Editor's Note:Export tax rebates are an important tax incentive implemented by the state to encourage exports and enhance the international competitiveness of domestic products. However, in practice, some export enterprises are denied export tax refund (or exemption) treatment because their upstream suppliers trigger the tax authority’s “letter inquiry” (函调) mechanism, and the reply to such inquiry is deemed “abnormal.” As a result, the tax authority may require the enterprise to treat the export as deemed domestic sales, and to pay value-added tax (VAT) and related surcharges accordingly.
Through case analysis, this article examines the different outcomes of the inquiry mechanism and the varying risk implications. It also proposes response strategies for export enterprises to safeguard their legitimate rights and interests.
I. Case Introduction: A Single “Abnormal Inquiry Notice” Puts an Enterprise in a Tax Reassessment Dilemma
On September 28, 2025, an export enterprise received a Notice of Tax Matters issued by its competent tax authority. The notice stated that certain export goods of the enterprise were determined not to be eligible for export tax refund (or exemption). The company was required to declare and pay the relevant VAT and surcharges within 10 days of receiving the notice. Failure to comply within the deadline would result in handling in accordance with the provisions of the Tax Collection and Administration Law of the People’s Republic of China.
Upon verification, the root cause of this determination was that the tax authority had sent an inquiry letter to the tax authority supervising the upstream supplier, a furniture company. The reply stated that the invoices involved fell under circumstances where tax refund (or exemption) should not be granted, specifically:
1.The VAT special invoices under investigation were false or forged;
2.The supplier claimed to sell self-produced goods, but its production equipment and tools were incapable of producing such goods.
The legal basis cited was Article 5(9) of the Announcement of the State Administration of Taxation on Issues Concerning the Administrative Measures for VAT and Consumption Tax on Exported Goods and Services (SAT Announcement No. 12 of 2013).
According to this provision, if the competent tax authority of the exporter determines that the supplier’s production equipment and tools are incapable of producing the allegedly self-produced goods, the related export goods shall not qualify for export tax refund (or exemption) and instead shall be subject to VAT as domestic sales. On this basis, the tax authority required the enterprise to make supplementary tax payments.
This case reflects a growing regulatory trend in export tax rebate administration: risks originating in the upstream supply chain may be transmitted downstream to foreign trade enterprises. “Problematic invoices” or negative findings regarding the production capacity of upstream suppliers may place otherwise compliant trading companies at risk of tax reassessment or even legal liability.
II. Different Inquiry Reply Outcomes Lead to Different Risk Levels
During export tax rebate review, the “letter inquiry” mechanism is an important regulatory tool used by tax authorities. When suspicious export transactions are identified, the tax authority at the place of tax refund sends an inquiry letter to the tax authority supervising the upstream production enterprise to verify the authenticity of production, transactions, and transportation.
According to the Operational Guidelines for Export Tax Refund (Exemption) Administration of Tax Authorities Nationwide (Version 2.0) (SAT Document No. 48 [2018]), the tax authority receiving the inquiry may issue four types of replies, each leading to different consequences:
1. “Normal Business”
If the business is verified to be legitimate, the reply will state “normal business.”
Upon receiving such a reply and considering other verification results, the tax authority at the place of refund may process the export tax refund (or exemption) in accordance with regulations.
2. “Verification Not Yet Completed”
If the verification cannot be completed within 60 days, the reply will state “verification not yet completed.”
In this case, the tax authority handling the refund will temporarily suspend the refund process until a follow-up reply is issued.
3. “Circumstances Where Refund (Exemption) Should Not Be Granted”
If tax-related violations or crimes are identified, the reply will indicate “circumstances where refund (or exemption) should not be granted.”
In such cases:
Export tax refunds shall not be granted if not yet processed;
Refunds already granted must be recovered;
If the transaction should be subject to VAT, it shall be treated as domestic sales;
If suspected tax fraud is involved, administrative or criminal liability may be pursued.
4. “Suspension of Refund Processing”
If suspected tax violations exist but are not yet confirmed, the reply may state “refund processing suspended.”
In this situation:
The tax authority temporarily halts the refund process;
If refunds have already been approved, other pending refunds of the enterprise may also be temporarily withheld;
The enterprise may provide guarantees for the difference where necessary;
Once the suspicion is cleared, refunds may proceed or guarantees may be released; if violations are confirmed, legal action will follow.
In practice, if the upstream manufacturer fails to cooperate with the investigation, has deregistered, or cannot be contacted, the export enterprise may face long-term suspension or even permanent denial of refunds. More seriously, if the inquiry reveals suspected illegal activities such as issuing false VAT invoices, the administrative and criminal risks may be transmitted directly to the foreign trade enterprise. In such cases, the tax authority may refer the matter to inspection departments, potentially leading to administrative penalties or criminal proceedings.
III. Response Strategies for Export Enterprises Facing Inquiry Risks
When confronted with a tax authority’s inquiry regarding export tax refunds, enterprises should formulate response strategies from three perspectives: facts, law, and principles, in order to effectively mitigate risks and safeguard their legitimate rights and interests.
1. Fact-Finding: Ensuring Transaction Authenticity and Document Consistency
In communications with tax authorities, enterprises should proactively explain the specific operational process of the business, including the background, purpose, and commercial rationale of the transaction. For special trade arrangements or complex business models, detailed explanations can help tax authorities understand the substance of the transaction, thereby reducing risks arising from misunderstandings or information asymmetry.
On the one hand, enterprises should conduct a comprehensive review of documents based on each customs declaration, ensuring their completeness and authenticity. These documents include, but are not limited to:
Contracts
Invoices
Packing lists
Bills of lading
Export customs declarations
Export tax refund declaration forms
Information across these documents—such as product names, quantities, amounts, and specifications—should be consistent to avoid triggering inquiries.
On the other hand, enterprises should organize evidence according to each transaction. This involves documenting the entire process of each export transaction, including procurement, production, sales, transportation, customs clearance, and tax refund claims. By aligning supporting evidence with the transaction process, enterprises can clearly demonstrate the authenticity of each transaction.
2. Legal Arguments: Upholding the Principles of “Favoring the Taxpayer” and “Presumption of Innocence”
Tax authorities should not determine tax fraud solely based on internal inquiry replies.
Although inquiry replies may contain conclusions such as “the invoice is falsely issued,” these conclusions merely provide investigative leads. The tax refund authority cannot rely solely on such replies to determine that false invoicing occurred or that export tax refund fraud has been committed.
The fundamental requirement for export tax refunds is the actual export of genuine goods. If, after review, the tax authority cannot produce evidence overturning the materials submitted by the enterprise, it should, based on the principle favoring the taxpayer, recognize that the enterprise’s materials are complete and authentic and grant the export tax refund.
In practice, responding tax authorities often face tight deadlines and difficulties verifying upstream production enterprises. To avoid state tax losses and mitigate responsibility, they may adopt overly stringent standards when issuing replies. However, such practices may undermine taxpayer rights and violate the principle of presumption of honesty for taxpayers.
3. Principle of Protection of Legitimate Expectations: Addressing “Repeated Inquiries” and Changing Conclusions
Under administrative law, if an administrative counterpart reasonably relies on an administrative authority’s prior act and takes action based on that reliance, and the authority later revokes or changes the act causing losses, compensation should be provided.
The principle of protection of legitimate expectations is particularly relevant in cases of repeated inquiries. Once a tax authority has approved a refund, taxpayers have sufficient reason to trust that the authority’s verification and investigation were adequate and that their refund claim complied with export tax refund regulations.
If the responding authority initially replies “normal business” after verification, but later changes the conclusion to “circumstances where refund should not be granted,” such conduct may violate the principle of protection of legitimate expectations.
Conclusion
When facing the risk of “deemed domestic sales” triggered by abnormal inquiry replies, export enterprises may respond from three angles: fact clarification, legal defense, and protection of legitimate expectations.
By strengthening factual foundations—ensuring transaction authenticity and document consistency—enterprises can establish credible evidence. Through legal defenses emphasizing the principle favoring taxpayers, they can challenge overly rigid administrative conclusions. By invoking the principle of legitimate expectation, they can resist arbitrary changes in administrative actions.
At the same time, enterprises should strengthen supply chain risk management and carefully select trading partners to reduce the likelihood of inquiry risks arising at the source.

Editor's Note: Recently, a WFOE company under the red-chip structure of a listed company in the US stock market was required to pay a withholding tax of more than 547 million yuan at a rate of 10% when paying dividends to Hong Kong companies, which triggered a heated discussion. According to the tax agreement between China and Hong Kong, if a Hong Kong resident enterprise holds more than 25% of the shares of a mainland resident enterprise and the Hong Kong company meets the conditions of "beneficial owner", the withholding tax paid by the mainland company to it can be applied at a preferential tax rate of 5%, and if it does not meet the conditions, the withholding tax of 10% is required. Setting up a holding company in Hong Kong is the mainstream model for the structural design of enterprises listed overseas in China, and an accurate grasp of the conditions of beneficial owners is related to the overall tax burden of the structure. Based on the above cases, this paper analyzes the conditions for determining the beneficial owner, and interprets the influence of the latest development of "Pillar II" on the red chip structure.


1. Case: Not meeting the conditions of 5% preferential tax rate, and being required to pay back withholding tax of more than 547 million yuan.
According to the financial report issued by the company, WFOE, a red-chip company, received a notice from the tax authorities that the applicable tax rate for profit dividends paid to Hong Kong companies should be adjusted to 10% instead of the original preferential tax rate of 5%, and accordingly the withholding tax should be paid back to 547.9 million yuan.
Like most technology companies listed in Hong Kong and US stocks, the company adopts the red-chip VIE structure, with Cayman as the main body of listing, and the China resident company WFOE is controlled by the Hong Kong company and the mainland operating company is controlled by the WFOE agreement. In terms of dividend distribution, according to the Arrangement between the Mainland and the Hong Kong Special Administrative Region on Avoidance of Double Taxation and Prevention of Tax Evasion on Income, if a Hong Kong company directly holds more than 25% of the shares of a mainland company and the Hong Kong company meets the conditions of beneficial owner, the withholding tax deducted by the mainland company at the time of dividend payment can enjoy a preferential tax rate of 5%. In practice, the condition of shareholding ratio is easy to achieve, and the key point lies in the identification of beneficial owners. If it does not meet the identification conditions of beneficial owners, it will face the problem of paying back taxes.
II. Accurately understand and grasp the conditions for the identification of beneficial owners
The preferential treatment of dividends, interest and royalties in tax treaties basically involves the identification of beneficial owners. In order to standardize the application of the concept of "beneficial owner" in terms of tax treaties, the State Administration of Taxation has successively promulgated the Notice of State Taxation Administration of The People's Republic of China on How to Understand and Identify the "beneficial owner" in tax treaties (Guo Shui Han [2009] No.601, which has been repealed) and the Announcement of State Taxation Administration of The People's Republic of China on Identifying the "beneficial owner" in tax treaties (State Taxation Administration of The People's Republic of China Announcement No.30, 2012, which has been repealed). In February 2018, the State Administration of Taxation issued the Announcement of State Taxation Administration of The People's Republic of China on Issues Concerning Beneficiary Owners in Tax Treaties (State Taxation Administration of The People's Republic of China Announcement No.9 of 2018), drawing on the achievements of the Sixth Action Plan of "Tax Base Erosion and Profit Transfer" (BEPS), improving the rigidity of the criteria for judging Beneficiary Owners, and taking more effective precautions against arrangements with high risk of abusing the agreements. According to the provisions of Announcement No.9, the "beneficial owner" refers to the person who has the ownership and control over the income or the rights or property based on the income. The judgment of beneficial owner includes safe harbor rule, penetration rule and identification of unfavorable factors.
The identification of unfavorable factors needs to be comprehensively analyzed around factors such as acquired control rights, substantive business activities and actual tax rate. Taking a case published in China Tax News as an example, the tax bureau of Longhua District, Shenzhen inspected the domestic manufacturing enterprise Company A's declaration of enjoying the dividend agreement treatment by source withholding, and found that the non-resident shareholder Company B, which holds 100% of its shares, does not constitute substantive production and business activities, does not meet the conditions of "beneficial owner" and should not enjoy the dividend provisions of the agreement treatment. The tax authorities believe that from the perspective of substantive business activities, although Company B has leased office space locally, there are only three employees, and two of them are shared with Company C, an overseas headquarters, with no fixed assets and no substantive research and development or business activities; From the perspective of decision-making power, Company B has no independent decision-making power on dividend distribution; Judging from the matching between income and functional risk, Company B is nominally engaged in investment holding activities, but there is no corresponding business process, division of labor and use of funds. All its income comes from dividends distributed by subsidiaries in China, and important decisions such as orders, technology, production and operation of its subsidiaries in China are directly controlled by headquarters company C. Company B does not bear the investment risks related to dividend income, and most of the dividends are paid to headquarters company C by means of "borrowing" in a short period of time, and its "investment holding". According to the tax avoidance purpose test, the income tax rate of the region where Company B is located is 5.5%, and the dividends obtained from overseas companies holding more than 10% of the shares are tax-free. The actual tax burden of Company B is significantly lower than that of China. In the end, Company A paid back the withholding enterprise income tax of more than 3 million yuan and the corresponding late payment fee.
Therefore, the holding company that intends to enjoy the preferential agreement should focus on the actual operating conditions, and the establishment and business development of the company should have reasonable commercial purposes, such as conforming to industry practices and enterprise development strategies, which can bring practical benefits such as improving management efficiency and enhancing market competitiveness; Have real economic activities, such as office space, personnel, assets and related management systems that match the business.
In addition, due to the convenience of financing and cross-border payment in some overseas countries or regions, some shareholding companies also play the function of financing, forming a cross-border fund pool to carry out frequent capital circulation, and the operation of this model is easy to be judged as having unfavorable factors in the identification of beneficial owners. "Applicants are obliged to pay more than 50% of the income to the residents of third countries (regions) within 12 months after receiving the income." Obligation "includes agreed obligations and payment facts that have been formed without agreed obligations. Therefore, for the holding companies that play the role of fund pool, in addition to substantive operation, they should also pay attention to the limitation of transfer ratio and strengthen the control of dividend distribution funds by holding companies.
III. Compliance Risk of Holding Company under Pillar II Global Minimum Tax Rule
According to the China Tax News, on January 5, 2026, the Organization for Economic Cooperation and Development (OECD) issued an important guide to the collection and management of Pillar II, and finally finalized the implementation of a "parallel" package of measures, that is, the OECD's global minimum tax scheme is compatible with the US global minimum tax system, putting an end to the international community's efforts to launch the global minimum tax scheme for more than four years. Pillar 2 aims to solve the problem that multinational corporations evade taxes by using international tax havens and the disparity in tax burden among countries, and based on this purpose, a global minimum income tax system of 15% is established. The effective tax rate of multinational corporations that reach the threshold in each tax jurisdiction is at least 15%, and if it is lower than 15%, a supplementary tax will be levied on low-tax income.
In May 2025, the Hong Kong Legislative Council passed the Tax (Amendment) Ordinance 2024, which implemented the global minimum tax and introduced the minimum supplementary tax in Hong Kong. According to the regulations, in the four fiscal years immediately preceding the current fiscal year, multinational groups with annual operating income of 750 million euros or more in at least two fiscal years are required to pay at least 15% of the global minimum tax on the profits generated in each jurisdiction where they operate. Under the minimum supplementary tax rule in Hong Kong, the Hong Kong government can give priority to collecting supplementary tax on the covered multinational group entities with an effective tax rate of less than 15% in Hong Kong. At present, most of China's overseas listed companies set up shareholding companies in Hong Kong, and some companies carry out actual business in order to enjoy the agreed treatment more in compliance. Although the nominal profit tax rate in Hong Kong is 16.5%, the effective tax rate may be lower than 15% after the tax preferential policies are superimposed, and they may face the risk of paying supplementary tax.
IV. Summary
According to the Administrative Measures on non-resident taxpayer's Enjoyment of Agreed Treatment (State Taxation Administration of The People's Republic of China Announcement No.35, 2019), non-resident taxpayer's enjoyment of agreed treatment is handled by "self-judgment, declaration of enjoyment, and retention of relevant information for future reference", which also puts forward higher tax compliance requirements for the shareholding companies and dividend distribution companies in the investment structure. In view of the applicable judgment of "beneficial owner", we can seek professional support and reach a tax advance ruling. For example, a company in Fujian plans to distribute dividends to overseas parent companies, pays attention to the possible preferential treatment in tax treaties, puts forward an application for tax advance ruling on dividend distribution and enjoys preferential tax rates in tax treaties, and finally reaches a tax advance ruling on the identity judgment of beneficial owners and enjoys preferential tax treaties, and obtains the Opinion on Tax Advance Ruling issued by the tax authorities. In addition, multinational enterprises should also pay attention to the latest progress of the "two pillars", clarify the system design and reporting requirements, accurately calculate the tax burden, and adjust and optimize the structure.

Editor’s Note: In the current practice of tax dispute resolution, due to the precondition of tax payment, many enterprises are unable to pay taxes or provide guarantees, and thus cannot directly seek legal remedies against tax treatment decisions. Instead, they have to file administrative lawsuits only against tax penalty decisions. When taxpayers challenge the tax assessment matters (i.e., tax disputes) that serve as the basis for penalties in penalty litigation, how should courts hear such cases? In recent years, courts in different regions have held sharply divergent views, and an increasing number of judgments have ruled not to examine tax disputes in penalty litigation proceedings. This paper sorts out and analyzes different judicial views in practice, and demonstrates that courts shall conduct a comprehensive review of the underlying tax treatment decisions in tax administrative penalty litigation, so as to provide practical references for the protection of taxpayers’ rights and legal remedies.

01 Different Judicial Views on the Review of Tax Disputes in Tax Administrative Penalty Litigation
Pursuant to the provisions of the Tax Collection and Administration Law, the amount of most tax administrative penalties is determined as a multiple of the tax payable by the party. As the basic administrative act for tax recovery, the facts found in a tax treatment decision directly affect the content of the penalty decision. In practice, due to the high thresholds of tax payment precondition and reconsideration precondition, parties cannot seek remedies for tax treatment decisions and can only pin their hopes on "reversing the case" in penalty litigation. However, courts in different regions have adopted different approaches to handling parties’ objections to tax disputes in tax penalty cases.
1.1 View 1: Excluding the Review of Tax Disputes on the Grounds of Tax Payment and Reconsideration Preconditions
Judgments of tax administrative penalty litigation published on China Judgments Online in recent years show that an increasing number of people’s courts across the country hold this view. Its core logic is: although a party institutes administrative litigation against a tax penalty decision made by a tax authority, and the facts and reasons for tax supplementation found in the tax penalty decision are consistent with those in the corresponding tax treatment decision, if the party raises objections to such tax supplementation decisions and reasons in the penalty litigation, such objections essentially constitute tax disputes rather than penalty disputes. According to Paragraph 1 of Article 88 of the Tax Collection and Administration Law, tax disputes are subject to the statutory reconsideration precondition and shall not be directly subject to judicial review without undergoing reconsideration procedures. If a party fails to apply for reconsideration of a tax treatment decision, the decision shall take effect, and the court shall not review its legality in the administrative penalty litigation, but only focus on the procedures and discretion of the penalty decision. Relevant typical cases are selected as follows:
In (2025) Qiong Xing Shen No. 149 Case, Hainan Provincial Higher People’s Court held after review that: "Tax disputes are subject to the statutory reconsideration precondition and shall not be directly subject to judicial review without reconsideration. According to the facts found in this case, the claimant Cheng’s claims, facts and reasons in this litigation all target tax disputes, namely the facts found in Document Qiong Shui Yi Ji Chu [2023] XX Letter of Tax Treatment Decision. However, Cheng failed to file an administrative reconsideration against the said treatment decision, so the decision has come into force. Cheng’s dissatisfaction with the illegal facts and treatment results found in the XX treatment decision is not within the scope of this case’s trial." Accordingly, the court ruled to dismiss Cheng’s application for retrial.
In (2024) Yu 05 Xing Zhong No. 28 Case, the court of first instance, Wenfeng District People’s Court of Anyang City, Henan Province, held that: "The objections raised by a company in Anyang City to the tax calculation basis are essentially challenges to the tax treatment decision. It shall first file an administrative reconsideration in accordance with the law and then resolve the dispute through administrative litigation, so such objections are not within the scope of this case’s trial." The court of second instance, Anyang Intermediate People’s Court of Henan Province, held the same view and also ruled that the matter was not within the scope of the case’s trial.
In (2023) Qiong 01 Xing Zhong No. 241 Case, the court of first instance, Xiuying District People’s Court of Haikou City, held after trial that: "Tax disputes are subject to the statutory reconsideration precondition and shall not be directly subject to judicial review without reconsideration." "Since the facts found in the No. 13 Penalty Decision are consistent with those found in the No. 127 Treatment Decision, and part of the facts and reasons objected to by the company constitute tax disputes, the legality of the effective No. 127 Treatment Decision cannot be denied without reconsideration. Therefore, this court cannot make a negative evaluation of the facts found in the No. 127 Treatment Decision, and only needs to review whether the penalty scope, basis and procedures of the No. 13 Penalty Decision made by the Inspection Bureau of the Provincial Taxation Bureau are reasonable and lawful." The court of second instance, Haikou Intermediate People’s Court of Hainan Province, also held this view and did not review the tax treatment decision.
1.2 View 2: Directly Admitting the Unreconsidered Tax Treatment Decision as Evidence Without Review
A considerable number of judgments holding this view have also been published on China Judgments Online in recent years. The core logic is: in the administrative litigation procedure for tax administrative penalties, although the tax treatment decision has not been reconsidered, it may be submitted to the court as evidence for the tax penalty decision for review; if the treatment decision has no major and obvious illegal circumstances, its evidentiary effect shall be recognized and taken as the factual basis for the penalty decision. This model does not completely exclude the review of the treatment decision, but the review effect is insignificant and essentially amounts to no review. Typical cases are as follows:
In (2023) Yue 03 Xing Zhong No. 1044 Case, the court of first instance, Yantian District People’s Court of Shenzhen City, held that: "The illegal facts on which the tax penalty decision in this case is based were found by the tax inspection bureau in the tax treatment decision, and a company also admitted in court that it had no objection to the illegal facts found in the tax treatment decision, so such facts may be taken as the basis for the penalty." The court ruled to dismiss the plaintiff’s claims. The court of second instance, Shenzhen Intermediate People’s Court, held that: "The tax treatment decision has no obvious major illegal circumstances and is a valid administrative act, which may be admitted as evidence for the tax penalty. After conducting investigation and hearing procedures, the tax inspection bureau imposed a fine of 50% of the underpaid tax on the company in accordance with Paragraph 1 of Article 63 of the Tax Collection and Administration Law based on the facts found in the tax treatment decision, which complies with legal provisions." Accordingly, the court ruled to dismiss the appeal and uphold the original judgment.
Among the 2025 typical administrative adjudication cases recently released by Jilin Provincial Higher People’s Court, there is a tax-related administrative litigation case. In this case, an enterprise refused to accept the penalty decision and filed a lawsuit with the court. The court held after trial that whether the enterprise deducted tax through falsely issued invoices and whether it should pay supplementary tax were the factual basis for the subsequent administrative penalty. Since the enterprise failed to initiate remedy procedures against the treatment decision but directly sued against the penalty decision, the court should review the treatment decision as evidence.
1.3 View 3: Including Tax Treatment Decisions in the Scope of Comprehensive Review in Penalty Litigation
The core logic of this view is: even if a party fails to apply for reconsideration of the treatment decision, the court may conduct a concurrent review of its legality, and even alter it together if it is indeed erroneous. Typical cases are as follows:
In (2018) Zhe 06 Xing Zhong No. 75 Case, the Inspection Bureau of Shaoxing State Taxation Bureau issued a tax treatment decision and a penalty decision to Shiming Sand and Stone Factory, and the factory only filed an administrative lawsuit against the penalty decision. The court of first instance, Yuecheng District People’s Court of Shaoxing City, held that the treatment decision had taken effect and the illegal facts found therein should be confirmed. The court of second instance, Shaoxing Intermediate People’s Court, held a different view, stating that: "A tax treatment decision and a tax penalty decision are two different administrative acts, and laws and regulations do not stipulate that administrative reconsideration is a necessary procedure for instituting a penalty lawsuit. For administrative penalty acts, a comprehensive review of their legality shall be conducted in accordance with Article 6 of the Administrative Litigation Law." "The illegal facts found in the treatment decision do not fall under the 'facts that the court may directly confirm' as stipulated in Article 68 of the Provisions of the Supreme People’s Court on Evidence in Administrative Litigation, nor the facts 'confirmed by effective legal judgments of people’s courts or awards of arbitration institutions' that 'may be taken as the basis for case determination' as stipulated in Article 70 of the said Provisions." The court of first instance misapplied the law, so the original judgment was revoked and the case was remanded for retrial.
In (2017) Qian 04 Xing Zhong No. 27 Case, the court of second instance, Anshun Intermediate People’s Court of Guizhou Province, held that: "Although the Letter of Tax Treatment Decision (An Guo Shui Ji Chu [2015] No. 16) issued by the appellant, Anshun State Tax Inspection Bureau, is not the subject matter of this case, and the appellee, Jinxing Company, lost the right to judicial remedy for failing to apply for reconsideration within the statutory time limit. However, the said tax treatment decision is the basic and related administrative act of the sued Letter of Tax Administrative Penalty Decision (An Guo Shui Ji Fa [2015] No. 17) in this case, and the amount of underpaid value-added tax and consumption tax of Jinxing Company found in the tax treatment decision also serves as the factual basis for the sued tax penalty decision in this case. Moreover, the tax treatment decision and the tax penalty decision were issued and served on Jinxing Company on the same day by Anshun State Tax Inspection Bureau. Therefore, for the proper handling of the whole case, reducing the parties’ litigation costs and achieving good legal and social effects, the amount of tax evasion of value-added tax and consumption tax of Jinxing Company found in the tax treatment decision shall also be altered in the judgment of this case."
02 Merits and Demerits of the Three Different Judicial Views
The practice of View 1 applies the reconsideration precondition rule rigidly and undermines the parties’ litigation rights. This model seems to strictly comply with the reconsideration precondition stipulated in Article 88 of the Tax Collection and Administration Law, but in essence it is a mechanical application of legal provisions, ignoring the relevance of tax administrative acts and taxpayers’ remedy dilemmas. Refusing to review a treatment decision merely on the ground that it has taken effect will virtually undermine the parties’ substantive litigation rights. In practice, taxpayers are often unable to pay taxes or provide guarantees due to seized assets and frozen accounts, failing to meet the requirement of "tax payment precondition", and thus lose the right to reconsideration and litigation against the treatment decision. At this time, litigation against the penalty decision becomes the only remedy for taxpayers. If the court only reviews the penalty procedures without examining the facts found in the treatment decision, it is equivalent to recognizing that an erroneous treatment decision may directly serve as the basis for penalties, reducing penalty review to formalistic procedures and making it impossible to remedy taxpayers’ substantive rights.
The practice of View 2 circumvents the review of tax disputes in a disguised form. Although this practice is an improvement over the non-review model and recognizes the relevance between treatment decisions and penalty decisions, it still has obvious deficiencies. In administrative litigation, evidence review only targets authenticity, legality and relevance, while the legality review of a tax treatment decision as an administrative act also includes the application of law and procedural legality. This model only reviews the admissibility of the treatment decision as evidence without conducting a comprehensive review of its legality. If the treatment decision has general illegality short of major and obvious illegality, it will still be taken as the basis for penalties, resulting in defects in the legal basis of the penalty decision. Meanwhile, this model provides insufficient protection for the parties’ rights: only major and obviously illegal treatment decisions are rejected, and taxpayers still have to bear penalties based on erroneous treatment decisions for generally illegal ones due to lack of remedies, leading to limited remedy effects.
The comprehensive review model of View 3 conforms to the principles of administrative litigation and fully protects the parties’ litigation rights. This model is consistent with the legislative spirit of the Administrative Litigation Law and can substantively resolve administrative disputes. First, it strictly abides by the principle of "comprehensive review": reviewing the legality of a penalty decision inevitably involves reviewing its factual basis. As the core factual basis, a treatment decision must be comprehensively reviewed to judge whether the penalty decision is based on clear facts and sufficient evidence, and such concurrent review is an inevitable requirement of the comprehensive review principle rather than a breach of the reconsideration precondition. Second, it can substantively resolve disputes and reduce litigation costs: treatment decisions and penalty decisions are made based on the same illegal facts. If only the penalty decision is reviewed, the effective treatment decision will still bind taxpayers even if the penalty is revoked, failing to fundamentally resolve the dispute; concurrent review can correct erroneous treatment decisions together. Third, it conforms to the orientation of right protection: under the double precondition thresholds, taxpayers’ remedy rights are restricted, and comprehensive review provides an indirect remedy for them to make up for the defects of the existing remedy procedures.
03 Specific Reasons for Conducting Comprehensive Review of Tax Disputes in Tax Administrative Penalty Litigation
In tax administrative penalty litigation, the court’s comprehensive review of tax treatment decisions is not a breach of legal provisions, but an inevitable choice based on legal principles, judicial interpretations and practical needs, with sufficient justifications.
3.1 Conforms to the "Comprehensive Review" Principle of Administrative Litigation
Articles 6 and 70 of the Administrative Litigation Law clearly stipulate that people’s courts shall conduct a comprehensive review of the legality of administrative acts when hearing administrative cases, including substantive and procedural contents such as factual determination, sufficiency of evidence, application of law, procedural legality and appropriateness of discretion. The factual basis of a tax penalty decision entirely relies on the tax treatment decision. If the court only reviews the penalty procedures without examining the facts and applicable laws found in the treatment decision, it cannot judge whether the penalty decision is based on "sufficient main evidence" and "correct application of law", which essentially amounts to abandoning the duty of comprehensive review and violating the original legislative intention. Meanwhile, Article 70 of the Provisions of the Supreme People’s Court on Evidence in Administrative Litigation clearly stipulates that only facts confirmed by effective legal judgments or arbitration awards may be taken as the basis for case determination; tax treatment decisions do not fall into this category and shall not be directly recognized as valid.
3.2 Prevents Taxpayers from Losing Substantive Litigation Rights and Conforms to the Concept of Right Protection
The tax payment precondition and reconsideration precondition stipulated in Article 88 of the Tax Collection and Administration Law aim to protect the state’s tax claims, but have in practice become a "threshold" for taxpayers’ remedies. In most tax-related cases, taxpayers are unable to pay taxes or provide guarantees due to large tax amounts and seized assets, failing to initiate remedy procedures for treatment decisions, and can only seek remedies through penalty litigation. If the court refuses to review the treatment decision in penalty litigation and only examines the penalty procedures, taxpayers cannot correct the erroneous treatment decision through judicial channels even if they believe it is wrong, and ultimately have to bear the obligations of paying supplementary tax, late fees and fines, essentially losing substantive litigation rights. This not only violates the right protection function of administrative litigation, but also may connive at tax authorities evading judicial review through treatment decisions.
3.3 Tax Treatment Decisions and Penalty Decisions Are Related Administrative Acts and Shall Be Reviewed Together
Related administrative acts refer to administrative acts made by the same or different administrative organs against the same counterpart, where the subsequent act is based on the prior act. Tax treatment decisions and penalty decisions fall into this category. Although Article 7 of the Provisions of the Supreme People’s Court on the Trial of Administrative License Cases applies to administrative license cases, it establishes the principle of concurrent review of related administrative acts, stating that: "A people’s court shall not recognize any other administrative decision or document that serves as the basis for the sued administrative license act if it falls under any of the following circumstances: (1) obviously lacking factual basis; (2) obviously lacking legal basis; (3) exceeding competence; (4) other major and obvious illegal circumstances." When the underlying administrative act has major and obvious illegality that directly affects the legality of the sued administrative act, the court has the right to conduct concurrent review. The court’s concurrent alteration of the amount of tax evasion found in the tax treatment decision in the aforementioned (2017) Qian 04 Xing Zhong No. 27 Case is a typical application of this principle.
3.4 Conforms to the Spirit of the Supreme People’s Court’s Rule of "Inheritance of Illegality of Administrative Acts"
In the Minutes of the Judges’ Meeting of the Administrative Tribunal of the Supreme People’s Court (First Series), the Administrative Tribunal of the Supreme People’s Court recognizes the rule of "inheritance of illegality of administrative acts", pointing out that: "The theory of presumptive validity of administrative acts is of great value and shall be strictly observed and maintained in the theory and practice of administrative law, and is generally regarded as the biggest barrier to the inheritance of illegality of administrative acts. However, the barrier of illegality means that the illegality of prior administrative acts cannot be corrected, which in turn infringes upon the legitimate rights and interests of administrative counterparts through subsequent administrative acts and undermines the effectiveness of right remedies in administrative litigation. Therefore, from the perspective of citizens’ right remedies and substantive resolution of administrative disputes, it is allowed to break through the theory of presumptive validity of administrative acts under certain conditions." "In such circumstances, if a prior administrative act is illegal and sufficient to deny its probative effect, the subsequent administrative act shall also be confirmed as illegal." "There shall be a certain relevance between the two administrative acts. In addition to the sequential relationship in time, the two administrative acts shall also have statutory relevance. Procedural linkage refers to the legal requirement that one act shall be carried out after another for the same counterpart, with no other relevance in content; prerequisite relationship in elements means that the content covered by the validity of the prior act is one of the constituent elements of the subsequent act, and defects in the prior act constitute grounds for revocation or invalidation of the subsequent act; basis relationship in enforcement means that the prior act provides the basis for the subsequent act, and the subsequent act is the enforcement of the prior act." Tax treatment decisions and tax penalty decisions conform to the "prerequisite relationship in elements": pursuant to Article 63 of the Tax Collection and Administration Law, the tax evasion acts and underpaid tax amounts found in treatment decisions are prerequisite elements of penalty decisions, and erroneous factual determination in treatment decisions will inevitably lead to wrong penalty amounts. Therefore, the illegality of a treatment decision shall be "inherited" to the penalty decision, and the court shall review the treatment decision together when examining the penalty decision to achieve substantive dispute resolution.
04 Conclusion
In recent years, an increasing number of judgments in tax administrative penalty litigation have refused to review tax treatment decisions. This trend seems to strictly comply with the reconsideration precondition, but is actually an undesirable tendency worthy of vigilance. Such practice violates the policy spirit of the Opinions on Further Deepening the Reform of Tax Collection and Administration issued by the General Office of the CPC Central Committee and the General Office of the State Council, which requires "improving the right remedy and tax dispute resolution mechanisms for taxpayers and fee payers, and unblocking channels for effective collection, rapid response and timely feedback of demands", deprives taxpayers of substantive litigation rights in a disguised form, and is not conducive to building an equal, trustworthy and cooperative tax levy-payment relationship. The original intention of the reconsideration precondition is to protect the realization of state tax claims, not to deprive taxpayers of the right to judicial remedies. When the two values conflict, priority shall be given to protecting taxpayers’ legitimate rights and interests, which is not only the legislative orientation of the Administrative Litigation Law, but also an inevitable requirement for substantively resolving administrative disputes. Therefore, in tax administrative penalty litigation, the court’s comprehensive review of tax treatment decisions is a correct practice that complies with legal provisions, conforms to policy spirit and protects taxpayers’ rights.

In January 2026, the Ministry of Finance and the State Taxation Administration issued the Announcement of the Ministry of Finance and the State Taxation Administration on VAT and Consumption Tax Policies for Export Operations (Announcement No. 11 of the Ministry of Finance and the State Taxation Administration [2026]), which largely continues the existing export tax rebate (exemption) system. It replaces the Notice of the Ministry of Finance and the State Taxation Administration on VAT and Consumption Tax Policies for Exported Goods and Services (Cai Shui [2012] No. 39, now invalid) and Annex 4 of the “Notice on Comprehensively Promoting the Pilot Program for Replacing Business Tax with Value-Added Tax” (Cai Shui [2016] No. 36), “Provisions on the Application of Zero-Rated VAT and Exemption Policies for Cross-Border Taxable Activities” (Annex 4 now invalid). It unified the regulation of exported goods, cross-border sales of services, and intangible assets under export operations, significantly enhancing the systematic nature, clarity, and applicability of export tax rebate (exemption) policies. To implement Announcement No. 11 and strengthen export business management, the State Taxation Administration subsequently issued the Announcement of the State Taxation Administration on the Administration Measures for VAT and Consumption Tax Refunds (Exemptions) for Exported Goods and Services (State Taxation Administration Announcement No. 5 of 2026). Announcement No. 5 of 2026 generally retains the existing export tax rebate (exemption) management provisions, consolidates management documents issued at different times, and addresses prominent practical issues and taxpayer concerns. It establishes unified and standardized management measures, providing clear, explicit, and actionable guidance for taxpayers handling export tax rebate (exemption) procedures. In light of this, Huashui plans to adopt a practical approach, incorporating changes in the new policy. Through a series of articles focusing on key export business points and common issues, we will provide detailed analysis on various matters for the foreign trade industry, including documentation filing, disguised self-operations and genuine agency arrangements, input invoices, and foreign exchange receipts, for taxpayers' reference. This article aims to trace the origins of regulations concerning documentation filing and analyze the policy changes and their practical implications.

Editor's Note: Preferential tax policies are an important institutional arrangement for a country to guide industrial development, support market entities, and encourage technological innovation. Accurately understanding and applying relevant preferential policies is both a right of taxpayers and a legal obligation they must fulfill. Recently, the State Administration of Taxation announced four inspection cases involving multiple industries, including pharmaceutical technology, shipbuilding, information technology, and energy. These cases cover major policy types such as the additional deduction for research and development (R&D) expenses, corporate income tax preferences for small low-profit enterprises, and tax reductions and exemptions for small-scale taxpayers. These cases provide specific samples for observing common understanding deviations and operational issues in the actual implementation of tax incentives. This article will analyze the key points that need attention when applying the aforementioned policies based on these cases and discuss possible changes in related tax treatments under the framework of new laws and regulations, such as the 2026 new Value-Added Tax (VAT) regulations.

Editor's Note: Since 2026, more than 20 listed companies have issued announcements on paying back taxes. According to public information, the earliest retrospective adjustment of taxable years can be traced back to 2019, among which there are cases involving the repayment of over 100 million yuan in taxes and late payment fees (interest). This paper focuses on the main causes of tax repayment disclosed by listed companies in recent years, analyzes the high-risk points of key issues, and puts forward tax compliance suggestions for the reference of enterprises in general.

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Editor's Note: On January 23, 2026, the Management Measures for Online Freight Carrier Platform Operations (Transport Regulation [2026] No. 1, hereinafter referred to as the "New Measures") officially came into effect. Compared to the Interim Measures for the Administration of Online Platform Road Freight Transport Operations issued in 2019 (hereinafter referred to as the "Interim Measures"), the New Measures align with the trends of digitalized tax supervision and the construction of a unified national market. They also connect with regulations already implemented in 2025, such as the Provisions on the Reporting of Tax-Related Information by Internet Platform Enterprises (hereinafter referred to as the "Tax Information Reporting Provisions"), collectively establishing a stricter regulatory framework. The New Measures focus on addressing long-standing industry pain points like fraudulent invoicing and non-genuine business by clarifying platform responsibilities, strengthening data sharing, and enabling full-process business traceability. This article will analyze specific changes and impacts by comparing old and new clauses and provide compliance operation recommendations for platforms.