On June 13, 2024, a listed company issued an announcement stating that the original holding subsidiary that transferred its equity many years ago forwarded to it the "Notice of Tax Matters" (hereinafter referred to as the "Notice") of the tax authority, which stated: "The company failed to file a tax declaration for the consumption tax from January 1994 to October 2009 according to the prescribed declaration period, and the tax payable was assessed to be 85 million yuan." "The reason why the atomic company forwarded the notice to the listed company is that in 2020, the listed company transferred 71% of the equity of the subsidiary, and according to the relevant agreement signed by the two parties to the transfer, if the subsidiary has the liability for unpaid or underpaid taxes before the transfer, the listed company shall be responsible for paying the taxes. Therefore, the listed company discloses the matter as a material matter.
Coincidentally, on March 29 this year, a listed company in Ningbo also received a Notice of Tax Matters issued by the local tax authorities, requiring the company to pay consumption tax on "heavy aromatic derivatives" as "heavy aromatics". According to the calculation of the relevant persons, according to the requirements of the Notice of Tax Matters, the enterprise needs to pay nearly 500 million yuan in taxes. Subsequently, the listed company announced on the evening of June 13 that based on the company's current operating capital difficulties, the company will stop production of 400,000 tons/year aromatic hydrocarbon extraction unit, 400,000 tons/year environmentally friendly aromatic oil production unit and related supporting devices from June 12, 2024.
After the two announcements were issued, there were different opinions about the 30-year retrospective tax payment, which caused a thousand waves and various misunderstandings, and business owners were even more concerned and even anxious. In recent days, the author has received a number of inquiries, including how many years is the tax recovery period of the mainland tax authorities? Under what circumstances will it be levied to the end and under what circumstances will it not be pursued? In response to this hot issue, in fact, there is no need to overreact, the author analyzes and interprets as follows:
One: Is it 3 years, 5 years, or no time limit for tax authorities to pursue taxes?
According to the laws of the mainland, if a taxpayer or withholding agent fails to pay or underpays the tax, the tax authorities can indeed recover the tax in accordance with the law, but the tax recovery period is generally 3 years, which can be extended to 5 years under special circumstances, and only tax evasion, tax resistance and tax fraud are not subject to the restriction of the tax recovery period. So what is tax evasion, tax resistance or tax fraud? The definitions of tax evasion, tax resistance and tax fraud in the Law of the People's Republic of China on the Administration of Tax Collection (hereinafter referred to as the "Law on the Administration of Tax Collection") and the Criminal Law of the People's Republic of China (hereinafter referred to as the "Criminal Law") are as follows:
1. Tax evasion: refers to the act of a taxpayer forging, altering, concealing, or destroying account books and accounting vouchers without authorization, or listing more expenses or omitting or underlisting income in the account books, or refusing to declare or making false tax declarations, and failing to pay or underpaying the tax payable after being notified by the tax authorities.
2. Tax resistance: refers to the refusal of taxpayers and withholding agents to pay taxes by means of violence or threats.
3. Tax fraud: refers to the behavior of taxpayers who use fictitious facts such as false export declarations or methods to conceal the truth, and take advantage of the state's preferential tax policies to obtain tax reductions and exemptions or export tax rebates through open and legal procedures.
If there is no intentional tax evasion, tax resistance, tax fraud or other statutory circumstances for the tax matters of the enterprises involved in the first announcement above (hereinafter referred to as the "enterprises"), and the tax payable is not paid or underpaid simply due to errors such as calculation errors, the general provisions of the recovery period shall be applied, i.e., 3 years, and it may be extended to 5 years under special circumstances. Whether it is 3 years or 5 years, the longest recovery period is 2014.
Since the recovery period has expired, and the enterprises involved should not be required to pay taxes in accordance with the law, does it mean that the tax authorities' pursuit of 30 years has no basis in law? - No, it is not. In response to the public's confusion, the local tax authorities clarified: this recovery is a normal procedure after the audit department finds that the company has unpaid taxes in the previous period, and it is not the so-called 30-year backcheck. Note a key word in the clarification content: the enterprise owes taxes. According to the Mainland's "Reply of the State Administration of Taxation on Issues Concerning the Time Limit for Recovering Tax in Arrears", "if a taxpayer owes taxes, the tax authorities shall pursue the tax collection in accordance with the law until it is collected and put into the treasury, and no unit or individual shall be exempted." Therefore, there is no restriction on the recovery period for the tax authorities to recover the "unpaid" tax. The provision on the recovery period of 3 years or 5 years means that if the unpaid or underpaid tax is not discovered within a certain period of time due to the responsibility of the tax authorities or taxpayers, it will not be recovered after this period. However, for the unpaid tax that has been declared or investigated and dealt with by the tax authorities, the tax authorities are not subject to the limitation of the recovery period, and shall recover the outstanding tax for an indefinite period in accordance with the law.
Therefore, if the enterprise involved has already declared or the tax authorities have investigated and dealt with the tax arrears in the current year, but the tax authorities have not yet collected the tax in the treasury, the tax authorities have no time limit for the recovery of the tax arrears, and no matter how many years have passed, the enterprises involved have to pay 85 million yuan of consumption tax, and the exemption of the recovery period cannot be applied. In other words, it can be inferred from the legal provisions and local tax clarifications that the tax paid by the enterprise involved from 1994 to 2009 is not a misinterpreted "tax backcheck for 30 years", but a normal tax collection behavior, and no one shall be exempted from it until it is collected and put into the treasury according to law.
Law of the People's Republic of China on the Administration of Tax Collection (2015 Amendment)
Article 52 Where a taxpayer or withholding agent fails to pay or underpays the tax due to the responsibility of the tax authorities, the tax authorities may, within three years, require the taxpayer or withholding agent to pay the tax in retroactive amount, but shall not impose a penalty for late payment.
If the taxpayer or withholding agent fails to pay or underpays the tax due to miscalculation or other mistakes, the tax authorities may recover the tax and late payment penalty within three years; In special circumstances, the retrospective period may be extended to five years.
In the case of tax evasion, tax resistance or tax fraud, the tax authorities shall not be subject to the time limit specified in the preceding paragraph in recovering the unpaid or underpaid taxes, overdue fines or taxes obtained by fraud.
Reply of the State Administration of Taxation on Issues Concerning the Recovery Period for Tax Arrears (Guo Shui Han [2005] No. 813)
In accordance with the Law of the People's Republic of China on the Administration of Tax Collection and Collection (hereinafter referred to as the Tax Collection and Administration Law) and other tax laws and regulations, taxpayers have the obligation to pay taxes in accordance with the law. If a taxpayer owes a tax payment, the tax authorities shall pursue the tax collection in accordance with the law until it is collected and deposited into the treasury, and no unit or individual shall be exempted. There is no limitation on the recovery period for tax authorities to recover taxes.
Article 52 of the Tax Administration Law stipulates that if the unpaid or underpaid tax is not discovered within a certain period of time due to the responsibility of the tax authorities or taxpayers, it will not be pursued beyond this time limit. For the unpaid tax that has been declared by the taxpayer or investigated and dealt with by the tax authorities, the tax authorities shall not be subject to the restrictions stipulated in the recovery period of this article and shall recover the tax indefinitely in accordance with the law.
II: In addition to paying back taxes, taxpayers also have these risks – fines, late fees, criminal liability
1. In addition to paying back taxes of 85 million yuan, taxpayers may be involved in the risk of huge late fees
In addition to paying back the tax arrears, the companies involved may also face a further risk, namely the risk of late payment fees. According to Article 32 of the Law on the Administration of Tax Collection, if a taxpayer fails to pay the tax within the prescribed time limit, a late payment penalty of 5/10,000 of the overdue tax shall be imposed on a daily basis from the date of the overdue tax. However, according to Article 52 of the Law on the Administration of Tax Collection, if it is the responsibility of the tax authorities, the taxpayers or withholding agents shall not impose additional late payment penalties if the taxpayer or withholding agent fails to pay or underpays the tax. Combined with this case, if the tax arrears of the enterprise involved do not meet the above-mentioned exemption from the liability of late payment fines, in addition to the liability of 85 million yuan for tax payment, it may also involve the risk of paying late fees.
There has been controversy in practice as to whether the late payment penalty can exceed the tax owed. If there is no upper limit on the amount of late payment fees, according to the above standards, from January 2014 to the announcement date of a listed company in 2024, the late payment fees plus the outstanding taxes of the enterprises involved have been nearly RMB 250 million. According to the Announcement, the original parent company made it clear when signing the equity transfer agreement that if the subsidiary had the liability for unpaid or underpaid taxes before the transfer, the original parent company would be responsible for paying the back taxes, so the high amount of unpaid taxes and late fees would still need to be paid by the original parent company. It is no wonder that the stock price of the listed company fell in response to the announcement.
2. Taxpayers who are involved in tax evasion will face a fine of 50%-5 times the tax
In addition to late payment fines, the tax authorities may impose administrative penalties on violations of tax laws and administrative regulations in accordance with the law. If a taxpayer evades taxes, cheats taxes or otherwise violates the relevant provisions of Articles 60 to 88 of the Law on the Administration of Tax Collection, the tax authorities may impose a fine in accordance with the law, and the fine cannot be waived. According to Article 63 of the Law on the Administration of Tax Collection, if a taxpayer evades taxes, the tax authorities shall recover the tax not paid or underpaid and the late payment fine, and impose a fine of not less than 50% but not more than five times the amount of the tax not paid or underpaid; where a crime is constituted, criminal responsibility is pursued in accordance with law.
However, according to Article 86 of the Law on the Administration of Tax Collection, if an administrative penalty is imposed on an act that violates tax laws and administrative regulations and is not discovered within five years, no administrative penalty shall be imposed. Specifically, in the first case mentioned in this article, if the company's conduct has not been discovered by the administrative authority within five years, and there is no circumstance that the fine cannot be waived, the administrative authority does not have the power to impose an administrative penalty (fine) on the company.
To sum up, the same act of failing to pay taxes in accordance with the law may cause multiple legal risks, so what is the difference between late fees and fines? First, the nature is different: the late payment penalty is to compensate for the late payment loss (essentially the loss of capital occupation) caused by the national tax; A fine is a punishment for illegal acts, which is both punitive and punitive. Second, the fault requirements are different: the levy of late payment penalty does not consider whether the actor has subjective fault, as long as there is an objective act of failing to pay the tax within the prescribed time limit, the tax authority can impose an additional tax late payment penalty; The imposition of fines requires that the parties have subjective fault, and the violation caused by the act that does not have subjective fault shall not be punished or the punishment shall be mitigated. Third, the calculation method is different: the late payment penalty is based on the tax owed, and is calculated at 5/10,000 per day from the day after the expiration of the tax period to the date of actual payment; The amount of the fine shall be determined by the tax authorities in accordance with the Tax Administration Law, and the fine standard for tax evasion as mentioned above shall be "a fine of not less than 50% but not more than five times the amount of tax not paid or underpaid".
Therefore, the payment of back taxes, late fees and fines is often a common "three-piece" risk of tax-related non-compliance of enterprises, and the back payment of taxes, late fees and fines are calculated and determined separately, and whether to recover or exempt taxes, late fees and fines requires a specific analysis of the degree of fault of the enterprise, the behavior involved or the time period involved.
3. Serious tax violations, which can involve criminal liability for 14 crimes
According to mainland criminal law, there are as many as 14 crimes involving tax crimes, and the maximum sentence is life imprisonment.
However, according to Article 201 of the Criminal Law, if a taxpayer is involved in tax evasion, after the tax authorities issue a recovery notice in accordance with the law, he shall pay the tax payable and pay the late fee, and if he has been subject to administrative punishment, he shall not be investigated for criminal liability; However, there is an exception for those who have received criminal penalties for tax evasion within five years or have been given two or more administrative penalties by the tax authorities. That is to say, if the crime of tax evasion is involved, the taxpayer first faces administrative liability, as long as the tax payable, the late fee, and the administrative penalty (such as fine) are accepted, they can be exempted from criminal liability, that is, "the first penalty is not punished".
Three: Rational thinking about hot news
To sum up, the so-called "30 years of back-checking" in the recent hot news, the author believes that because of the lack of serious and specific legal analysis, it has aroused excessive interpretation and emotional reaction from the public. Contrary to the so-called "30-year retrospective investigation", among the various legal bases for tax-related matters in the mainland, there are various clear exemptions for taxpayers such as tax recovery, collection of late fees, fines, and investigation of tax-related criminal liability.
With the development of the times, corporate legal and tax compliance has increasingly become the "golden thread" for enterprises to achieve stability and long-term success. Will past irregularities be pursued? How long is the tax recovery period? Are the circumstances in which the "exemption" applies? Dentons' lawyer team conducted an in-depth analysis and made the following combing and summary to share with readers:
Through the summary of the above table, readers should have clearly figured out whether the tax recovery period is 3 years, 5 years, or no time limit. The law is there, it's just that instead of seriously looking for answers, we're busy anxious.
Tax compliance is a test question that every business and business owner has to do, and the clearer it is, the more certain it is.
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