Editor's Note: Among the types of offences for which administrative penalties are imposed through tax inspection procedures, tax evasion accounts for a high proportion, has heavy consequences and is controversial, and various factors make the determination of tax evasion a hot tax issue that has attracted much attention. For the understanding of some tax laws and regulations, tax enterprises often have deviations, imperfections in tax laws, the emergence of new business models, etc., which will inevitably cause disputes between tax enterprises. Such as the ‘Tax Administration Law,’ Article 63, ‘does not list less income’ behaviour, such as taxpayers due to disputes over the understanding of tax policy and law, can a blanket qualification for tax evasion? Based on a case of tax evasion penalty being revoked, this paper discusses the constitutive elements of tax evasion, the burden of proof, the standard of proof and other issues, and points out that cases in which there are cognitive differences between the two sides of tax enterprises on a tax-related matter should not be unilaterally qualified as tax evasion, which can make the determination of tax evasion and the penalty more in line with the requirements of the principle of equal responsibility and punishment.

I. Introduction of the case: a company's tax evasion penalties were cancelled case

(I) Basic facts of the case

A company lent money to two natural persons, who failed to pay the interest overdue, so the company sued the two natural persons to the court, and the court made a judgement confirming the amount of interest payable by the two natural persons, but the company did not actually recover the overdue interest confirmed by the court judgement. Whether the company should make a tax declaration on the overdue interest receivable involving the civil case triggered a dispute between the tax authorities and the enterprises. The tax authorities believed that when the judicial instrument came into effect, even if the interest was not received the enterprise should declare tax, while the enterprise believed that it should not declare tax if it had not received it, based on the Accounting System for Financial Enterprises issued by the Ministry of Finance and the Announcement of the State Administration of Taxation on the Recognition of Interest Income from Loans to Financial Enterprises (Announcement of the State Administration of Taxation No. 23 of 2010), which are relevant regulations. For this reason, the Tax Bureau also specifically requested instructions from the higher authorities on this tax-related issue. The Tax Inspection Bureau finally issued the Decision on Administrative Penalty for Taxation, finding that the Company had committed tax evasion by way of false tax declaration. The company did not accept the above administrative penalty decision and filed an administrative litigation, requesting to revoke the administrative penalty decision.

The question that aroused reflection was whether it was fair and just in accordance with the law to find that the company had tax evasion intentionally just because there was a dispute between the taxpayer and the enterprise on the legal understanding of a certain type of matter.

(ii) Court Opinion

The court of first instance held that, as the tax administrative organ was unable to determine whether the overdue interest not recovered by the plaintiff company should be subject to business tax, the penalty decision found that the plaintiff company's failure to file a tax return on the overdue interest was tax evasion in the form of false tax return, which was a case of factual ambiguity and insufficient evidence, and ruled to revoke the penalty decision.

The Court of Second Instance held that there was a dispute in the legal understanding of the parties as to whether the company's overdue interest receivable in cases involving natural persons was taxable. Therefore, the company's failure to file a tax return on the overdue interest was not sufficient to conclude that it had the intention of filing a false tax return. The Tax Inspection Bureau found that the company had committed tax evasion by making a false tax declaration and imposed an administrative penalty accordingly, which was an error in the application of the law, and the penalty decision should be revoked and upheld in the second instance.

II. The constituent elements of tax evasion include subjective intent and the tax authorities bear the burden of proof

Constituent elements of tax evasion, burden of proof and standard of proof are the logical starting points for analysing the accuracy or otherwise of the tax authorities' characterisation of tax evasion cases. Paragraph 1 of Article 63 of the Tax Administration Law stipulates, ‘A taxpayer who forges, alters, conceals or destroys without authorisation the account books and vouchers, or overstates the expenditure or omits or understates the income on the account books, or who refuses to declare or makes a false tax declaration after being notified to do so by the tax authorities, and who fails to pay or underpays the tax payable, is a tax evader. Where a taxpayer evades tax, the tax authorities shall recover the unpaid or underpaid tax, late payment fees, and impose a fine of not less than fifty per cent and not more than five times the unpaid or underpaid tax; and where a crime is constituted, criminal liability shall be investigated according to law.’ The article connotes the four constitutive elements of tax evasion, which are subject element, fault element, behavioural element and consequence element.

In practice, it is the fault element that triggers more disputes. From the point of view of the meaning of Article 63(1) of the Tax Administration Law, the terms ‘forgery, fabrication, concealment, unauthorised destruction, refusal to declare, false declaration’ and other terms can connote the subjective intentional element of the parties concerned, but ‘over-listing of expenditures’ The term ‘not listed, less income’ is more neutral, there are taxpayers objectively cause the result but no tax evasion subjective intent, similar to the aforementioned case of a dispute over a substantive issue and thus cause not listed less income, is it a blanket determination that constitutes tax evasion? The answer is no. The provisions of Article 63 of the Tax Administration Law and the reply letter of the State Administration of Taxation (General Taxation Letter [2016] No. 274 and General Taxation Letter [2013] No. 196) all connote that the subjective intention of the taxpayer is a necessary condition for tax evasion. Therefore, if the taxpayer does not have the subjective intention of tax evasion, the tax authorities cannot determine that the taxpayer constitutes tax evasion.

The question comes again, since the determination of tax evasion needs to have the subjective intent element, then who will bear the burden of proof? Some tax authorities may cite Article 33(2) of the Administrative Penalty Law, which states, ‘If the party concerned has sufficient evidence to prove that there is no subjective fault, no administrative penalty shall be imposed. If the laws and administrative regulations provide otherwise, the provisions thereof shall apply’, and they think that the administrative penalty shall be based on the principle of presumption of fault, and the presumption of no-fault shall be the exception. This part of the tax authority believes that tax evasion cases should apply the presumption of fault to taxpayers, i.e., taxpayers are required to produce evidence to prove that they are not subjectively at fault. This is obviously a wrong understanding of the tax evasion case, since the subjective intent is the constituent element of tax evasion, then the scope of the administrative organ's burden of proof should of course include the content of the whole elements of the constituent element of tax evasion, and should be applied to the taxpayer no-fault presumption. Xiamen Local Taxation Bureau on the issuance of the ‘taxpayers to apply the “no-fault presumption” principle of the guiding opinions of the notice (Xiamen Local Taxation Fa [2009] No. 104) pointed out that, “taxpayers have the right to prove that they have no unlawful acts or minor unlawful acts, and do not have the obligation to take the initiative to prove their own unlawful acts” and “the obligation to prove their own unlawful acts”. The obligation of unlawful behaviour’, “cannot replace the evidence through the presumption of conclusion”, etc., is to prove that the taxpayer does not need to prove that he is not at fault, if the tax authorities fail to prove sufficiently, should bear the adverse consequences of losing the case. Therefore, against the tax authorities to make tax evasion characterisation of the key to accuse the tax authorities of the burden of proof of the performance of the incomplete, which is the value of the aforementioned elements of tax evasion embodiment.

So far, it has been clear that the elements of tax evasion include subjective intent, and the tax authorities bear the burden of proof. Then the tax authorities to provide evidence to what extent can be concluded? This is the problem of the standard of proof, the judge judge whether the tax authorities have fulfilled the burden of proof is an important standard of evidence. In tax evasion cases, the prerequisite for qualifying a taxpayer as a tax evader is a negative tax obligation, so all the constituent elements of tax evasion must reach the level of clear facts and sufficient evidence. In addition, the means used by the perpetrator to evade tax obligations also need to reach the level of clear facts and sufficient evidence.

Only by clarifying what the constituent elements of tax evasion include, what impact it has on the burden of proof borne by the tax authorities, and what standard of proof should be met by the tax authorities to bear the burden of proof, can a strong legal defence and expression of professional opinion be made in tax evasion cases.

III. Cases in which there are cognitive differences between taxpayers and enterprises in respect of a tax-related matter should not be unilaterally characterised as tax evasion

(i) Whether a tax-related dispute matter is taxable is a difficult and complex tax law application issue.

For a certain tax-related matter, the taxpayer thinks that it should not be taxed, while the tax bureau thinks that it should be taxed, and the fundamental reason for the difference in the views of the two parties is that there is no clear and explicit provision in the tax law. Therefore, whether the tax-related matter is taxable or not is a difficult and complex issue of tax law application, and even professional tax authorities may have inconsistencies and contradictions, and it is difficult to make a conclusion at once within a short period of time. The starting point of the dispute between the tax enterprises in this case is whether the overdue interest receivable by the People's Court should be declared as tax according to the law. In the relevant laws, regulations and normative documents are not clear, or in conflict with each other, the entity disputes do not exist, the enterprise did not declare tax on overdue interest, is due to the tax policy and legal awareness of the existence of disputes caused by the subjective intent not out of tax evasion.

(ii) The presumption of no-fault principle shall be applied to the enterprise's failure to file tax returns.

The principle of no-fault presumption is the basic principle of tax enforcement, the connotation of which is that the tax authorities should presume that the taxpayer is not at fault and in good faith in the absence of direct evidence proving the taxpayer's malice, i.e., the tax authorities have the burden of proof to prove that the taxpayer is at fault. In this case, the tax authorities did not follow the principle of presumption of good faith of taxpayers, and mixed the difficult and complicated issue of whether the overdue interest receivable is taxable with the issue of whether the company constitutes tax evasion or not, and the company's behaviour of not filing tax returns based on its own understanding of the tax law is qualified as tax evasion, which is obviously contrary to the principle of presumption of no fault and undermines the establishment of the relationship of equality and mutual trust.

(iii) This type of enterprise does not constitute tax evasion by ‘not listing less income’ and ‘false tax declaration’.

Constituting tax evasion requires subjective intent, therefore, when the taxpayer's behaviour is ‘not listed less income’, it does not necessarily constitute tax evasion. According to the principle of subjective-objective consistency, the subjective state behind the taxpayer's non-understatement of income should be further examined. If the taxpayer does not list less income is due to the taxpayer does not know the tax law, the tax law understanding error or tax authorities counselling error, then the taxpayer does not have a certain amount of income constitutes the subjective understanding. Awareness is the basis of will, the taxpayer does not have the knowledge that a certain amount of money constitutes income, naturally, there is no subjective will to actively pursue tax evasion by not listing less income. For such cases, the taxpayer does not have the subjective intention of tax evasion and should not be qualified as tax evasion. In this case, the company did not know subjectively that the overdue interest receivable was taxable income, and there was no subjective understanding that the overdue interest receivable was income. According to the principle of presumption of no fault and the rule of fault liability, if the tax authorities want to characterise the company as tax evasion, they should bear the burden of proof to collect direct evidence of the existence of its subjective intent not to understate the income, and if they fail to meet the standard of proof, they should bear the result of losing the case.

The tax evasion of ‘false tax declaration’ should satisfy two elements, the first one is that the taxpayer is subjectively fraudulent, i.e., there is the intention to make up false images, conceal the truth and deceive the tax authorities; the second one is that the taxpayer has implemented the fraudulent behaviours, i.e., the information of the reported tax declaration is obviously not in conformity with the objective facts. If the taxpayer actively cooperate with the investigation, as required to provide all the enterprise's own transaction information, reported tax declaration information and basic transaction information and objective facts are completely consistent, and how come the enterprise fraud tax authorities subjective intent? In this case, the enterprise did not overdue interest receivable for tax declaration, and the tax bureau that overdue interest receivable should be made for tax declaration, the essence of this dispute is not the tax declaration information true or false, but the knowledge and understanding of the tax law of the difference. The taxpayer should be allowed to have his/her own knowledge and understanding on the issue of taxability of difficult and complex economic activities which are difficult to judge even by the tax authorities. The tax authorities have the right to provide tax counselling and tax adjustments to taxpayers, but they cannot directly define differences in knowledge and understanding of the tax law as tax evasion violations of false tax declarations.

IV. Conclusion

Through the argumentation in this paper, it can be concluded that the subjective intention of the taxpayer is the constituent element of the tax evasion offence, and the tax authorities bear the burden of proof for it. For the tax enterprise both sides of a tax-related matters there are cognitive differences in the case, can not simply taxable or not difficult and complex application of the problem and the enterprise tax evasion or not, the tax authorities, such as if the tax authorities can not prove that taxpayers have tax evasion subjective intent, such as yin and yang contract, private accounts into the accounts, inside and outside the accounts and other behaviours, then can not be one-sided characterisation of the taxpayer constitutes tax evasion, to allow taxpayers to the difficult and complex application of tax law The taxpayers should be allowed to have their own knowledge and understanding of the difficult and complicated tax law application issues. It is recommended that when facing such tax disputes, the taxpayers should hire professional tax lawyers to intervene in time, provide professional advice and solutions, and maintain healthy communication with all parties in the disputes, so as to effectively solve the tax disputes.