Tax-related issues are inevitable in enterprise bankruptcy proceedings, and it is of great significance for the smooth and efficient operation of the bankruptcy mechanism to appropriately deal with the historical tax arrears of the bankrupts, the nascent taxes and fees during the bankruptcy proceedings, and the post-bankruptcy tax and fee write-off issues. The Announcement of the State Administration of Taxation on Several Matters Concerning Tax Levy and Administration (Announcement No. 48 of 2019 of the State Administration of Taxation, hereinafter referred to as "Circular No. 48") is the main document in the field of tax levy and administration to deal with the tax-related issues in the liquidation procedures of enterprise bankruptcy, and it has responded to some of the convergence issues between the Enterprise Bankruptcy Law and tax levy and administration, but there are still many difficulties in application in practice. However, there are still a lot of difficulties in application in practice. Article 4 of Article 48 stipulates that in the bankruptcy liquidation procedure, the tax authority shall declare to the bankruptcy administrator the taxes owed by the enterprise (including education fees and local education surcharges), late payment fees, penalties, and interest generated by special tax adjustments in the claim filing period, and the author will analyze the common tax-related disputes in the bankruptcy procedure from the content of the four declarations, and the article will discuss the issue of taxes owed in order to provide a basis for the analysis. This article firstly discusses the issue of tax owed for reference.

Article 1 of Document No. 48 defines what is meant by "tax arrears" in its provisions on late payment of tax arrears, "The tax arrears referred to in this article refers to the taxpayers identified in accordance with the provisions of Articles 3 and 13 of the Measures for the Announcement of Tax Arrears (for Trial Implementation) (published by Decree No. 9 of the State Administration of Taxation and amended by Decree No. 44), withholding agents and tax guarantors have failed to pay taxes beyond the period prescribed by tax laws and administrative regulations or beyond the tax period determined by the tax authorities in accordance with the provisions of tax laws and administrative regulations." The taxes in arrears stipulated in the Measures for Announcement of Taxes in Arrears (for Trial Implementation) are taxes not paid by the taxpayers in excess of the time limit, including taxes declared as unpaid in excess of the time limit, taxes that have been approved for extension of time but are still unpaid within the time limit, taxes investigated and remedied but not paid within the prescribed time limit, taxes approved and unpaid in excess of the time limit, and other cases in which the taxes have not been paid within the time limit for tax payment.

The definition of taxes owed is of great significance and determines whether or not the claims in question can be given priority in insolvency liquidation proceedings. The Enterprise Bankruptcy Law stipulates that taxes owed have priority over ordinary bankruptcy claims after bankruptcy expenses and co-beneficial debts, wages and medical, disability and pension expenses owed by the bankrupt to the employees, basic pension insurance and basic medical insurance expenses that should be transferred to the employees' individual accounts, and compensations that should be paid to the employees as stipulated by laws and administrative regulations. In this article, we will discuss several controversial situations in practice as to whether they are "taxes owed".

Dispute 1: Whether the unpaid or underpaid tax caused by the withholding agent's failure to fulfill its withholding obligation is tax owed

The Law on Administration of Tax Collection stipulates that the withholding agent must withhold and pay the tax on behalf of the insolvent enterprise in accordance with the provisions of laws and administrative regulations. This article will discuss whether the unpaid or underpaid tax caused by the bankrupt enterprise as a withholding agent not fulfilling its withholding obligation is the tax owed, the first situation is that the bankrupt enterprise has deducted but not paid or underpaid tax, and the second situation is that the bankrupt enterprise should deduct but not deducted resulting in the unpaid tax.

I. Taxes deducted but not paid or underpaid by an insolvent enterprise belong to taxes owed

In order to improve the efficiency of tax collection and management and reduce the cost of collection and management, the current tax collection and management system has set up the obligation of withholding and payment on behalf of the obligor in some cases. Article 68 of the Tax Collection and Administration Law stipulates that if a withholding agent fails to pay or underpays the tax due within a specified period and is ordered by the tax authorities to pay the tax within a specified period but fails to do so after the expiration of the period, the tax authorities may take measures such as compulsory enforcement and imposition of fines. The bankrupt enterprise, as a withholding agent, has withheld the tax payable by the taxpayer, but has not paid the tax into the treasury within the specified period, and the tax that has been withheld but not paid or underpaid belongs to the tax owed, and enjoys the priority right of compensation in the bankruptcy procedure.

II. Unpaid tax due to withholding by the insolvent enterprise does not belong to tax owed

As mentioned before, the statutory withholding agent has the obligation to withhold and pay the corresponding tax, and according to the provisions of Article 69 of the Tax Collection and Administration Law, if the withholding agent should withhold but does not withhold, or should collect but does not collect the tax, the tax authorities shall recover the tax from the taxpayer and impose a fine on the withholding agent. That is to say, in the case of withholding obligations should be withheld, the formation of tax arrears should be made up by the taxpayer, the tax payment responsibility is restored to the taxpayer. Therefore, the tax arrears caused by the withholding of the bankrupt enterprise do not belong to the "tax owed" by the bankrupt, and do not enter the scope of declaration of claims.

Dispute 2: Are education surcharges and local education surcharges taxes owed?

I. Judicial precedents: education surcharge and local education surcharge are not taxes owed

1. Basic facts of the case

On January 4, 2022, Company A applied to the Intermediate People's Court of City A for bankruptcy and liquidation on the grounds that it could not settle the debts due and obviously lacked the ability to do so, and the court accepted the bankruptcy application on January 25 and appointed the administrator. The competent tax authorities of Company A declared their claims to the administrator on June 7, in which 37,450.6 RMB of education fee surcharge and local education surcharge were declared as tax claims. The meeting of creditors determined that the education surcharge and local education surcharge were ordinary claims, and the tax authority then filed an objection, which was later rejected by the administrator. The competent tax authority filed a lawsuit, requesting to confirm that the education surcharge and local education surcharge belonged to the tax owed.

2. Focus of dispute: whether the education surcharge and local education surcharge belonged to the owed taxes

Competent tax authority: On the one hand, education fee surcharge and local education surcharge have the three characteristics of compulsory, fixed and gratuitous tax, which belong to tax revenue; on the other hand, No.48 clearly stipulates that the tax owed declared by tax authority includes education fee surcharge and local education surcharge, and at the same time, Article 4.3 of the Announcement stipulates that, "the tax owed by the enterprise, the late payment fee, and interest generated by special tax adjustment, the tax authority shall pay the tax owed in accordance with the provisions of Article 4 of the Announcement". The tax authorities shall declare the taxes, late payment fees and interest arising from special tax adjustments owed by the enterprises in accordance with the relevant provisions of the Enterprise Bankruptcy Law, among which the late payment fees and interest arising from special tax adjustments owed by the enterprises shall be declared in accordance with the ordinary bankruptcy claims", which stipulates the contents of the ordinary claims in the form of an enumeration, and the surcharges on education fees and surcharges on local education shall be the taxes owed in comparison with each other.

Company A: According to the principle of tax law, taxes are to be established in accordance with law, and education surcharge and local education surcharge are not taxes prescribed by law. The Education Law, the Decision of the Central Committee of the Communist Party of China on the Reform of the Education System and the Interim Provisions on the Collection of Education Surcharges stipulate that the purpose of education surcharges and local education surcharges is to finance compulsory education, which belongs to the special funds for education, and that the nature of the surcharges and local education surcharges is not a tax but a fee, and therefore the nature of their claims is not that of taxes. Their nature is not a "tax" but a "fee", and therefore the nature of their claims should be ordinary claims.

Court: according to the provisions of the legislative law and the law on the administration of tax collection, the establishment and collection of taxes in our country need to be provided by law, the tax authorities claimed that the company enjoys the education surcharge and local education surcharge claim for the tax owed to the legal basis for the 48th, belongs to the departmental rules and regulations, and the 48th does not explicitly state that the education surcharge, the local education surcharge is a tax claim. In the absence of clear provisions in the law, it is not appropriate to recognize education surcharges and local education surcharges as taxes owed. Although education surcharges and local education surcharges are also collected by the taxing authority, the principle of distinction between taxes and fees should be strictly followed, and there is an essential difference between fees and taxes. Therefore, the competent tax authorities do not support the litigation request.

II. the brief analysis of the case

Whether the education surcharge and local education surcharge belongs to tax, whether it can be declared as the owed tax claims and then priority compensation is controversial. As in the previous case, the bankrupt enterprise and the court analyzed the nature of education fee surcharge and local education surcharge from the perspective of legislation and application of law, and considered that they belonged to "fee" rather than "tax", and therefore should not be included in the scope of claim declaration. On the other hand, there is a view that education fee surcharges and local education surcharges should be included in the scope of taxes owed from the point of view of the interpretation of the provisions of Circular No. 48, which stipulates that "the tax authorities shall declare to the administrator the taxes (including education fee surcharges and local education surcharges, hereinafter referred to as "tax"), late payment fees and penalties owed by the enterprises within the time limit for filing of claims as announced by the People's Courts. Interest arising from special tax adjustments shall also be declared", i.e., in the context of Circular 48, "taxes owed" shall include education surcharges and local education surcharges. Circular 48 then defines the types of claims to be declared, "Taxes owed by the enterprise, late payment fees, interest arising from special tax adjustments, shall also be declared". The tax authorities shall make declarations in accordance with the relevant provisions of the Enterprise Bankruptcy Law for the taxes owed by enterprises, late payment fees and interest arising from special tax adjustments, among which the late payment fees and interest arising from special tax adjustments shall be declared in accordance with the ordinary bankruptcy claims", and the late payment fees and interest arising from special tax adjustments shall be declared as ordinary claims. Education surcharges and local education surcharges belonging to taxes owed should be declared as tax claims and given priority for compensation. Some local guidelines on tax-related matters in bankruptcy also directly refer to the provisions of Circular 48.

Dispute 3: Whether the new taxes after the date of bankruptcy acceptance belong to bankruptcy expenses or co-beneficial debts?

I. Judicial precedent: Taxes after the date of acceptance of bankruptcy belong to co-beneficial debts

1. Basic facts of the case

On December 19, 2018, the People's Court of City A issued a ruling that accepted the bankruptcy liquidation application of Company B and appointed a bankruptcy administrator. And then the competent tax authority of Company B declared tax claims to the administrator. According to the Explanation of Company B's tax arrears in Jinsan System and the details of tax declaration submitted by the tax authority to the administrator, Company B declared tax on its own in the Jinsan System, and before December 19, 2018 (the date of acceptance of the bankruptcy), land use tax of 803,216.4 was generated by tax settlement, and land use tax of 1,169,169.4 was generated by tax settlement from December 20, 2018 to September 30, 2019 ,169,718.6, property tax of 104,047.54, value-added tax of 34,232.58, and urban construction tax of 1,711.63 for a total of four items of 1,309,710.35. After filing the tax return, because Enterprise B did not pay the tax on time in accordance with the law, as of October 18, 2019, the unpaid tax of 803,216.4 incurred a late fee of 87,148.96, and the unpaid tax of 1,309,710.35 incurred a late fee of 76,171.29, with the total of the two items amounting to 163,320.25.On October 30, 2019, the administrator issued the Notice of Review Status of Bankruptcy Claims, recognizing 803,216.4 of land use taxes owed by Company B prior to the date of the bankruptcy acceptance as a valid tax claim, and the remaining taxes of 1,309,710.35 with late fees of 163,320.25 were not recognized as a valid tax claim. With respect to the undetermined portion, the Taxing Authority filed a Letter of Objection on November 15, 2019, and the Administrator issued a Notice of Review Opinion on Bankruptcy Claims on November 29, 2019, determining that the 1,309,710.35 in taxes and 163,320.25 in late fees for newborns of Company B after the date of the bankruptcy acceptance was not a bankruptcy claim. The Tax Bureau did not accept the claim and filed a lawsuit.

2. Focus of dispute: whether the new taxes after the date of bankruptcy acceptance were bankruptcy expenses or co-beneficial debts?

Tax Bureau: Although Company B filed for bankruptcy, the qualification of taxpayer still existed, and there were still new taxable behaviors that generated new taxes. Company B's self-declaration of taxes in the Jin San system also shows that new arrears and late fees were generated after the bankruptcy was accepted. According to the Enterprise Bankruptcy Law and the legislative spirit of the Tax Administration Law, the new taxes and late fees owed by Company B belong to the inevitable debts, which should be recognized as co-beneficial debts and be discharged at any time.

Company B: Bankruptcy procedure is a special legal procedure, before the distribution of bankruptcy property, what Company B can pay are bankruptcy expenses and co-beneficial debts, which are of the nature of the expenses to ensure that the bankruptcy procedure can be carried out normally, while the taxes do not have such a function; bankruptcy procedure is supposed to be a one-time ultimate liquidation of all creditors in the case of insolvency, no matter whether it is the state claims or private claims, and the rate of payment is generally low. The rate of payment is generally low. Therefore, in the bankruptcy procedure, except for the bankruptcy expenses and co-benefit debts, the bankruptcy property should be compensated in accordance with the distribution plan of bankruptcy property adopted by the creditors' meeting and in accordance with the order of the law, and the request of the Tax Bureau to be compensated in preference to the other claims is obviously against the principle of fairness, and it will greatly damage the interests of the other creditors.

Court of First Instance: The Enterprise Bankruptcy Law and judicial interpretations, taxes and other relevant laws and regulations did not make clear provisions on the nature of newborn taxes after the acceptance of enterprise bankruptcy. The taxes owed by Company A after the bankruptcy acceptance until September 30, 2019 are not bankruptcy claims or bankruptcy expenses, but should be regarded as co-beneficial debts.

Court of Second Instance: regarding the characterization of the nascent taxes after the enterprise enters into bankruptcy liquidation procedures, our laws have not made specific provisions at present. According to the provisions of the Law on Administration of Tax Collection and Management and its related laws and regulations, it is a legal obligation to pay taxes in accordance with the law after the establishment of an enterprise until its deregistration. Taxes such as land use tax and property tax generated in the process of bankruptcy liquidation, as well as property tax, value-added tax, education surcharge and other taxes generated by the disposal of assets and leasing of storefronts are all expenses paid or necessary debts assumed for the common interests of all creditors in the bankruptcy proceedings, the main purpose of which is to safeguard the smooth progress of the bankruptcy proceedings, and, in terms of the effect of its use, it can promote the interests of all creditors, and is in line with the provisions of China's Enterprise Bankruptcy Law. Its main purpose is to ensure the smooth progress of the bankruptcy proceedings, and in terms of the effect of utilization, it can promote the interests of all creditors. It has the same essential attributes as the "bankruptcy expenses" and "co-beneficial debts" stipulated in Article 41 and Article 12 of China's Enterprise Bankruptcy Law, and belongs to the categories of "bankruptcy expenses" and "co-beneficial debts". The Court of First Instance confirmed that the treatment of "common interest debt" was correct, and the Court upheld it.

II. Brief analysis of the case

After an enterprise enters into bankruptcy liquidation procedures, new taxes may be incurred due to holding real estate, continuing to fulfill the contract, etc. Article 48 stipulates that "during the period from the date when the people's court decides to accept the bankruptcy application to the date when the enterprise is canceled, the enterprise shall accept the tax administration of the tax authorities and fulfill the relevant obligations stipulated in the tax law. If taxable circumstances occur in the bankruptcy procedure, tax declaration shall be made in accordance with the regulations", but for the nature of the new tax arising from the bankruptcy procedure and the application of the liquidation of what, the "Enterprise Bankruptcy Law" and the relevant laws and regulations on tax collection and management have not been clearly stipulated.

In the author's opinion, although the enterprise has entered into bankruptcy liquidation procedure, the main body still exists, and the newly generated taxable behavior should still fulfill the tax obligation, and the focus of the problem is that these new taxes belong to the bankruptcy expenses, co-beneficial debts or other bankruptcy claims. The following case will be analyzed as an example.

1. What is a bankruptcy claim: Article 107(2) of the Enterprise Bankruptcy Law stipulates that "after a debtor is declared bankrupt, the debtor is called a bankrupt, the property of the debtor is called bankruptcy property, and the claim on the debtor that the people's court accepts the bankruptcy application is called a bankruptcy claim". Therefore, one of the conditions for the determination of bankruptcy claim is whether the creditor enjoys the claim at the time of acceptance of the bankruptcy case. Therefore, the newborn tax of Enterprise B after the acceptance of the bankruptcy case is not a bankruptcy claim.

2. What are bankruptcy expenses: The scope of bankruptcy expenses stipulated in Article 41 of the Enterprise Bankruptcy Law is, firstly, the litigation expenses of the bankruptcy case, secondly, the expenses of managing, realizing and distributing the debtor's property, and, thirdly, the expenses of the administrator's execution of his duties, his remuneration and the expenses of the staff employed. Article 43, paragraph 4, provides that where the debtor's property is insufficient to meet the costs of insolvency, the administrator shall request the court to terminate the insolvency proceedings. That is, the bankruptcy expenses are to maintain the bankruptcy proceedings and necessarily incurred, if the enterprise can not pay the bankruptcy expenses, the bankruptcy proceedings can not be carried out, and in this case, enterprise B bankruptcy acceptance of the new tax is not a necessary condition to maintain the bankruptcy proceedings, regardless of whether enterprise B into the bankruptcy proceedings, are necessarily incurred, so this kind of new tax does not belong to the bankruptcy expenses.

3. what is the common interest debt: from the Enterprise Bankruptcy Law, Article 42 of the scope of the common interest debt can be seen, the common interest debt occurs for the purpose of protecting the common interests of all creditors. The collection of tax is legal and mandatory, company B has the legal obligation to pay tax according to law before deregistration, in the case of laws and regulations do not provide exceptions, such obligation is not exempted from the bankruptcy proceedings of the enterprise. In this case, the tax shall be applied to Article 42(4) of the Enterprise Bankruptcy Law, which belongs to other expenses incurred for the continuation of the debtor's business, and can be recognized as a co-beneficial debt. According to article 43, paragraph 1, of the Enterprise Bankruptcy Law, the co-beneficial debt shall be discharged by the debtor at any time.