay value-added tax, urban construction tax, education surcharge, local education surcharge, stamp duty, land value-added tax and personal income tax totaling RMB 375,234.18.

II. Why the tax authorities will "a change" recognized as "two transactions".

In this case, Zhang Mou on behalf of Michael company to repay the payment, the actual acquisition of 6.5 acres of land use right of the house against the debt. After Zhang transferred the 6.5 acres of land use right to Xinying Company, during the period, the said land use right has been registered in the name of the original right holder Michael Company. Therefore, after the enforcement decision was made, from the registration level, the land use right owner was changed from Michael Company to Xinying Company, i.e., only "one change" was experienced in the publicity of the right. However, according to the tax authorities, the land use right has experienced the circulation of the Michael company - Zhang - Xinying company, Zhang must be on the acquisition and transfer of the land use right to pay taxes.

(I) Difference between civil law and tax law on the determination of the transaction in question

According to Article 209(1) of the Civil Code, the establishment, change, transfer and extinguishment of the property right of immovable property shall be subject to registration. Unless otherwise provided for by law, real property rights in real estate are effective when they are registered in accordance with the law; if they are not registered, they are not effective. Therefore, in civil law, the change of real estate property right adopts the doctrine of effective publicity. In this case, the land directly from the name of the Michael company to the name of the Hanjia company, only one effective change of land use right.

However, in tax law, the occurrence of tax obligations and civil law changes in real estate property rights in law does not necessarily link, a change does not mean that the land in question only exists on a transaction. For Mr. Zhang, he was both the buyer of the first transaction and the transferor of the second transaction.

(II) the tax authorities will be a change into two transactions based on?

It should be clear that the tax authorities are in charge of the administrative body of the tax work, in the process of collecting taxes will inevitably involve the nature of the relevant taxable behavior identification and determination. On the one hand, the tax authorities of civil legal relations should respect the effective legal instruments related to the determination of the validity of the binding. In this case, when Zhang Mou acquired the land in question, due to the delay in the fulfillment of the relevant agreement by Michael Company, Zhang Mou appealed to the court, and the effective judgment confirmed that the soil in question belonged to Zhang Mou. Although after the judgment came into effect, Zhang still failed to change the land use right registration, but according to the judgment can be concluded that Michael transferred the land to Zhang. Similarly, Zhang's transfer of land use right to Xinying Company was also recognized by the effective civil judgment. The tax authorities can determine that the land in question involves two transactions based on the effective judgment in the civil field.

On the other hand, the tax authority has the right to determine the civil legal relationship that does not match the name in accordance with the principle of substantive taxation. Although the land in question has only one change of property right from the civil law point of view, the tax authority has the right to collect tax according to the substance of the taxpayer's business activities, so as to avoid the taxpayer from abusing the autonomy of private law to avoid or reduce the tax obligation, resulting in the loss of the state's legal tax revenue. As a matter of fact, registration is the method of publicity for the establishment and change of real estate property rights, and the parties' negligence in applying for the registration of the establishment or change of property rights does not affect the validity of the contract. It will violate the principle of fairness in taxation if the tax benefit is obtained instead of the contractual obligation to cooperate with the transfer because of its failure to fulfill the contract. In this case, there is no direct transaction between Michael Company and Xinying Company, according to the principle of substantive taxation, it should be recognized that the land use right in question exists in the relationship between Michael Company-Zhang Mou, Zhang Mou-Xinying Company's two transfers.

(III) The time of occurrence of the tax obligation for the transfer of land use right tenure

First, the acquisition of land use right link of the time of occurrence of tax obligations

As the buyer of land use right, Zhang Mou should pay deed tax and stamp duty in the process of obtaining land use right. According to the provisions of Article 15 of the Stamp Duty Law and Article 9 of the Deed Duty Law, the time of occurrence of the tax obligation of deed tax and stamp duty is the day when the taxpayer signs the contract of transferring the ownership of land and house. In this case, Zhang acquired the land use right, and the tax obligation of deed tax and stamp duty both occurred from September 1, 2006 onwards.

As the transferor of the land use right, Michael should bear the tax obligations of value-added tax, urban construction tax, education surcharge, local education surcharge, stamp duty and land value-added tax. Except for the stamp duty tax obligation which occurred on the same date as Zhang, the tax obligations for all other taxes also occurred from September 1, 2006 onwards. Specifically, according to Article 45(1) of the Implementation Measures for the Pilot Measures for Changing Business Tax to Value-added Tax, Annex I of Cai Shui [2016] No. 36, the time of occurrence of a taxpayer's tax obligation is the day on which the taxpayer sells real estate and receives the sales proceeds. In this case, the agreement signed between Michael and Zhang was to offset the debt with the house, which should be regarded as the date when the agreement was signed and the sales proceeds were received, i.e. the VAT obligation of Michael occurred on September 1, 2006, and Michael should also declare and pay the urban construction tax, education surcharge and local education surcharge accordingly. According to Article 10 of the Provisional Regulations on Land Value-added Tax ("PROVISIONAL REGULATIONS ON LAND VAT"), when a taxpayer transfers land use right to a foreign country, the taxpayer's land value-added tax obligation shall be incurred from the date of signing the agreement on transfer of land use right. That is to say, the land VAT tax obligation of Michael Company also occurred from September 1, 2006 onwards.

Second, The time of occurrence of tax obligation in the transfer of land use rights

As the transferor of land use right, Zhang should pay value-added tax (VAT), urban construction tax, education surcharge, local education surcharge, stamp duty, land value-added tax (LVAT) and personal income tax (PIT) in the transfer of land use right.

1. Value-added tax

As mentioned above, the land transfer price of the Land Transfer Agreement signed between Zhang Mou and Xinying Company has been fulfilled by Xinying Company, and Zhang Mou's value-added tax obligation shall be incurred from the date of receipt of the land transfer price. At the same time, Zhang should declare and pay urban construction tax and education surcharge and local education surcharge accordingly.

2. Stamp Duty

As mentioned above, Zhang's stamp duty tax obligation shall be incurred from November 26, 2010 when he transferred the land use right.

3. Land value-added tax

As mentioned above, Zhang's land value-added tax obligation occurred on November 26, 2010, the date on which he signed the Land Transfer Agreement for the transfer of land use right.

4. Individual Income Tax

According to Article 12(2) of the Individual Income Tax Law, a taxpayer shall calculate the individual income tax on a monthly or per-period basis for the "income from property transfer" derived from the transfer of land use right. Accordingly, Zhang's tax obligation shall be incurred on the date of receipt of the land transfer price.

III. How to determine the tax basis of the land use right transaction in the case?

(I) How to determine the tax basis for the land use right of Zhang Mou to obtain the house against the debt?

In Zhang obtained the land use right of the house against the debt link, it has to declare and pay the deed tax and stamp duty tax obligations. Regarding the deed tax, although the land in question has not registered the change of land ownership, but the relevant ownership transfer contract is valid, there is no special circumstances of ineffective, invalid, withdrawn or discharged, according to the relevant provisions of the deed tax law, the property against the debt is regarded as the sale of houses, and the basis of the tax on the deed tax is the price of the transaction of the transfer of land ownership contract, including the delivery of the currency and the price of the physical goods, and the price of the corresponding other economic benefits. Regarding the stamp duty, the real estate transaction in question was subject to the stamp duty of the title transfer document. According to Article 5(2) of the Stamp Duty Law, "the taxable basis of the taxable title transfer document shall be the amount listed in the title transfer document, excluding the value-added tax listed". In this case, Zhang Mou signed an agreement with Michael Company in the process of obtaining the land use right of the land in question, and Michael Company used 6.5 acres of land owned by it to offset the payment of 522,500 yuan repaid by Zhang Mou on behalf of the company, therefore, Zhang Mou has a claim of 522,500 yuan against Michael Company, which is the transaction price determined by the land ownership contract, and the amount listed in the property right transfer document, and the taxable value-added tax borne by Zhang Mou is based on the deed tax and stamp duty. Deed Tax and Stamp Duty are based on this tax.

(II) How to determine the taxable basis for Zhang's transfer of land use right?

As mentioned above, Zhang Mou did not acquire the land use right in the case by accepting the gift and other gratuitous ways, but offset the claims enjoyed by Michael Company, therefore, Zhang Mou has borne the cost in acquiring the land use right, and its external transfer of the land use right, when declaring the payment of land value-added tax and individual income tax, should be allowed to subtract the burdened cost from the income obtained.

For example, according to Article 6(1)(e) of the Individual Income Tax Law, a taxpayer who obtains income from the transfer of property shall be taxable on the basis of the amount of income from the transfer of property, less the original value of the property and reasonable expenses. The original value of the property of "land use right" is the amount paid for the acquisition of the land use right, the cost of developing the land and other related expenses.

For example, according to Article 4 of the Provisional Regulations on Land Value-added Tax, land value-added tax is calculated on the basis of the value-added amount, which is the balance of the income derived from the transfer of real estate by the taxpayer, less the amount of deductions. Meanwhile, according to Item (1) of Article 4 of the Circular of the State Administration of Taxation on Issues Relating to the Administration of Land Value-added Tax Clearance for Real Estate Development Enterprises (Guo Shui Fa [2006] No. 187), the deduction of the amount paid for obtaining the land use right, the cost of real estate development, the expenses and the taxes related to the transfer of real estate shall be subject to the provision of legal and valid certificates; if no legal and valid certificates can be provided, no deduction shall be made. According to the local land value-added tax collection and management policy, the legally valid deduction vouchers include invoices, financial bills and other legally valid vouchers stipulated by the State Administration of Taxation, and the scope of legally valid vouchers has not been clarified. In this case, Zhang only signed an agreement with Michael Company to offset the house against the debt when acquiring the land use right, and did not obtain invoices and other deduction vouchers. However, according to Article 11 of the Administrative Measures for Land Value-added Tax Clearance and Audit of Hainan Provincial Tax Bureau of the State Administration of Taxation (Announcement of Hainan Provincial Tax Bureau of the State Administration of Taxation No. 2 of 2023), if a taxpayer acquires the land use right by way of purchase, and the transferor pays the land value-added tax in full, and the transferee obtains the deed tax completion vouchers, the deed tax completion vouchers can be regarded as legally valid vouchers. That is to say, in the link of land use right acquired by Zhang Mou, if Michael paid land value-added tax, Zhang Mou also declared to pay the deed tax, should be allowed to Zhang Mou with the deed tax completion certificate as a subsequent transfer of the land use right of the deduction voucher. In addition, according to the Measures for the Administration of Land Value-added Tax for Real Estate Development Projects of the Guangxi Zhuang Autonomous Region (for Trial Implementation), legally valid vouchers in compliance with the laws, administrative regulations and regulations of the State Administration of Taxation include court judgments, adjudications and conciliations, as well as arbitration awards and notarized debt instruments. Therefore, in this case, the amount paid for the acquisition of land use right was 522,500 yuan, and the income from the subsequent transfer of land use right was only 400,000 yuan, with a negative value-added amount, and Zhang was not liable for land value-added tax. Similarly, Zhang is not liable for individual income tax.

IV. Summary: Is the recovery period applicable in this case?

As mentioned above, after the land in question was transferred by the execution ruling, the tax authorities made a Notice of Tax Matters to Michael Company and Zhang Mou respectively, requesting them to apply for the tax declaration within the deadline.

In the case of the land transferred from the name of the Michael company to its name, the Michael company's tax obligations have occurred since September 1, 2006, and the case does not exist in the case of unlimited recovery, the tax authorities in October 27, 2022 only required to apply for the tax declaration, has exceeded the tax recovery period. Similarly, the land in question was transferred from Zhang's name to the name of Hanjia Company (the former Xinying Company), Xinying Company sued Zhang on July 17, 2012, requiring him to handle the transfer of land use rights before the land transfer procedures have been fully paid the price of the land transfer, therefore, Zhang's tax obligations at the latest in 2012 has occurred, the tax authorities on February 8, 2023, Zhang was required to handle the tax declaration, has exceeded the tax recovery period. The tax recovery period. In conclusion, the tax authorities had no right to recover the tax on the transaction in question.