Editor’s Note: Where an enterprise that has not paid the tax in dispute can only bring a lawsuit against the tax penalty decision, whether the people’s court should review the facts found in the tax treatment decision has long been the subject of inconsistent rulings. On September 17, 2026, the Q&A session of the ninth installment of the Supreme People’s Court’s “Administrative Adjudication Lecture Hall” responded to this issue. This article interprets the Q&A opinion point by point and, by comparison with Administrative Judgment (2026) Qiong 01 Xing Zhong No. 116 of the Haikou Intermediate People’s Court, which takes a position different from that of the Q&A opinion, sets out the review rules established by the Q&A opinion.

01 The SPC Q&A Addresses the Difficulty of Reviewing Tax Penalty Decisions Challenged by Enterprises That Have Not Paid the Tax

Under Article 88 of the Law on the Administration of Tax Collection, a tax payment dispute requires the tax to be paid before administrative reconsideration may be sought, whereas a penalty dispute may be brought directly to administrative reconsideration or litigation. In tax evasion cases, the inspection bureau usually issues a tax treatment decision and a tax penalty decision at the same time. Where an enterprise is unable to pay the tax, it can only raise objections to the facts found in the tax treatment decision in the penalty litigation. Courts in different localities have handled such objections differently. Some courts hold that such objections constitute a tax payment dispute and decline to review them absent prior reconsideration; some courts treat the tax treatment decision as evidence and admit it on the ground that it is not seriously and obviously unlawful; some courts hold that the facts found in the tax treatment decision cannot directly serve as the basis for deciding the case and that the legality of the penalty decision should be reviewed comprehensively; and still other courts have, in the penalty litigation, directly altered the amount of tax evaded as found in the tax treatment decision. Against this background, the SPC’s Q&A merits attention.

In the Q&A segment of this “Administrative Adjudication Lecture Hall,” the question raised by the Administrative Division of the Guizhou Provincial High People’s Court was: “Where an enterprise, because it has not paid the tax, cannot by law apply for administrative reconsideration of, or bring an administrative lawsuit against, the tax treatment decision made by the tax authority, and it brings an administrative lawsuit against the related tax penalty decision, may the people’s court review the tax treatment decision together with it? Where the tax treatment decision contains errors in fact-finding, may the court directly correct such errors?”

The Q&A opinion of the Administrative Division of the Supreme People’s Court is as follows: “First, pursuant to Paragraphs 1 and 2 of Article 88 of the Law of the People’s Republic of China on the Administration of Tax Collection, where a tax payment dispute arises between a taxpayer and the tax authority and the taxpayer has objections to the tax treatment decision, administrative reconsideration shall be a prerequisite; a tax administrative penalty dispute, by contrast, does not require prior reconsideration, and an administrative lawsuit may be filed directly. Second, when the people’s court hears a tax administrative penalty case, the objects of review are mainly the facts, evidence, procedures, application of law and scope of discretion of the challenged penalty decision, and the court generally does not directly adjudicate on the legality or validity of the tax treatment decision. Where the tax treatment decision has become incontestable because the administrative counterpart failed to apply for administrative reconsideration of, or bring an administrative lawsuit against, the tax treatment decision made by the tax authority within the statutory time limit in accordance with law, the people’s court may treat the tax treatment decision as evidence for determining whether the challenged tax penalty decision is lawful, review it by applying the rules of evidence in administrative litigation, and render a judgment in accordance with law. Third, where the people’s court, in hearing a tax penalty case, finds that the tax treatment decision may contain errors such as errors in fact-finding, it may urge the tax authority to correct the errors on its own by means such as issuing judicial recommendations.”

The first point of the Q&A opinion explains the avenues of relief for the two types of decisions, the second point answers what is reviewed and how it is reviewed in penalty litigation, and the third point answers how errors in the tax treatment decision are to be handled. The interpretation below follows this order and uses the administrative judgment of the Haikou Intermediate People’s Court as a point of contrast.

02 The SPC Q&A Distinguishes Adjudication on the Tax Treatment Decision from Review of the Facts Underlying the Penalty

The first point of the Q&A opinion frames the condition for applying the reconsideration prerequisite as where the taxpayer “has objections to the tax treatment decision.” What the reconsideration prerequisite restricts is the avenue of relief against the tax treatment decision; it does not restrict the enterprise from objecting, in penalty litigation, to the facts on which the penalty is based. Reviewing the relevant facts in penalty litigation serves to determine whether the penalty decision is lawful; it does not change the effect of the tax treatment decision and does not constitute circumvention of the reconsideration prerequisite.

The second point of the Q&A opinion further makes clear that in penalty cases “the objects of review are mainly the facts, evidence, procedures, application of law and scope of discretion of the challenged penalty decision.” Under Article 63 and other provisions of the Law on the Administration of Tax Collection, the establishment of tax evasion requires that the taxpayer subjectively acted with intent and objectively adopted the statutorily specified means, resulting in the non-payment or underpayment of tax; and the amount of tax underpaid is in turn the base for calculating the fine. The unlawful means and the amount of underpaid tax found in the tax treatment decision are precisely the constituent facts of the penalty decision, so reviewing the facts of the penalty decision necessarily entails reviewing these facts.

Corresponding to the objects of review, the Q&A opinion delineates the boundary of the court’s adjudication, namely that the court “generally does not directly adjudicate on the legality or validity of the tax treatment decision.” First, “directly adjudicate” refers to rendering a judgment that revokes or alters the tax treatment decision or confirms it as unlawful or invalid. The tax treatment decision is not the subject matter of the litigation, and the court generally may not use penalty litigation as a substitute for the relief procedures for tax payment disputes. Second, the word “directly” indicates that, although the court does not reach a conclusion on the tax treatment decision itself, reviewing it as evidence, when judging whether the penalty decision is lawful, to determine whether the facts it found can be established is not prohibited. Third, the word “generally” implies that exceptions exist. Where a tax treatment decision is seriously and obviously unlawful, it is an invalid administrative act that has no legal effect from the outset, and the court may decline to recognize it. It can thus be seen that the expression “generally does not directly adjudicate” limits the scope of the court’s adjudication, not the scope of its review.

Comparing this with Case (2026) Qiong 01 Xing Zhong No. 116 heard by the Haikou Intermediate People’s Court, the divergence is evident. Company A was found to have evaded more than RMB 1.7 million in taxes by using falsely issued invoices and was fined more than RMB 850,000. It had not paid the tax and brought a lawsuit only against the penalty decision. The court of first instance, the People’s Court of Longhua District, Haikou, held that “if the court were to comprehensively review the facts found in the latter, or even alter the tax treatment decision or the penalty decision on that basis, it would in substance give the administrative counterpart a way to bypass the reconsideration prerequisite and the tax guarantee when a tax payment dispute arises,” and therefore that it “should review only the application of law and the statutory procedures by which the First Inspection Bureau of the Provincial Tax Service made the penalty decision, without needing to further review the fact-finding of the tax payment dispute.” The court of second instance, the Haikou Intermediate People’s Court, upheld the original judgment, holding that “the facts found regarding the tax payment dispute in this case are clear and the evidence is conclusive, so there is no need to review them anew.” The Q&A opinion requires review of the facts and evidence of the challenged penalty decision, whereas the two levels of Haikou courts expressly declined to review them. This is a fundamental divergence between reviewing and not reviewing, rooted in confusing the scope of adjudication with the scope of review. The finding of the court of second instance that “the facts are clear and the evidence is conclusive,” made without reviewing the facts, likewise lacks a basis.

03 The SPC Q&A Adopts the Rules of Evidence as the Path for Reviewing the Facts Found in the Tax Treatment Decision

The Q&A opinion further answers how the review is to be conducted: where the tax treatment decision has “become incontestable,” the court is to treat it as evidence, “review it by applying the rules of evidence in administrative litigation, and render a judgment in accordance with law.” This can be understood from three aspects.

First, incontestability does not bind the court’s determination of facts. The effect of incontestability is directed at the counterparty’s right to relief. The statement by the two levels of Haikou courts that Company A “has lost its right to litigation relief in this regard” means only that it can no longer dispute the tax treatment decision; it does not mean that the facts found in that decision may go unreviewed in the penalty litigation.

Second, the tax treatment decision, as evidence, must be subject to substantive review. The rules of evidence in administrative litigation are mainly embodied in the Provisions of the Supreme People’s Court on Several Issues Concerning Evidence in Administrative Litigation. Under Article 54 of the Provisions, the court shall review each item of evidence individually and all evidence comprehensively, determine the probative relationship between the evidentiary materials and the facts of the case, and accurately ascertain the facts of the case; Articles 55 to 57 provide for the review of the legality and authenticity of evidence and the circumstances in which evidence cannot serve as the basis for deciding a case. The tax treatment decision is official documentary evidence; under Article 63 of the Provisions, its probative force is generally superior to that of other documentary evidence, but greater probative force does not mean that it is automatically accepted. The facts listed in Articles 68 and 70 of the Provisions that may be directly determined or serve as the basis for deciding a case do not include facts found in administrative decisions; the tax authority still bears the burden of proof for the unlawful facts under Article 34 of the Administrative Litigation Law, and the enterprise may also present rebuttal evidence. The Haikou Intermediate People’s Court rejected Company A’s claims on the ground that they were “inconsistent with the facts found in Tax Treatment Decision No. 47,” thereby using evidence that had yet to be tested to negate the party’s objections, which inverts the logic of evidence review.

Third, the standard of review is not limited to serious and obvious illegality. Under Article 75 of the Administrative Litigation Law and Article 99 of the Interpretation of the Supreme People’s Court on the Application of the Administrative Litigation Law of the People’s Republic of China, serious and obvious illegality is the standard for confirming an administrative act as invalid, covering circumstances such as the implementing entity lacking the qualification of an administrative subject, the reduction of rights or increase of obligations without a basis in legal norms, and the content of the act being objectively impossible to carry out. If this standard alone were used to decide whether to accept the tax treatment decision, ordinary errors in fact-finding could not be corrected, which clearly does not meet the requirement of the rules of evidence for substantive review of probative force.

This path is consistent with the earlier views of the Administrative Division of the SPC. In discussing the succession of illegality of administrative acts, the Minutes of Judges’ Meetings of the Administrative Division of the Supreme People’s Court (Volume 1) took the view that presumptive validity generally blocks the illegality of a prior act from extending to a subsequent act, but that an exception should be made where this would leave the illegality uncorrectable and allow it to harm the rights and interests of the counterparty through the subsequent act. That is, where an administrative authority successively makes two related administrative acts, the court may, based on the principle of comprehensive review, review the evidentiary effect of the prior act, and where the prior act is unlawful and this is sufficient to negate its probative effect, the subsequent act should also be confirmed as unlawful. It should be noted that succession of illegality addresses whether the illegality of a prior act can be used to find a subsequent act unlawful, rather than revoking or altering the prior act in litigation over the subsequent act, and it is realized precisely through review of the evidentiary effect of the prior act, which also aligns with the approach of the Q&A opinion. In tax cases, the underpaid tax found in the tax treatment decision is both the prerequisite for establishing tax evasion and the base for calculating the fine; once that finding is wrong, the characterization in the penalty decision or the amount of the fine will inevitably be affected. Therefore, the review of a penalty decision cannot bypass the probative force of the tax treatment decision.

Where review shows that the facts found in the tax treatment decision lack evidentiary support, that the evidence on which it relies should be excluded for reasons such as unlawful evidence collection, or that those facts are overturned by rebuttal evidence, the challenged penalty decision lacks sufficient principal evidence and should be revoked by judgment under Article 70 of the Administrative Litigation Law. Since only the penalty decision is revoked, the effect of the tax treatment decision and the obligation to pay the tax are not affected, and the concern of the court of first instance about “bypassing the reconsideration prerequisite and the tax guarantee” does not arise. As for errors in the tax treatment decision itself, the third point of the Q&A opinion provides the avenue of judicial recommendations. This provision presupposes that the court reviews the relevant facts; if the Haikou Intermediate People’s Court’s position of “no need to review them anew” were adopted, this provision would have no room for application. Judicial recommendations and judgments revoking penalties complement each other, so that errors in the tax treatment decision also have a channel for correction.

04 Conclusion

The Q&A opinion does not make an either-or choice between the reconsideration prerequisite and judicial review, but links the two through evidence review. The effect of the tax treatment decision is generally not directly adjudicated in penalty litigation and is left to the statutory relief procedures and the tax authority’s own correction of errors; the facts it found, however, are subject to substantive testing as evidence in the penalty litigation, so that the legality review in penalty litigation does not become a mere formality. In the aforementioned case, the two levels of Haikou courts expanded not directly adjudicating on the tax treatment decision into not reviewing the facts it found, which conflicts with the Q&A opinion, and the Q&A opinion provides clear guidance for correcting such rulings. For enterprises unable to pay the tax, penalty litigation is an important avenue for seeking judicial review of tax-related facts. Once involved, a professional tax lawyer can, based on the Q&A opinion, build a defense around the evidentiary basis of the facts found in the tax treatment decision and penalty issues such as the characterization of tax evasion and subjective intent, thereby promoting the substantive resolution of tax disputes.