Although land use tax is a small tax, its tax compliance cannot be ignored. In practice, there are few cases in which enterprises did not actually use the land after being granted the land for various reasons, which triggered disputes between the tax authorities and enterprises. Recently, a real estate enterprise has not paid the land use tax because the land is idle due to government reasons, and the tax authorities require it to pay the tax and the corresponding late payment fee, which involves a huge amount of tax. This article is intended to start from the case, the tax enterprise dispute points to make a brief analysis, for the reference of enterprises in similar cases.

I. Case Sharing: The land was idle due to governmental reasons, and the real estate enterprise failed to pay the land use tax and was required to pay nearly ten million dollars of tax and late payment fee by the tax authority.

In May 2014, Municipal Government A introduced a new urban construction project, which was planned to include three parcels of land, namely 01#, 02# and 03#. In July 2014, Real Estate Development Enterprise A entered into a Contract for Granting the Right to Use Land for State-owned Construction with Municipal Bureau of Land and Resources of Municipality A for the parcel of land, namely 03#, in the project through the bidding and auction procedure. It was agreed in the Contract that the grantor would deliver the granted parcel by September 15, 2014 to the land grantee. The transferee, A Housing and Development Enterprise, paid the land grant premium of RMB98 million in full, and intended to carry out the project construction in accordance with the planning scheme after obtaining the land use right.In September 2014, A Housing and Development Enterprise obtained the 03# State-owned Land Use Right Certificate. And then, the water supply and roads supporting the construction of the industrial park where the 03# land is located were not connected, resulting in the inability of the A Housing Development Enterprise to carry out the project construction, and the land has been idle.In July 2019, the Bureau of Natural Resources of the A Municipality served the Certificate of Determination of Idle Land to the A Housing Development Enterprise, which determined that the aforesaid parcel of land was idle land, and the reason for the idleness was due to the governmental reasons for the idleness. Recently, the tax authority of the place where 03# land is located issued a “Decision on Tax Treatment” to Housing Development Enterprise A, requiring the enterprise to pay back land use tax from 2015 to 2024, with an estimated tax and late fee of nearly ten million yuan.

Housing Development Enterprise A argued that it did not actually use the land, was not a taxpayer and did not incur tax obligations. Even if it has tax obligations, the land is idle due to governmental reasons, and it can now apply for hardship relief from the tax authorities and does not need to pay the land use tax. Even if the enterprise needs to pay the tax, the tax authority did not fulfill the obligation to notify, there is a fault, should be applied to three years of tax recovery period, the enterprise only need to make up for the land use tax from 2022 to 2024 and the corresponding late payment fee.

The author summarizes and analyzes the following three major issues in response to the views of the two sides of the tax enterprises.

1. Should Real Estate Enterprise A pay land use tax?

2. Can Real Estate Developing Enterprise A apply for land use tax hardship relief on the ground that “the land is idle due to government reasons”?

3. How is the tax recovery period determined in this case?

II. Should Housing Enterprise A pay land use tax?

The analysis of this issue needs to be broken down into two sub-issues. First, is Enterprise A a taxpayer of land use tax? Secondly, if Enterprise A is a taxpayer, when does its tax liability arise?

(i) Is Enterprise A a taxpayer of land use tax?

According to Article 2 of the Provisional Regulations on Urban Land Use Tax, “Units and individuals using land within the scope of cities, county towns, organized towns, industrial and mining areas are taxpayers of land use tax”. Article 4 of the Interpretation and Provisional Provisions of the State Administration of Taxation on Several Specific Issues of Land Use Tax (Guo Shui Di Zi [1988] No. 15), “Land use tax shall be paid by the unit or individual that owns the right to use the land. If ...... the right to use the land has not been determined or disputes over ownership have not been resolved, the tax shall be paid by the actual user.” Accordingly, whether a unit or an individual is a taxpayer of land use tax is mainly categorized into two situations:

If the ownership of land use right is clear, the unit or individual with land use right is the taxpayer of land use tax, regardless of whether he/she is actually using it or not;

If the ownership of land use right is not clear, the units and individuals who actually use the land are the taxpayers of land use tax.

In this case, there is no dispute over the ownership of the land use right in question, and Housing Enterprise A is the owner of the land use right, therefore, it is the taxpayer of the land use tax. Housing Enterprise A believes that it is not a taxpayer if it does not actually use the land, and the premise and conclusion of the viewpoint of the inversion of the error.

(ii) When did the tax liability of Enterprise A arise?

Interim Regulations on Urban Land Use Tax, Circular of the State Administration of Taxation on Relevant Policies and Provisions on Property Tax and Urban Land Use Tax (Guo Shui Fa [2003] No. 89), Circular of the Ministry of Finance and the State Administration of Taxation on Relevant Policies on Property Tax and Urban Land Use Tax (Cai Shui [2006] No. 186), Announcement of the State Administration of Taxation on the Issues of Urban Land Use Tax on the Acquisition of Land by Tendering and Auction (Cai Shui [2006] No. 186) (Announcement of the State Administration of Taxation on Issues Concerning the Payment of Urban Land Use Tax on Land Acquired through Tendering and Auctioning) (Announcement of the State Administration of Taxation No. 74 of 2014), and other regulations and normative documents have made specific provisions on the time of occurrence of the tax obligation for land use tax.

In this case, Housing Development Enterprise A obtained the land use right of Lot 03# through the bidding and auctioning procedure, and the time of delivery of the land before September 15, 2014 was expressly agreed in the Contract for Granting the Right to Use Land for State-owned Construction. Accordingly, the time of occurrence of land use tax liability of Housing Development Enterprise A was October 1, 2014.

In summary, Real Estate Development Enterprise A should pay the land use tax.

III. Can Real Estate Developing Enterprise A apply for the land use tax hardship exemption on the ground that the land is idle due to governmental reasons?

To analyze this issue, it is necessary to discuss it from two levels: entity and procedure:

(i) Substantive level: Does “idle land due to government reasons” fall within the scope of land use tax hardship relief?

In order to implement the requirements of deepening the reform of administrative approval system, the approval authority of land use tax hardship exemption is decentralized by the State Administration of Taxation. With the decentralization of the authority for land use tax hardship exemption, the regulations on the scope of land use tax hardship exemption vary from place to place. Some localities do not include “idle land due to governmental reasons” in the scope of land use tax reduction or exemption, such as Inner Mongolia, Shaanxi and other provinces. Some places have stipulated that “idle land due to governmental reasons” can be applied for land use tax reduction or exemption.

It should be noted that in the above provisions, some places also need to meet other conditions before applying for land use tax exemption, such as Guizhou Province, also need to meet the conditions of “insufficient monetary funds to pay land use tax”.

Specifically in this case, if the province to which City A belongs has made provisions on “idle land due to governmental reasons” that can be applied for land use tax exemption and reduction, Real Estate Development Enterprise A needs to further determine the specific reasons why the water supply and roads supporting the construction of the industrial park where Land 03# is located have not been passed, and whether it belongs to the government's construction planning, ecological environment management, national construction needs, etc. If the province to which City A belongs does not stipulate that “idle land due to governmental reasons” can be applied for reduction or exemption of land use tax, it can try to communicate and negotiate with the tax authorities, and refer to the regulations of other provinces or other provisions as a breakthrough to strive for exemption or exemption - for example, Sichuan Province stipulates that the land which belongs to the State Taxation Bureau shall be exempted from land use tax. Sichuan Province provides that other special difficulties recognized by the State Administration of Taxation and the Department of Finance of Sichuan Province can also apply for land use tax exemption.

(ii) Procedural level: Can we apply for land use tax relief retroactively?

Land use tax exemptions and reductions are mainly divided into two categories: one is the approved exemptions and reductions, which refers to the exemptions and reductions that are approved by the tax authorities in accordance with the laws, regulations and tax normative documents to apply for exemptions and reductions from the tax authorities; and the other is the filed exemptions and reductions, which refers to the exemptions and reductions that the taxpayers “make their own judgments, make declarations for enjoyment, and retain the relevant information for inspection”. The second is the filing-type tax reduction and exemption, which refers to the taxpayers' tax reduction and exemption programs that are “self-identified, declared and enjoyed, and the relevant information retained for record”.

Difficulty tax reduction and exemption of land use tax belongs to the approved tax reduction and exemption projects, which are handled in accordance with the process of taxpayers' application - acceptance by the tax authorities - examination by the tax authorities - decision of approval or non-approval by the tax authorities. The tax authorities make a decision of approval or disapproval. So, is it possible to retroactively apply for the land use tax hardship exemption?

In the past, Article 6 of the Administrative Measures for Tax Abatement and Exemption (State Administration of Taxation Announcement No. 43 of 2015, now invalid) stipulates that “if a taxpayer is entitled to tax abatement and exemption according to law, but has overpaid tax without enjoying it, the taxpayer may apply for tax abatement and exemption within the period stipulated in the Tax Levy and Administration Law, and ask for a refund of the overpaid tax”. Accordingly, Housing Enterprise A can retroactively apply for tax relief if it meets the substantive elements of land use tax hardship relief. Now, although the above method is invalid, the author believes that the provision can still be referred to, and taxpayers who do not enjoy tax exemption or reduction can apply for enjoyment retroactively, which is compatible with the concept of the rule of law of the modern tax law that safeguards the legitimate rights and interests of taxpayers. From the practical point of view, the author's view can also be proved - March 19, 2020, the taxpayer asked a question, “Our company has been losing money since 2013, which is in line with the conditions of property tax exemption for enterprises in difficulty. However, our company has not applied for the preferential policy of property tax exemption for enterprises in difficulty. May I ask whether our company can retroactively apply in 2020 to enjoy the preferential policies on property tax exemption that we should have enjoyed in previous years”? Henan Provincial Taxation Bureau replied, “Difficulty tax reduction and exemption of property tax is subject to approval management, and taxpayers shall apply for it and enjoy it after approval by the competent tax authorities. Taxpayers who meet the conditions for property tax hardship exemption and reduction but did not apply for it in the current year may apply to the tax authorities for tax exemption and reduction and ask for refund of the overpaid tax within three years from the date of settlement of tax payment”. Although the reply is not specific to land use tax, land use tax can certainly be applied by reference. On the one hand, from the aforementioned substantive provisions on hardship relief for land use tax, the provisions on hardship relief for property tax and land use tax are consistent in most places. On the other hand, the property tax hardship exemption also belongs to the approved type of exemption program, which is of the same nature as the land use tax hardship exemption. Therefore, the author is of the view that in this case, if Housing Enterprise A meets the substantive requirements for land use tax exemption application, it can still apply for hardship exemption to the tax authorities now.

In addition, from the point of view of the legislative purpose of land use tax, the land use tax hardship relief can also be applied for retroactively. Land use tax is levied in order to give play to the economic leverage of taxation, to guide all kinds of enterprises to rationally and economically utilize the land, to protect the land resources, and to fair the tax burden. In this case, the land granted to Housing Enterprise A was idle due to governmental reasons, and it did not use the land, and its rights have been damaged, at this time, if it is not allowed to apply for the land use tax hardship relief retroactively, it is contrary to the legislative purpose of guiding enterprises to rationally utilize the land.

IV. How is the tax recovery period determined in this case?

The analysis of this issue, the first need to clarify the duration of the tax recovery period, determine the period and then analyze the beginning and end of the recovery period.

(i) How is the duration of the tax recovery period determined?

Article 52 of the Law on Administration of Tax Collection, the Reply of the State Administration of Taxation on the Issues Related to the Period of Recovery of Taxes in Arrears (Guo Shui Han [2005] No. 813) and the Reply of the State Administration of Taxation on the Issues Related to the Period of Recovery of Undeclared Taxes (Guo Shui Han [2009] No. 326) provide for the period of the tax recovery period:

1. If it is caused by the responsibility of the tax authorities, i.e. the tax laws and administrative regulations applied by the tax authorities are improper, or the law enforcement behavior is illegal, the tax recovery period is three years;

2.caused by the taxpayer's calculation errors and other errors, that is, the taxpayer's non-subjective and intentional calculation formula application errors and obvious mistakes, as well as caused by the taxpayer's non-declaration, in this case, if the non-payment, underpayment of cumulative amount of tax reaches 100,000 yuan or more, the period of recovery of the tax is five years;

3. If the taxpayer intentionally causes, including tax evasion, tax fraud, tax resistance and tax arrears, there is no limitation on the period of tax recovery.

In this case, the argument that A housing enterprise claimed that it underpaid land use tax only because the tax authority failed to fulfill its notification obligation could not be established. Tax declaration is a legal obligation of taxpayers, and it is not reduced or exempted due to the tax authority's failure to publicize, educate, remind and urge the taxpayer to pay the tax; as a real estate development enterprise engaged in production and operation activities, A real estate development enterprise should be aware of the most basic provisions of the tax law, and should pay the tax in full on time, so that it can not shift the responsibility of failure to pay the tax in time to the tax authority. Meanwhile, in this case, the tax authorities did not make any mistakes in applying laws and regulations, nor did they violate the law, therefore, the three-year tax recovery period should not be applied.A real estate development enterprise is a taxpayer of the land use tax, and it should pay the land use tax, but because of the underpayment of more than 100,000 Yuan due to its failure to file a declaration, the tax recovery period of five years should be applied.

(ii) How to determine the starting time and ending time of the tax recovery period?

1. Determination of the starting time of the tax recovery period

Article 83 of the Implementing Rules of the Tax Collection and Management Law provides for the starting time of the tax recovery period: the period for recovery of tax and late payment shall be calculated from the date of taxpayer, unpaid or underpaid tax. It is necessary to distinguish between the time of occurrence of the tax obligation and the time of payment of the tax, and the occurrence of the tax obligation of the taxpayer does not mean that the tax needs to be paid immediately. The starting time of the tax recovery period should be based on the day after the expiration of the tax payment period, not the day after the date of the tax obligation. How to determine the expiration date of the tax payment period needs to be determined according to different tax types. For land use tax, which is calculated on an annual basis and paid in installments, the specific deadline for declaration and payment varies from place to place. In Qingdao City, for example, the land use tax is calculated on an annual basis and paid in quarterly installments, and taxpayers are required to file tax returns within 15 days after the end of each quarter. In the author's opinion, in this case, the starting time of the tax recovery period should be January 16th, April 16th, July 16th and October 16th.

2. Determination of the termination time of the tax recovery period

The current tax laws and regulations do not provide for the termination time of the tax recovery period, which leads to inconsistent determination in practice. Usually, the tax authorities to the taxpayer to start the investigation, evidence collection and file procedures shall prevail, in practice, generally to the tax authorities to make the “Tax Inspection Notice” date or “Tax Audit Approval Form” date as the termination of the term of the tax recovery period.

Specifically in this case, the author is of the view that it is necessary to firstly determine the regulations of City A on the deadline for land use tax declaration and payment in order to determine the starting time of the deadline for tax recovery, and then according to the practice, the termination time should be the date when the tax authorities made the Notice of Tax Inspection to Housing Enterprise A. Accordingly, the tax authorities should impose a fine on the amount that exceeds the deadline for land use tax declaration and payment. Accordingly, the tax authorities shall not recover the land use tax and the corresponding late payment fee for the part of land use tax exceeding the five-year tax recovery period.

V. Conclusion

From the recently disclosed cases of tax violations, the hidden tax risks of land use tax and other small taxes have gradually appeared, and enterprises should not be paralyzed by the compliance management of small taxes. If there is any unpaid land use tax, it should be paid in accordance with the law; if it meets the conditions of difficult land use tax exemption, it should apply for exemption in accordance with the regulations, so as to avoid unnecessary disputes between taxpayers and enterprises. In case of tax disputes, enterprises should respond prudently, actively communicate with tax authorities, make representation and defense in accordance with the law, and seek legal remedies and professional support from tax lawyers in a timely manner to avoid legal risks such as paying back taxes and late fees.