Editor's Note: On March 28, 2025, the State Administration of Taxation (SAT) issued the Law of the People's Republic of China on Tax Collection and Administration (Revised Draft for Public Consultation) and publicly solicited comments from the public. Ten years since the revision of the Tax Collection and Administration Law was publicly solicited for opinions in 2015, the State has restarted the revision of the Tax Collection and Administration Law, which will surely have a far-reaching impact on the construction of the rule of law in China's taxation. From the perspective of protecting the legitimate rights and interests of taxpayers, regulating tax collection by tax authorities in accordance with the law, and promoting the establishment of a tax collection and payment relationship of equality, mutual trust and cooperation, Hua Shui's legal team, through the interspersed analysis of the current tax collection and administration law, the 2015 revision of the tax collection and administration law and the key provisions of the 2025 public consultation, and combining with its own experience of tax practice, has put forward a number of modification suggestions for some of the important provisions in the revision of the Taxation Collection and Administration Law. The text of the amendments submitted by Hua Shui is now forwarded as follows, and we hope to discuss them with the readers.

Proposed Revisions by Beijing Hua Shui Law Firm on the  Law of the People's Republic of China on Tax Collection and Administration (Revised Draft for Public Consultation)

To: State Administration of Taxation

The revision and improvement of the existing Tax Collection and Administration Law is an important legislative practice to deeply implement the decision-making and deployment of the Twentieth National Congress of the CPC and the Third Plenary Session of the Twentieth Central Committee of the CPC on deepening the reform of tax collection and administration, and is also a key measure to implement "Opinions on Further Deepening the Reform of Tax Collection and Administration" issued by the General Office of the Communist Party of China Central Committee (CPC Central Committee Office) and the General Office of the State Council (State Council Office). The Tax Collection and Administration Law (Revised Draft for Public Consultation) (hereinafter referred to as the "Revised Draft"), which is open for public consultation, follows the three basic principles of unity of the rule of law and reform, unity of innovation and righteousness, and unity of the protection of taxpayers' lawful rights and interests and the standardization of tax law enforcement, which is a better embodiment of the rule of tax by law and good governance, and adapts to the practical needs of tax collection and administration in the new period. The basic procedures of tax collection and administration are retained in the existing basic procedures of tax collection and administration. On the basis of retaining the existing framework of basic procedures for tax collection and administration, the revised draft has absorbed the successful experience of tax collection and administration practice in recent years and optimized and adjusted some articles.

As the basic law of tax procedure, the Law on Tax Collection and Administration regulates the mutual relationship between tax authorities and taxpayers, and has the closest connection with the public in the field of administrative law, it should play an exemplary role in practicing the basic concepts of modern rule of law and civilization, and aiming at building a modern tax collection and payment system, implementing the basic principles of ruling taxes in accordance with the law, taxpayers' rights and interests protection, and common governance of taxes, and promoting the establishment of an equal, cooperative and mutual-trusting tax collection and payment relationship. In view of this, there is still room for further improvement in some of the relevant provisions of the revised draft. In view of this, Hua Shui, with its practical experience in the field of tax law, has put forward the following amendment proposals to the revised draft, which are expected to be referred to and adopted by the relevant departments when revising the law.

I. Proposed changes to article 13, paragraph 2, of the revised text

Paragraph 2 of Article 13 of the revised draft: "The tax authorities shall investigate and handle tax violations, and shall find the facts clear, the evidence sufficient, the basis for application correct, the procedures lawful, and the handling fair and just in accordance with the law."

Modification Suggestion:

It is recommended that this paragraph be made into a separate article and amended to read: "The tax authorities shall follow the principle of presumption of no fault on the part of the taxpayers in investigating and dealing with tax violations, investigate and collect evidence objectively, fairly and comprehensively, so as to ensure that the facts are clearly recognized, the evidence is indeed sufficient, the basis for application is correct, the procedures are lawful, and the treatment is carried out fairly and impartially in accordance with the law."

Reason for modification:

Paragraph 2 of Article 13 of the revised draft puts forward for the first time the legal standards for tax authorities to investigate and handle tax violation cases, which refer to the provisions of Article 37 of the Provisions on Procedures for Handling Tax Audit Cases, with the addition of the general principle requirement of "handling the case in a fair and just manner according to the law". Generally speaking, this article expands the trial requirements of tax inspection cases to the field of investigation and handling of tax violations by tax authorities, and establishes the basic standards and evidentiary requirements for tax authorities to handle cases, which is a significant progress in standardizing the law enforcement of tax authorities and safeguarding the rights and interests of taxpayers. While fully recognizing this, there is still room for further improvement in the revision of this article.

First, article 13, paragraph 1, is a recusal provision that has no inherent logic with the second paragraph on legal standards for investigating and handling cases of tax violations, and it is recommended that the second paragraph be made into a separate article in order to emphasize its important legal status and function.

Secondly, although the basic requirements of this article, such as "clear facts and sufficient evidence", have set the standards for law enforcement, they are not fully equivalent to the responsibility of taxpayers for the truthfulness, accuracy and completeness of tax declarations, and the principle of attribution is not clear, the standard of proof is not high, and the requirements for the comprehensiveness and objectivity of investigations and collection of evidence are not met. It is suggested that the principle of no-fault presumption for taxpayers should be added to the articles, the principle of fault attribution in tax violation cases and the responsibility of tax authorities for proving fault should be clarified, and the wrong way of thinking of some grass-roots tax authorities in requesting taxpayers to "prove their own innocence" and "presumption of fault" in handling cases should be corrected. Strengthening the objectivity requirement of investigation and evidence collection, requiring comprehensive collection of both favorable and unfavorable evidence for taxpayers, and prohibiting selective evidence collection; raising the standard of evidence proof for tax violations, which should not be applied to the principle of preponderance of evidence of "sufficient evidence" but to the standard of "indeed sufficient evidence", requiring core evidence to be collected, and requiring the taxpayer to prove that the taxpayer is innocent of the crime. Instead of applying the preponderance of evidence principle of "sufficient evidence", the standard should be applied, requiring core evidence to be directly probative and exclusive, while the preponderance of evidence principle of "sufficient evidence" can be followed in areas such as tax adjustments.

II. Proposed changes to article 18 of the revised draft

Paragraph 2 of Article 18 of the revised draft: "The market supervision and management department and other registration authorities shall, in the process of establishment and registration, inform taxpayers of their obligation to truthfully handle tax declarations in accordance with the provisions of laws and administrative regulations and the declaration deadlines and declaration contents determined by the tax authorities in accordance with the provisions of laws and administrative regulations; and they shall handle the information on establishment, alteration, cancellation, suspension, revocation and so on shared with the tax authorities in real time."

Modification Suggestion:

It is proposed that a new paragraph be added after the second paragraph of Article 18: "The tax authorities shall provide timely counseling and training on tax policies, tax type approval, determination of levy period, tax declaration, differences in taxes, operation and use of the electronic tax system, and installation and use of tax-control devices for taxpayers engaged in production and business after the completion of the establishment of registration."

Reason for modification:

The relevant provisions in Section I of Chapter II Tax Administration of the Revised Draft on taxpayer identification and registration have made comprehensive adjustments to procedural matters such as taxpayer identification number, tax registration and tax write-off. Firstly, the unified social credit code and the civil identity number will be used as the tax identification for enterprises and natural persons respectively, and special subjects will be assigned the code by the tax authorities to realize the full coverage of taxpayer identity. This adjustment will avoid the problem of duplicated registration, and at the same time lay the foundation for strengthening the tax collection and management of natural persons. Secondly, the tax registration process has been substantially simplified. The identification number is automatically obtained when the enterprise is set up, and the business license is directly used as the tax registration document, eliminating the separate registration procedure. Finally, new tax clearance certificate is added to the deregistration procedure, embedding the protection of tax claims into the exit mechanism of market entities and forcing enterprises to standardize tax clearance. Overall, both the abolition of the tax registration system and the prohibition of taxpayers from repeatedly providing information will help reduce the procedural burden on taxpayers.

However, article 18 of the revised draft still has some room for revision and improvement. The first paragraph of the article treats the registration of enterprise establishment directly as tax registration, and the second paragraph stipulates that the market supervision department shall inform the newly established enterprises of their tax obligations in accordance with the law, which lacks the tax counseling responsibility of the tax authorities for the newly established enterprises. Newly-established enterprises often have to determine the types of taxes to be declared and paid according to their production and business activities, and the tax declaration period for each type of tax has to be determined, whether it is to be filed on a monthly or quarterly basis, and they have to learn about the operation and use of the Electronic Tax Bureau, the Digital Electric Invoice, and the tax declaration system, etc., and individual enterprises also need to install tax-control devices. Combined with the revision of Article 73 of the revised draft on tax evasion, which provides that enterprises registered in accordance with the law to occur taxable behavior and do not declare, directly constitutes tax evasion. If a newly established enterprise completes the receipt of business license, and the market supervision department simply informs the tax obligation, and the tax authority does not provide effective tax counseling to the enterprise, resulting in errors and omissions when dealing with the above tax-related matters, so that taxable acts occurring in the unintentional circumstances without declaring tax, then it will constitute tax evasion and be punished, which is obviously not reasonable.

Therefore, it is recommended that a paragraph be added after paragraph 2 of article 18 to clarify the tax counseling responsibilities of tax authorities, that is, to follow the concept of equal and common governance of taxation between taxpayers and employers, and to make joint efforts to promote tax compliance and tax payment in accordance with the law. In this way, if a taxpayer, after receiving tax counseling and training from the tax authorities, understands and masters the tax policies and his/her tax declaration obligations, and still fails to pay the unpaid tax when he/she fails to declare his/her taxable behaviors, the tax authorities may determine that he/she constitutes a tax evader on the basis of solid and sufficient evidence.

III. Proposed changes to article 28 of the revised draft

Paragraph 3 of Article 28 of the revised draft: "Taxpayers and withholding agents are responsible for the truthfulness, accuracy and completeness of their declarations."

Modification Suggestion:

It is proposed that a new provision be added after Article 28: "The tax authorities may conduct special audits of difficult and complex tax-related declaration matters such as land value-added tax clearance declarations, tax declarations of taxpayers with key tax sources and tax declarations of major asset transactions, so as to ensure that the tax declarations of taxpayers are in compliance with the specific provisions of tax laws and administrative regulations as well as taxation policies. "

Reason for modification:

Paragraph 3 of Article 28 of the revised draft clearly states that taxpayers are responsible for the truthfulness, accuracy and completeness of tax declarations. This new article does not mention that taxpayers are responsible for the legality of tax declarations, whereas the 2015 version of the revised draft requires taxpayers to be responsible for the legality of tax declarations.

In our view, given the high degree of difficulty and complexity of the tax law and the fact that ordinary taxpayers do not have the professional skills and qualities to independently judge the legality of tax acts, it is not realistic to hold them accountable for the legality of their tax declarations, and therefore it is appropriate that the revised draft does not require taxpayers to independently take responsibility for the legality of their declarations. Under the concept of common governance of taxation, the legality of tax declaration should be shared by tax authorities and taxpayers. On the basis of the taxpayer's good faith in paying taxes, the tax authorities should assume the responsibility of counseling and auditing to ensure the legality of the tax declaration.

In order to implement the concepts of joint responsibility of both parties for the legality of tax declarations and common governance of taxation, it is suggested that not only should there be additional provisions on tax counseling for tax authorities, but also another provision on the duty of tax authorities to review the legality of tax declarations. For the tax declaration of particularly difficult and complicated tax matters, a special legitimacy audit mechanism of tax authorities can be added. The experience of special audit of land value-added tax settlement can be drawn upon here. In the field of land value-added tax liquidation, the tax authorities are required to initiate a specialized audit procedure after the enterprises have made liquidation declarations. It is with this system that in practice almost no illegal cases of land value-added tax evasion by real estate development enterprises can be seen, and the related disputes are all of the nature of tax adjustment, and the relationship between tax enterprises and taxpayers is relatively stable in general.

Therefore, it is proposed that a new article be added after article 28, stipulating that the tax authorities shall initiate a special audit procedure for taxpayers' tax declarations in respect of difficult and complex tax-related matters, such as land value-added tax clearance, daily tax declarations of enterprises with key tax sources, and major asset transactions of enterprises above designated size. Through this mechanism, tax authorities can strengthen the audit function in complex tax matters to ensure the legality of taxpayers' declarations. This can effectively avoid the recurrence of cases with major social impacts, such as Zhijiang Wine Industry being investigated for 30 years, the case of full-scale investigation in the coal field in Inner Mongolia and other places, as well as the case of Ningbo Bohui, so as to practically safeguard the stability of the development of the private economy and the sustainability of the tax source.

IV. Proposed changes to article 38 of the revised draft

Article 38 of the revised draft: "The tax authorities have the right to utilize tax-related big data, such as information declared by taxpayers and withholding agents and third-party information obtained in accordance with the law, to carry out risk analysis of the truthfulness, accuracy, and completeness of tax declarations made by taxpayers and withholding agents, to assess the amount of tax payable or the amount of tax payable to be discharged, and to implement countermeasures that match the degree of risk. "

Modification Suggestion:

It is proposed that Article 38 be amended to read: "The tax authorities shall have the right to utilize tax-related big data, such as information declared by taxpayers and withholding agents as well as third-party information obtained in accordance with the law, to carry out a risk analysis of the truthfulness, accuracy, and completeness of the tax declarations made by the taxpayers and withholding agents, to assess the amount of tax payable or the amount of tax that should be discharged and to inform the taxpayers、withholding agents of the results of the risk analysis and assessment.

Taxpayers and withholding agents shall submit the original information of the tax declaration to the tax authorities, and have the right to make statements and defenses to the tax authorities, or amend the declaration through self-examination. The tax authorities shall review the results of risk analysis and assessment and implement countermeasures matching the level of risk."

Reason for modification:

Article 38 of the revised draft adds that the tax authorities have the right to utilize tax-related big data to conduct risk analysis on the truthfulness, accuracy and completeness of the tax returns of taxpayers, assess the amount of tax payable or the amount of tax payable, and implement countermeasures matching the level of risk. However, the article only mentions the implementation of countermeasures that match the level of risk, but does not specify what kind of countermeasures, nor does it mention the corresponding protection of taxpayers' rights, so it is necessary to make some adjustments.

Given that taxpayers are responsible for the truthfulness, accuracy and completeness of their tax declarations, and that the tax authorities' reliance solely on big data information for reviewing these aspects is neither direct nor comprehensive, it is unreasonable to hastily draw risk assessment conclusions and take measures without examining the original materials of taxpayers' tax declarations. Big data is only a means, not an end. It is not necessarily prudent to entrust tax enforcement to big data processing. The risk assessment conclusions formed by big data are likely to deviate from the objective reality, and will create an unnecessary tax compliance burden for taxpayers.

Therefore, it is recommended to set rules for taxpayers on the right to know, the right to make representations and the right to amend their declarations, so as to avoid the shortcomings of big data through the mechanism of tax co-governance between the taxpayers and the tax authorities. After completing the risk assessment, the tax authorities should inform taxpayers of the specific risk matters, give them the opportunity to state their defense, and allow them to amend their declaration through self-examination. Under the concepts of tax co-rule and tax governance by numbers, procedural justice is the basis for the legality of tax administration, and it is necessary to avoid the direct initiation of tax audits without the procedures of risk notification, statement and defense, and amendment of declarations, etc., and to ensure that taxpayers can fully exercise their rights in the process of risk assessment.

V. Proposed changes to article 41 of the revised draft

Article 41 of the revised draft: "If a taxpayer fails to pay the tax in accordance with the prescribed period, or if a withholding agent fails to release the tax in accordance with the prescribed period, the tax authorities shall, in addition to ordering the payment of the tax by a specified date, add a late payment fine of five ten-thousandths of one percent of the delayed tax amount on a daily basis from the date of the late payment."

Modification Suggestion:

It is proposed that the article be split into two articles: "If a taxpayer fails to pay the tax in accordance with the prescribed period, or if a withholding agent fails to discharge the tax in accordance with the prescribed period, tax interest shall be added on a daily basis from the date of expiration of the statutory period for discharge of the tax. The interest rate for the tax interest shall be determined by the State Council in conjunction with the RMB benchmark lending rate and the reasonable level of market lending rates."

"If a taxpayer fails to comply with a decision made by a tax authority in accordance with the law to levy a tax, a late payment fee shall be added on a daily basis at the rate of five ten-thousandths of a cent of the tax from the date of the expiration of the period for payment of the tax determined by the decision of the tax authority to levy the tax."

Reason for modification:

Article 41 of the revised draft will be "late payment" adjusted to "late payment", trying to circumvent the restrictive provisions of Article 45 of the Administrative Compulsory Law on the late payment can not be more than the principal amount of the restrictive provisions of Article 45 of the Administrative Compulsory Law through the change of the name, but the interest rate of five ten-thousandths of one percent of the daily standard has not been changed, the equivalent of the The annual interest rate is as high as 18%, far higher than the People's Bank of the same period of the loan market quotation rate (LPR) and the reasonable scope of the tax interest, the essence is still punitive characteristics.

The key to the application of the Administrative Compulsory Law does not lie in the name, but in the determination of the legal nature. For late payment of taxes, both tax interest and late fees can be levied; the former can be exempted from the Administrative Compulsory Law, but the latter needs to follow the relevant provisions of the Administrative Compulsory Law. In this regard, it should draw on the 2015 draft amendment program to include late payment fees in the enforcement measures on the basis of tax interest, and make it clear that tax interest is calculated from the expiration of the legal deadline for the settlement of taxes, allowing the State Council to formulate a separate interest rate standard; and late payment fees are calculated from the expiration of the deadline for the payment of taxes determined by the tax authorities in making the tax collection decision, and are implemented in the enforcement measures.

In practice, there have been a number of jurisprudence cases in support of the principle that the late tax fee should not exceed the principal amount of the tax. Excessive late payment fees not only increase the burden of taxpayers, but also violate the principle of proportionality. The Administrative Compulsory Law sets the upper limit of late payment fee, aiming at curbing the phenomenon of "exorbitant late payment fee", providing a clear expectation for the parties concerned, prompting them to fulfill their obligations actively, balancing the tax collection and management with the protection of the rights and interests of the counterparts, and urging the tax authorities to take coercive measures in a timely manner to improve the efficiency of administrative management, which is in line with the purpose of tax collection and management.

VI. Proposed changes to article 56 of the revised draft

Article 56 of the revised draft: "If the contributor of a taxpayer abuses the independent status of a legal person and the limited liability of the contributor, adopts the means of capital evasion and write-off, resulting in the inability of the tax authorities to recover from the taxpayer the tax that has not been paid, has been underpaid or has been over-refunded, and if the circumstances are serious, the tax authorities shall recover the tax and the late payment of the tax from the contributor."

Modification Suggestion:

It is proposed that Article 56 be amended as follows: "Where the contributors of a taxpayer abuse the independent status of a legal person and the limited liability of the contributors, and adopt such means as absconding with funds or writing off the funds, resulting in the inability of the tax authorities to recover from the taxpayer the tax that has not been paid, has been underpaid or is over-refunded, and where the circumstances are serious, the tax authorities may, in accordance with relevant provisions of the Company Law of the People's Republic of China, request the people's court to the contributor to assume joint and several liability for the payment of back taxes and late payment of taxes."

Reason for modification:

Article 56 of the revised draft introduces the rule of denial of legal personality in Article 23 of the Company Law into the field of tax collection and management, and makes it clear that the tax authorities may break through the principle of limited liability of the company and directly recover tax and late payment of tax from the contributor who abuses the independent status of the legal person and the limited liability of the contributor, and who avoids the tax through the evasion of funds or the malicious cancellation. Although this provision fills the system gap of tax claims penetration recourse, and clarifies the applicable path of denial of legal personality in the field of taxation, the tax authorities "piercing the veil of the company" should still be the people's court judicial review mechanism established by the Company Law as a prerequisite -- that is, if the tax authorities claim that the contributor has limited liability, the contributor can directly recover the tax and tax late payment fees from the contributor. That is to say, if the tax authority claims that the contributor has abusive behavior, it should file a legal person personality denial lawsuit to the people's court according to law, and the judicial authority shall make substantive review and judgment on whether the contributor has abused the independent status of legal person and limited liability of the contributor according to facts and evidence, instead of directly determining the denial of the legal person personality through the administrative procedure, so as to avoid that the administrative power overrides the judicial power to make the final judgment on the civil legal relationship.

VII. Proposed changes to article 66 of the revised draft

Paragraph 3 of Article 66 of the revised draft: "If the party concerned expressly recognizes the evidence collected by the tax authorities, the probative value of the evidence may be determined; if the party concerned denies it, it shall adduce sufficient evidence."

Modification Suggestion:

It is proposed that the content of this paragraph be amended to read as follows; "If the party concerned expressly recognizes the evidence collected by the tax authorities, the probative value of the evidence may be determined. If the party denies it, it shall provide sufficient evidence. If the party concerned denies it but fails to provide sufficient evidence to refute it, the evidence may be reviewed and recognized as valid in the light of the circumstances of the case as a whole."

Reason for modification:

Paragraph 3 of Article 66 of the revised draft of this new article, the provisions of the tax inspection procedures in the confirmation of the effectiveness of the evidence, through the parties to the evidence of the recognition of the evidence can determine the effectiveness of the evidence, for the enhancement of the efficiency of the levy management has a certain significance. For this amendment, the need to clarify the parties to deny the evidence can not be sufficient to prove the effect, to avoid the reversal of the burden of proof, it is recommended to refer to Article 67 of Provisions of the Supreme People's Court on Certain Issues Concerning Evidence in Administrative Litigation (Judicial Interpretation No. 21 [2002]),where a party denies the evidence but fails to provide sufficient countervailing evidence, the probative value of such evidence shall be comprehensively reviewed and determined based on the entirety of the case, so as to achieve a balance between the efficiency of tax administration and the protection of rights.

VIII. Proposed amendments to articles 73 and 74 of the revised draft

Paragraph 1 of Article 73 of the revised draft: "A taxpayer who adopts the following means to make a false tax declaration or does not make a declaration, and does not pay or pays less tax, is a tax evader. If a taxpayer evades tax, the tax authorities shall recover the unpaid or underpaid tax, the late payment of tax, and impose a fine of not less than 50% and not more than five times the unpaid or underpaid tax; if a crime is constituted, criminal liability shall be investigated in accordance with the law:

(i) Counterfeiting, altering, transferring, concealing or destroying without authorization the books of account, bookkeeping vouchers or other tax-related information; tampering with, counterfeiting or illegally deleting electronic vouchers, electronic invoices and other tax-related electronic data or the rules of tax-related accounting software parameters;

(ii)Fabricating false tax bases, making false expenditures, transferring or concealing income or property, or borrowing or fraudulently using the name of another person to break down income;

(iii)Violation of tax incentives through the provision of false materials or other means;

(iv)Taxpayers who have applied for registration of their establishment and who do not file a declaration when they have committed a taxable act and are liable to pay a large amount of tax;

(v)A taxable act occurs in a taxpayer that has not registered for establishment in accordance with the law, or a taxpayer that is not required to register for establishment in accordance with the law occurs a taxable act with a large amount of tax payable, and fails to make a declaration after being notified to do so by the tax authorities;

(vi)Other tax evasion acts prescribed by laws and administrative regulations."

Article 74 of the revised draft: "Where a taxpayer or a withholding agent has failed to make the required declaration resulting in unpaid or underpaid taxes other than those described in Article 73 of this Law, the tax authorities shall recover the unpaid or underpaid taxes and the late payment penalty for the taxes; in the case of aggravating circumstances, a fine of less than 50% of the unpaid or underpaid taxes may be imposed; and in the case of aggravating circumstances, a fine of more than 50% and more than double of the unpaid or underpaid taxes shall be imposed. A fine of not less than 50 percent and not more than one times the amount of the unpaid or underpaid tax."

Modification Suggestion:

1. It is proposed that the first paragraph of Article 73 be amended to read: "A taxpayer who adopts the following means to make a false tax declaration or intentionally fails to make a declaration and fails to pay or pays less tax is a tax evader. If a taxpayer evades tax, the tax authorities shall recover the unpaid or underpaid tax, late payment of tax, and impose a fine of not less than 50% and not more than five times the unpaid or underpaid tax; if a crime is constituted, criminal liability shall be investigated according to law:

(i) Counterfeiting, altering, transferring, concealing or destroying without authorization the books of account, bookkeeping vouchers or other tax-related information; tampering with, counterfeiting or illegally deleting electronic vouchers, electronic invoices and other tax-related electronic data or the rules of tax-related accounting software parameters;

(ii)Fabricating false tax bases, making false expenditures, transferring or concealing income or property, or borrowing or fraudulently using the name of another person to break down income;

(iii)Violation of tax incentives through the provision of false materials or other means;

(iv)Taxpayers who have applied for registration of their establishment and have committed taxable acts with a large amount of tax payable and have intentionally failed to make a declaration;

(v)A taxable act occurs in a taxpayer that has not registered for establishment in accordance with the law, or a taxpayer that is not required to register for establishment in accordance with the law occurs a taxable act with a large amount of tax payable, and refuses to make a declaration after being notified to do so by the tax authorities;

(vi)Other tax evasion acts prescribed by laws and administrative regulations."

2. It is proposed that Article 74 be amended as follows: "If a taxpayer or withholding agent fails to make the required declaration due to negligence resulting in the situation of non-payment or underpayment of tax, the tax authorities shall recover the unpaid or underpaid tax and the late payment of tax; if the circumstances are aggravated, the taxpayer or withholding agent may be subjected to a fine of less than 50% of the unpaid or underpaid tax; if the circumstances are serious, the taxpayer or withholding agent may be subjected to a fine of more than 50% and more than twice of the unpaid or underpaid tax. or more than one times the amount of the unpaid or underpaid tax."

Reason for modification:

Paragraph 1 of Article 73 of the revised draft integrates the four types of tax evasion behaviors in Paragraph 1 of Article 63 and the non-declaration behaviors in Paragraph 2 of Article 64 of the current Tax Collection and Administration Law into two types of tax evasion behaviors, namely, false tax declaration and non-declaration, which solves the problem of lack of convergence between implementation and punishment that has existed for a long time. It solves the long-existing problem of the lack of convergence between execution and punishment, which is undoubtedly a kind of progress. However, the core issue of what attribution principle should be applied has not been clarified. Whether to apply the principle of fault, the principle of presumption of fault or the principle of no-fault in determining whether a taxpayer constitutes tax evasion has been a great controversy in the practice of tax enforcement. There is no essential difference between tax evasion and tax evasion in terms of objective behavior and results; the core difference lies in the subjective state of the taxpayer.

In the past, the State Administration of Taxation (SAT) has repeatedly clarified the subjective status of tax evasion. It emphasized in the Interpretation of the New Tax Collection and Management Law and its Implementing Rules that "unpaid and underpaid taxes caused by taxpayers can be caused by a variety of circumstances, and even sometimes by taxpayers' subjective and intentional actions, such as tax evasion, tax fraud, etc."; and in the Circular of the State Administration of Taxation on Further Improving the Investigation and Handling of Relevant Work on Cases of Tax Violations ( No. 30 of the General Administration of Taxation [2017]), it is made clear that "for those who have not adopted deception or concealment means, but only due to inaccurate understanding of tax policies, calculation errors and other mistakes that lead to non-payment or underpayment of taxes, ...... is not characterized as tax evasion"; in addition, in the General Administration of Taxation Letter [ 2016] No. 274, General Taxation Letter [2013] No. 196, and State Taxation Office Letter [2007] No. 513, it is pointed out that subjective intent is a constituent element of tax evasion, and the burden of proof is borne by the tax authorities. However, the principle of fault attribution has not been strictly implemented by the grassroots tax authorities, and in practice, this controversial issue has not been resolved, resulting in a large number of taxpayers without subjective fault being recognized as tax evasion.

It should be noted that the 2015 version of the revised draft has responded to this issue, which is an important manifestation of the progress of the rule of law. Although it does not specify the subjective intent element in Article 97 on tax evasion, it adds the "subjective negligence element" in Article 99, i.e., "if a taxpayer ...... violates tax laws and administrative regulations through negligence, resulting in If a taxpayer violates tax laws or administrative regulations through negligence, resulting in unpaid or underpaid tax," it is not recognized as tax evasion. Accordingly, it can be concluded that the application of Article 99 requires proof of the existence of subjective negligence of the taxpayer and the burden of proof is borne by the tax authorities, which can be reversed by applying the tax evasion provisions of Article 97 requires proof of the existence of subjective intent of the taxpayer and the burden of proof is borne by the tax authorities. Although the 2015 version of the revised draft was abandoned, the progressive light of this article should be continued in this revised draft.

However, article 73 of the revised draft does not specify the "subjective intent element", and article 74 does not specify the "subjective negligence element", which is still an objective attribution of responsibility, and is inconsistent with the spirit of civilized law enforcement that has always been advocated by the State Administration of Taxation. This problem is more obvious in the determination of "non-declaration" tax evasion. Article 73 of the revised draft will be the "non-declaration" type of tax evasion, stipulated in the subparagraph (iv) and (v) of paragraph 1 of Article 73, which makes it clear that the taxpayers who are registered will constitute tax evasion as long as they do not declare the taxable acts, without considering any subjective state, and the taxpayers who are not registered will constitute tax evasion only if they are notified to declare and do not do so by the tax authorities. Taxpayers without registration can only constitute tax evasion if they are notified by the tax authorities to make declaration but fail to do so. Due to the lack of examination of the subjective state, taxpayers who are not registered have an additional pre-procedure compared with those who are registered, which creates the paradox of "registration carries risk". Such a provision, will form a kind of bad guidance to market players, forcing market players to choose not to register, to avoid the risk of tax evasion. At the same time, Article 18 of the revised draft provides that taxpayers in the establishment of the registration process, the market supervision and management departments and other registration authorities to inform the taxpayer of the tax declaration in accordance with the law and other related matters, but this provision is more principle, general, and does not require the tax authorities to taxpayers to carry out a detailed, specific tax counseling, obviously can not be derived from the "notification of the should be aware of the" conclusion. Obviously, it is not possible to conclude that "informing means that one should know". Taxpayers may still fail to file tax returns in accordance with the law due to misunderstanding of the tax law and trust in the tax authorities' erroneous law enforcement behavior. It is unreasonable to conclude that failure to file a tax return constitutes tax evasion.

We speculate that this problem may be due to the fact that article 73 of the revised draft basically refers to the "non-declaration" provision of the Judicial Interpretations on Tax-related Legal Issues Jointly Issued by the Supreme People's Court and the Supreme People's Procuratorate in the connection between the implementation of the penalty and the execution of the penalty, but fails to take into account the hidden elements of the crime. According to the basic principles of criminal law, to determine that the perpetrator constitutes a crime, it is necessary to follow the principle of subjective-objective consistency, and the subjective element is one of the indispensable elements for constituting a crime. Specifically for the crime of tax evasion, since the Criminal Law does not explicitly stipulate that it is a negligent crime, it clearly belongs to the intentional crime. Although the Criminal Law does not explicitly stipulate that only "willful tax evasion" constitutes the crime of tax evasion, it is self-evident that willful tax evasion is a constituent element of the crime of tax evasion. However, in the process of referring to the relevant provisions of the Criminal Law and the Judicial Interpretations on Tax-related Legal Issues Jointly Issued by the Supreme People's Court and the Supreme People's Procuratorate, the revised draft only cites the explicitly stipulated constituent elements and ignores the subjective elements omitted from the Criminal Law, resulting in the lack of subjective elements in the stipulation of Article 73 on tax evasion, which leads to the inappropriate result of objective attribution of responsibility.

As a matter of fact,Paragraph 2 of Article 33 of the Administrative Penalty Law as amended in 2021 stipulates that "If the party concerned has evidence sufficient to prove that there is no subjective fault, no administrative penalty shall be imposed. Where laws and administrative regulations provide otherwise, the provisions shall apply", this article is the first time in the field of administrative penalties to clearly examine the subjective state of the parties, and to determine that tax evasion triggers the legal liability of administrative penalties, and of course, the subjective state of the perpetrator must also be examined. Although the Law on Administrative Penalties stipulates the general principle of presumption of fault, it also stipulates the exception clause. The Tax Collection and Administration Law has given the tax authorities great tax inspection authority, and the tax authorities are already in a very strong position. In the field of tax collection and administration, the exceptions of the Administrative Penalty Law should be applied, and the strict principle of fault should be applied, so as to make it clear that the tax authorities should bear the burden of proof that the taxpayers have subjective faults. Therefore, it is recommended that the subjective element be clarified in the "non-declaration" category of tax evasion, which is in line with the spirit of the relevant approvals of the State Administration of Taxation and the basic principles of the Administrative Penalty Law.

In addition, among the tax evasion behaviors under the category of "false tax declaration" stipulated in the revised draft, the expression "transfer" of income and property in paragraph 1 (ii) of Article 73 is not appropriate. Other acts of false tax declaration adopt the expressions of "forgery", "alteration", "concealment", "falsification", "illegal deletion", "fabrication of false tax basis" and other expressions, it is not difficult to find that the law provides for these tax evasion behavior itself can reflect the subjective fault of the taxpayer. However, "transfer" is a neutral concept that does not involve value judgment, and subjective fault cannot be determined from the expression "transfer"; therefore, it is recommended that "transfer" be deleted.

IX. Proposed changes to article 101 of the revised draft

Paragraph 1 of Article 101 of the Revised Draft: "If a taxpayer, withholding agent or tax guarantor has a dispute with a tax authority over tax payment, they may apply for administrative reconsideration in accordance with the law; if they are not satisfied with the decision of the administrative reconsideration, they must first pay or cancel the payment of the tax and the late payment of the tax, or provide the corresponding guarantee, in accordance with the decision of the tax authority, and then they may sue in the People's Court in accordance with the law. The people's court shall accept the case on the basis of the certificate of tax payment or guarantee issued by the tax authorities."

Modification Suggestion:

It is proposed that a new paragraph be added after paragraph 1 of article 101: "The period during which a tax guarantee is processed shall not be counted as part of the period of prosecution."

Reason for modification:

Paragraph 1 of Article 101 of the revised draft abolishes the provision of administrative reconsideration "prior tax clearance requirement", and transfers the requirement of "prior tax clearance requirement" from administrative reconsideration to administrative litigation, so that the parties concerned can apply for administrative reconsideration directly when they have disputes with the tax authorities on tax payment, and no longer require payment of tax or provision of guarantee first. When the parties concerned have disputes with the tax authorities on tax payment, they can apply for administrative reconsideration directly, and no longer have to pay the tax or provide guarantees, which is in line with the provisions of the Customs Tariff Law introduced last year, and greatly reduces the cost of the parties concerned in defending their rights, which is a significant progress in legislation.

At the same time, it is recommended that full consideration should be given to the convergence of the tax guarantee period and the prosecution period. According to Article 45 of the Administrative Procedure Law, the deadline for prosecution after reconsideration is only fifteen days. However, in practice, the time for processing the tax guarantee is usually longer and may far exceed 15 days, which may exceed the prosecution period of the administrative litigation. Therefore, it is proposed to add a provision on the suspension of the prosecution period by adding "the period for processing the tax guarantee shall not be counted as part of the prosecution period" after paragraph 1 of Article 101.

It is hoped that the relevant departments will refer to and adopt the above nine suggestions for amendment when revising and improving the Tax Collection and Administration Law.

 

Beijing Hua Shui Law Firm

April 14, 2025