Editor's Note: In recent years, with the acceleration of urban renewal, infrastructure construction has witnessed constant innovation in various regions. However, in the planning of infrastructure projects, the occupation of corporate land is often involved, leading to frequent situations of land requisition and acquisition. After receiving compensation from the government, companies usually enjoy preferential policies in value-added tax (VAT), but there are often disputes between enterprises and tax authorities in terms of the application of tax exemption. This article takes the example of approval document disputes over tax exemption to delve into the relevant procedures and applicable conditions for tax exemption during land requisition process, and provide practical suggestions for relevant enterprises.

01

Case Introduction: When a company's land is revoked by the government, there is controversy over whether the corresponding compensation payment should be subject to appreciation tax.

Company A is a industrial enterprise in a city. In 2008, it successfully obtained an area of 22,500 square meters of industrial land through the state-owned land sale process and subsequently built warehouse buildings and successfully obtained property certificates. With the rapid development of the city's construction, in 2022 the municipal government decided to plan and construct an urban circumvallation road, and Company A's one of the 7,500 square meters of factory buildings was included in the planning area. To ensure the smooth implementation of the planning, the District Natural Resources Bureau organized an assessment of the real estate within the planning area, including Company A's factory building assessed at 11.2 million yuan. After communication and negotiation with the companies involved in the construction of the urban circumvallation road, a "plan for promoting the construction of the urban circumvallation road" was ultimately agreed upon and approved by the district government. On December 20, 2022, the District Land Reserves Center officially signed a "Contract for Reclaiming State-owned Land Use Rights" with Company A, agreeing on a total compensation of 15 million yuan. By the end of 2023, Company A successfully received all the funds, but did not timely report taxes.

In February 2024, the tax authorities notified Company A to submit relevant documents related to land reclamation. Company A promptly submitted: a government meeting minutes of participating in project coordination meetings, a "Land Reclamation Agreement" signed with the land reserves center, and payment vouchers. The tax bureau replied the following month that Company A's failure to submit a tax-free application in a timely manner and lack of necessary approval documents from government departments for urban planning or approval by the State Council, provincial-level governments, or their ministerial departments meant that it did not meet the tax-free regulations. It then required Company A to make up for taxes and pay land appreciation tax of 1.14 million yuan, starting from December 28, 2022, and imposing a penalty of 2,000 yuan for failure to make timely reports. Company A then submitted a tax-free application again, but there is still a dispute between the two sides regarding approval documents.

From the above, it can be seen that Company A believes that according to the relevant regulations of the "Income Tax temporary Regulations", its compensation received for land reclaimed by the government should be exempt from land income tax. However, the tax bureau believes that Company A failed to submit its tax-free application in a timely manner and cannot provide necessary approval documents, so it cannot enjoy tax exemption. To clarify this dispute, we need to delve into the current legal reasons for land reclamation by the government and its approval procedures, as well as the applicable conditions for tax exemption and appreciation tax relief. We will analyze and explore them one by one in the following paragraphs.

02

What are the legal reasons and procedures for land requisition?

In the case above, company A believes that its land has been requisitioned for national construction needs and meets the conditions for exemption from tax, while the tax authorities believe that it has not obtained the corresponding approval procedures and cannot enjoy the exemption. So what are the legal reasons for the government to requisition land and what procedures need to be followed?

Ⅰ.What are the legal reasons for the government to requisition state-owned land?

Article 358 of the Civil Code stipulates that "before the expiration of the term of the right to the use of the land, if the land is needed for public interests and it is necessary to withdraw the land before the expiration date, compensation should be given to the buildings and other immovable properties on the land according to Article 243 of this Law, and the corresponding land use permit fee should be returned." Therefore, the government can withdraw land for public interests. According to Article 58 of the Land Management Law: "The land use right may be revoked by the relevant government department in charge of natural resources under the approval of the original approval land use people's government or the government with approval authority, if any of the following situations occurs: (1) for the purpose of implementing urban planning for renewal of old urban areas and other public interests, which require the use of land; (2) when the term of use agreed upon in the land leasing and other paid use contracts expires, and the land user does not apply for renewal or is not approved for renewal; (3) when units are abolished or moved, and stop using the state-owned land allocated originally; (4) roads, railways, airports, and mines that are approved for cancellation. According to the relevant provisions of Article 26 of the Urban Real Estate Management Law, if a person obtains the right to the use of land through the transfer method for real estate development, they must develop the land in accordance with the land use contract. If there is a delay in development due to force majeure or the actions of the government or government departments or necessary preliminary work for development, they may be able to revoke the land use right without compensation after two years. In addition, according to relevant laws and regulations, there are also state-owned land use rights that should be revoked without compensation: state-owned land use rights without the right to approve, exceeding approval authority, approval of land use purposes that do not conform to overall land use planning, or use of land that does not conform to approval purposes.

Ⅱ.The approval procedures for the requisition of state-owned land are as follows.

In the case of the reason for requisition being public interests, the government needs to follow certain approval procedures when requisitioning land. According to Article 58 of the Land Management Law, the approval procedures are mainly submitted to the people's government at the same level for approval by the relevant government departments for natural resources. The approval authority is the original approval land use people's government or the people's government with the corresponding approval authority (due to the possible changes in administrative divisions). In practical operations, this process is usually carried out by the district-level natural resources department through internal approval processes, submitting a request to the district people's government, such as "The Planning and Natural Resources Bureau of XX District to the People's Government of the District".

Of course, different regions may have more detailed regulations based on this. For example, "Notice of the Office of the Municipal People's Government of Xinzhou City on Printing and Implementing the Provisional Management Measures for Land Requisition and Reutilization in the Urban Area of Xinzhou City" (Xinzhou City Government Circular No. 144) stipulates that land that needs to be legally returned for public welfare undertakings and urban infrastructure construction should go through a series of processes including formulating plans, organizing hearings, plan approval, issuance of decisions, cancellation of registration, and land inventorying. Among them, the plan approval link specifically points out that "the Municipal Land Resources Bureau shall submit the "Plan to reclaim the right to use state-owned construction land" together with the results of the hearing to the people's government for approval."

In summary, land requisition should strictly follow the approval procedures according to legal regulations: The relevant department for natural resources should send a letter of request to the original approval land use people's government or people's government with approval authority, and the latter should decide whether to approve. Given that the land requisition in this case is for remuneration due to public interests, I will focus on exploring how to apply the exemption policy for land value-added tax in this scenario.

03

The conditions for enjoying the exemption of land value-added tax are as follows

Discussed the relevant policies on land reclamation. Specifically in the case, how are the tax exemption conditions for increased value of land disputed by both parties stipulated?

Ⅰ.Is land reclamation subject to the taxation of real estate value-added tax (TVAT)?

According to Article 2 of the Interim Regulations on the Taxation of Land Value-Added Tax, "units and individuals that transfer the national land use right, buildings, and other attached properties (hereinafter referred to as the transfer of real estate) and obtain income are the taxpayer of the land value-added tax (hereinafter referred to as the taxpayer) and shall pay the land value-added tax in accordance with these regulations." Regarding whether the nationalization of real estate by the government constitutes a transfer of real estate, there is currently controversy in the academic circles because it is difficult to simply state that the aforementioned transfer scenario occurs when the land use right is revoked and cancelled. However, in practical tax collection management, tax authorities generally believe that it falls within the scope of taxation.

Ⅱ.Analysis of Real Estate Exemption from Value-Added Tax for Land Reclamation upon Reclamation Due to National Construction.

The exemption of land value-added tax for the requisitioning or retrieval of real estate for national construction according to Article 8, Paragraph 2 of the Regulations, and Article 11 of the Interim Rules for the Implementation of the Land Value-Added Tax Regulations stipulate that "the requisitioning or retrieval of real estate for national construction according to law refers to the real estate that has been approved for requisitioning or retrieval due to the implementation of urban planning or national construction." According to the above provisions, units and individuals that meet the exemption provisions must report and verify with the tax authorities in the local real estate location. However, there are four points that should be focused on in the exemption application:

1. Determination of the retrieval subject

According to the Notice of the Ministry of Land and Resources, the Ministry of Finance, the People's Bank of China, and the China Banking Regulatory Commission on Issuing the "Regulations on the Management of Land Reserve" (2018 revision) (No. 17 of 2017), Article 1 stipulates that "the management of land reserve work is uniformly managed by the land resources administrative department, and the land reserve institutions undertake the specific implementation work of land reserve. The land reserve institutions should be an institution with independent legal personality established by the county level people's government,Belonging to the competent department of land and resources within the administrative jurisdiction, and responsible for the land reserve work within their jurisdiction." The new regulation after the institutional reform has changed the supervisory department, and the land reserve work is under the supervision of the natural resources department. Therefore, when reviewing the retrieval agreement, taxpayers should ensure that the contract party is the natural resources department or the local land reserve center. If there is any other urban investment company or other government agencies involved, they should verify whether they have obtained legal authorization to represent the government for land requisitioning work.

2. Definition of the reasons for requisitioning or relocation

In addition to national construction reasons, other reasons for land requisitioning, retrieving, and property transfer will no longer enjoy exemption treatment. However, the concepts of "urban planning implementation" and "national construction" are relatively broad and vague, which has caused many disputes in practice.

3. Categories of exemption behavior

The exemption policy applies to two types of behavior: one is that real estate is requisitioned or retrieved and compensation is received; the other is that taxpayers transfer their original real estate and receive income due to relocation. The distinction between these two types of behavior is crucial for determining whether the approval procedures are compliant and whether they can enjoy exemption. In this case, the requisitioning of A Company's land should be classified as the former.

4. The necessity of exemption application

This point is often overlooked by taxpayers. According to the relevant provisions of land value-added tax, taxpayers should handle the payment procedures within seven days after the transfer action occurs. However, in actual operation, some taxpayers may fail to timely declare or apply for exemption after signing the "Retrieval Agreement on Land使用权" and may violate relevant provisions of the Tax Administration Law, which may lead to fines imposed by the tax authority. Therefore, when real estate is retrieved, taxpayers not only need to pay attention to the retrieval subject and reason but also need to pay attention to timely completing exemption application procedures.

In summary, whether A Company's land retrieval meets exemption conditions needs to comprehensively consider multiple factors such as retrieval subject, reasons for retrieval, and exemption process requirements.

04

Does the case meet the conditions for tax exemption?

Based on the above land reclamation policy and tax exemption conditions analysis, in the case described, company A's 7,500 square meter factory building and corresponding land were reclaimed by the government. Does this meet the tax-exempt conditions?

As stated in the case, Company A's land was reclaimed due to the need for the city government's ring road construction, and it signed a reclamation agreement with the district land reclamation center. The submitted materials included a government meeting minutes of the project coordination meeting and a "contract for the reclamation of state-owned land use rights" with the land reclamation center and payment voucher. From the perspective of the reclaimer, the land reclamation implementation plan was reviewed and approved by the district government, and ultimately signed a reclamation agreement with the district land reclamation center, which meets the subject matter condition for government land reclamation; from the perspective of the reasons for reclamation, it is related to the construction needs of national construction. Both the taxing party and enterprise agree on these two points. However, the taxing party requires to submit "documentation of a construction project approved by the city planning department or by the State Council, provincial level governments, or relevant departments of the State Council through urban planning" materials, but the enterprise is indeed unable to provide them. So, is the requirement of the taxing authority reasonable and legal?

Firstly, from the perspective of legality, the basis for the tax authority's request is Article 4 of the Notice on Some Issues Concerning Land Value Addition Tax (Finance and Taxation [2006] No. 21), which states that "relocation due to urban development planning" refers to situations where relocation is determined by the government or government relevant authorities based on approved urban planning for purposes of urban renewal or to address environmental pollution and disturbance caused by enterprises, such as excessive emissions of waste gases, wastewater, waste residue, and noise, that may affect the daily life of city residents. "Relocation due to the needs of national construction" refers to situations where relocation is carried out due to the approval of construction projects by the State Council, provincial-level governments, or relevant departments under the State Council. However, it needs to be pointed out that this clause only applies to "relocation due to urban development planning and the needs of national construction, and exemption or reduction of land value addition tax for taxpayers who transfer real estate voluntarily." In this case, Company A did not obtain income from the transfer of real estate due to relocation, but rather was reclaimed land and received compensation income due to the national construction needs. Therefore, requiring Company A to submit approval documents based on relocation income exceeds the scope of the provision.

Secondly, from the perspective of reasonableness, it is unreasonable to require Company A to provide urban planning or provincial-ministerial approval documents. As a private enterprise, Company A cooperating with the government's land acquisition work is a law-abiding act. Although there is a statutory internal approval process for government project development, urban planning and provincial-ministerial approval documents are internal process documents that it is difficult for enterprises to obtain directly. It is clearly impractical to require companies that have had land reclaimed by the government to obtain these documents.

Therefore, based on these considerations, we believe that Company A should submit documents in accordance with the relevant regulations of the Land Management Law, namely an approval document submitted to the District People's Government by the District Natural Resources Bureau. This document is a prerequisite for land reclamation, and Company A can apply to the District Natural Resources Bureau for assistance in providing it, in order to apply for and obtain exemption or reduction of land value addition tax for taxation declaration purposes. This approval document is sufficient to prove that the main body and reason for land reclamation are due to national construction needs, meeting the exemption审核requirements of the tax authority.

Conclusion

Starting from a case where a company's land was prematurely reclaimed by the government and required to pay taxes by the tax authorities, this article firstly delves into the legal reasons for land reclamation and the approval procedures required, followed by a detailed analysis of the applicable conditions for tax-free policies related to real estate value-added tax. After considering the specific circumstances of the case, this article points out that there are unreasonable requirements from the tax authorities, and provides corresponding suggestions for enterprises accordingly.

It is not difficult to see from the case that enterprises should pay high attention to the tax risks of significant matters such as land reclamation, ensure timely filing of tax returns and determine whether they meet the conditions for exemption. When encountering tax disputes between enterprises and tax authorities, enterprises should be objective and calm, conduct in-depth analysis of the facts involved, fully understand relevant legal provisions and tax policies.