Recently, We received a tax consultation in which a real estate development enterprise expected to settle the land value-added tax (LVAT) at zero after the completion and acceptance of the project, so it applied to the local government for a temporary non-declaration of payment of pre-payment of land value-added tax (LVAT), and was granted permission to do so. Later, with the reform of consolidation of tax authorities, the consolidated tax authority denied the previous determination that the taxpayer had not declared the prepayment and demanded the taxpayer to pay late fees for the non-payment of prepayment. The question is whether the taxpayer is still required to pay the late payment fee when the land value added tax is already zero. And can the behavior of the pre-reform tax authority constitute a reasonable reliance interest of the taxpayer?

I. Introduction of the case: liquidation of land value-added tax is 0, no prepayment was added late payment fees

(I) The enterprise expected to liquidate the land value-added tax to be zero, and applied for a stay of prepayment and was granted permission.

The taxpayer is a large real estate development enterprise, consisting of a number of construction enterprises as shareholders. The project in question was the construction of a headquarters office building for the shareholders, i.e., the construction enterprises. in 2014, after the completion of the project in question and acceptance, the taxpayer transferred 70% of the total floor area to the shareholders at a price in accordance with the shareholders' investment ratio and the cost profit margins, with the remaining area to be held by the taxpayer itself. After calculation by the taxpayer, taking into account the various deductions for development costs plus deductions, the value-added amount of the land was already negative, and the land value-added tax after liquidation was expected to be zero.

Considering that the amount of land value-added tax after liquidation of the land was zero, the taxpayer considered that it was not necessary to pay the tax in advance and then refund the tax after liquidation. Therefore, the taxpayer applied to the local municipal government not to declare and pay the pre-collected land value-added tax for the time being. The local municipal government, together with the local tax bureau and other relevant units, held a special meeting to study the issue and formed minutes of the meeting, and the local tax bureau then implemented the relevant resolution to suspend the pre-collection of land value-added tax.

(II) Consolidation and reform of tax authorities, clearing land value-added tax as 0 also requires additional late payment fees

In 2019, the project met the conditions for liquidation, and the taxpayer then made a declaration of liquidation of land value-added tax to the competent tax authorities and declared that the land value-added tax payable was 0. At this time, after the consolidation and reform of tax authorities, the competent tax authorities, after review, found that the taxpayer did not declare and pay the land value-added tax in advance on the transfer income of the development project in accordance with the regulations and requested that the taxpayer's transfer of the property in 2014 be subject to a late payment charge. income, to make pre-collection land value-added tax declaration and payment and to add late payment fees. In addition, the competent tax authorities considered that the minutes of the governmental meeting violated the provisions of the tax law and the tax authorities were not allowed to enforce them and should be corrected.

(III) Taxpayers: Late payment fees should not be imposed through no fault of the taxpayers

The reasons given by the taxpayer that no late payment fee should be imposed are:

Firstly, the reason for not fulfilling the prepayment of land value-added tax was not the fault of the taxpayer, and therefore no late payment fee should be imposed. At that time, the taxpayer fulfilled the procedure of applying to the municipal government and the competent local tax bureau for deferring the payment of land value-added tax, and the resolution made to authorize the taxpayer to defer the payment was illegal due to the fault of the administrative organ itself, which was the underpayment of tax due to the reason of the tax authority.

Secondly, the three-year recovery period was exceeded, and therefore the taxpayer did not have to make up for the prepaid land value-added tax and late payment fees.

(IV) Summary of Disputes

In the case of the taxpayer's consultation, there were three main points of contention, one of which was whether the taxpayer's failure to fulfill the obligation of prepayment of land value-added tax before the liquidation of the land value-added tax, in which the amount of land value-added tax was zero, was eligible for the imposition of a late fee; and the second was whether the case was due to the taxpayer's fault, or due to the tax authority's fault in failing to make the prepayment of the land value-added tax within the stipulated time limit. The third is the issue of the recovery period in this case.

II. Based on the nature of the advance tax system, it is not appropriate to impose late fees in this case

(I) The nature of the advance tax: whether it is a tax liability

The core issue of the taxpayer's inquiry was that since the taxable amount of the land tax clearance was zero, indicating that there was no value-added in the whole real estate project, how could the theoretical tax basis of the land tax be zero and how could the pre-collection tax be levied and the late charge be imposed accordingly? According to the "tax collection and management law" for the provisions of the late fee, late fee is five ten thousandths of the late tax, since even the taxable amount does not exist, naturally, there should be no late fee.

However, in the judicial decision, there is a decision to characterize the payment of land value-added tax as a tax obligation: 

The dispute in that case also lay in the fact that the defendant had not been paying the land value-added tax in advance, and although the result of its final land value-added tax clearance determined that the actual amount of land value-added tax due was $0, the tax authorities still demanded to recover the late payment fee for the land value-added tax (pre-collected). In that case, the court held that in the period when the taxpayer should have prepaid but did not prepay the land value-added tax, the late payment fee had already been actually incurred, and the subsequent act of liquidation did not affect the recovery of the late payment fee. However, the court's reasoning in this case was slightly confusing, applying the relevant provisions of the EIT to determine the issue of prepayment of land value-added tax and considering the time of monthly prepayment of land value-added tax as the time of occurrence of the tax obligation.

In general, the Court held that the taxpayer "declared the payment of land value-added tax according to the monthly pre-collection rate of the pre-sale income, and the time of occurrence of the tax obligation was the month when the sales proceeds were actually received, and the period of time was within the 15th day of the following month", which was a characterization of the pre-collection act as a tax obligation. According to this view, the act of pre-payment is the taxpayer's fulfillment of tax obligation, and the act of land value-added tax clearance is only to make an accurate adjustment of the taxable amount, and the more refund and less compensation does not affect the late payment fee in the pre-payment stage.

(II) Based on the protection of taxpayers' rights, the pre-collection of tax should be characterized as a technical means of collection and management

At present, China's "Provisional Regulations on Land Value-added Tax" for the land value-added tax on the occurrence of the time of the obligation to pay land value-added tax is relatively vague, and only stipulates that "taxpayers shall, from the date of the signing of the contract for the transfer of real estate, within 7 days to the competent tax authorities in the location of the real estate to apply for the tax declaration, and pay the land value-added tax in the period approved by the tax authorities. "

According to Article 16 of the Rules for the Implementation of the Provisional Regulations on Land Value-added Tax, if a taxpayer is unable to calculate the land value-added tax on the basis of the income obtained from the transfer of real estate prior to the completion and settlement of the project due to the costs involved or for other reasons, the land value-added tax may be levied in advance, and then be liquidated after the project is fully completed and settled, and the excess will be refunded and the deficiency will be made up. It can be seen that the pre-collection of land value-added tax is based on the efficiency of collection and management and provides another tax payment method different from the direct declaration and payment of land value-added tax. This tax payment method should cover the whole process of pre-collection and liquidation.

According to the provisions of the Regulations on Administration of Land VAT Clearance, land VAT clearance refers to the act of a taxpayer, after meeting the conditions for land VAT clearance, calculating the amount of land VAT payable in accordance with the law, and going through the land VAT clearance procedures in order to settle the land VAT payable for the real estate project. In other words, the relationship between "pre-collection" and "liquidation" can also be understood as the land value-added tax needs to be paid only when the land value-added tax is liquidated, and the pre-collection in the early stage is only a technical means of levy and management.

At present, the land value-added tax does not fulfill the obligation of prepayment. According to the Circular of the Ministry of Finance and the State Administration of Taxation on Certain Issues Concerning Land Value-added Tax (Cai Shui [2006] No. 21), "C. Regarding the issues of land value-added tax pre-collection and liquidation, those who have not paid the tax in advance according to the time limit specified for prepayment shall, in accordance with the relevant provisions of the Law on the Collection and Administration of Taxes and its Implementing Rules, pay the tax from the date of expiration of the time limit for payment of the tax". the day following the expiration of the limited period for payment of the tax, plus a late payment fee." In this article, it is argued that, for the purpose of protecting the state's tax money, the taxpayer is forced to make timely prepayment of land value-added tax through the imposition of late payment fees.

However, in this case, the taxpayer did not cause the loss of state tax, and other real estate development enterprises and foreign pre-sale of property is different, in this case, the taxpayer development of real estate projects are mainly priced to transfer to its shareholders, the remaining part of the self-holding, and there is no profitability, compared to the funds are more tight, but also because of the taxpayer's financial difficulties, so the taxpayer to the local government and the competent tax authorities to apply for It is also because the taxpayer has financial difficulties that it applies to the local government and the competent tax authority for deferred prepayment and exemption of land value-added tax, and in practice, the taxpayer obtains the approval of the local government and the competent tax authority at that time.

This paper argues that since the taxpayer's project does not have land value added and there is no land value added tax, it is only due to some defects in the early collection and management procedures of the taxpayer (and not because of the taxpayer's fault) that a high late fee is levied on them, which is not conducive to the protection of taxpayer rights. This paper argues that the rights of taxpayers should be balanced with the financial revenue interests of the country. Before the legislative amendments are made, the liquidation of land value added tax should be used as the realization of tax obligations. For taxpayers who fail to fulfill their pre-payment obligations, the late payment fee should be imposed cautiously according to the circumstances.

III. This case is the fault of the tax authorities, and the taxpayer's trust interests should be protected

(I) The failure to pay tax in advance is not based on the fault of the taxpayer

According to China's Tax Collection Administration Law and relevant provisions, not all unpaid taxes should be paid in the process of payment, but according to the fault between the taxpayer and the tax authorities, whether to pay late fees and the period of late fees. It can usually be divided into three categories:

If the cause of the taxpayer's underpayment of tax is the taxpayer's fault, then the taxpayer's behavior of underpayment of tax should be levied a late fee. This kind of late payment fee is different according to the different degree of taxpayer's fault: if the taxpayer is intentionally evading taxes, resisting taxes, and cheating taxes, according to the provisions of Article 52, paragraph 3, of the Tax Collection and Administration Law, the tax authority has no time limit for recovering taxes and levying late payment fees. However, if the taxpayer is subjectively evaded due to negligence, according to the provisions of Article 52, paragraph 2, of the Law on the Administration of Tax Collection, "due to the miscalculation of the taxpayer or withholding agent, the tax authority may recover the tax and late payment within three years; Under special circumstances, the recruitment period may be extended to five years."

If the reason for the taxpayer to pay less tax is the fault of the tax authority, then the taxpayer should not be charged a late fee. According to the provisions of Article 52, paragraph 1, of the Law on the Administration of Tax Collection, if the taxpayer underpays the tax due to the responsibility of the tax authority, the late payment fee cannot be levied, and the period of tax recovery is 3 years.

This paper holds that the taxpayer itself is not at fault in this case. First of all, the taxpayer has no subjective intention of tax evasion, tax resistance, tax fraud, and no objective implementation of tax evasion, so it does not belong to the taxpayer's intentional tax evasion, tax resistance, tax fraud, and can not be applied to the indefinite collection of late fees. Second, taxpayers are not missing or underpaying taxes because of miscalculations and other reasons.

When the taxpayer estimates the land value-added tax amount after liquidation, its calculation is not wrong, in fact, the land value-added tax amount after liquidation is indeed 0. At the same time, when taxpayers found that the land value added of the project was negative and the land value added tax was 0, they actively communicated with the local government and the competent tax authorities, and applied to the local government and the competent tax authorities for the suspension or exemption of the pre-collected land value added tax, and fulfilled the obligation of application in the procedure. In accordance with the provisions of the Law on the Administration of Tax Collection and the Detailed Rules for the Implementation of the Law on the Administration of Tax Collection, the taxpayer shall submit a written application to the tax authority for examination and approval by the tax authority, and determine whether to extend the extension and the time limit.

Therefore, the taxpayer has no control over whether the tax authority has approved, the reasons for approval and the procedures. It may be due to various factors that there are problems in the procedure and the application of law when the tax authority makes the approval decision in the current year. However, such procedures are procedures made by administrative acts within the administrative organ, and the taxpayer who is the administrative counterpart cannot be harshly blamed. The taxpayer is in a weak position relative to the tax authorities themselves, and cannot transfer the mistakes of the tax authorities to the taxpayer.

To sum up, this paper holds that in this case, the taxpayer should underpay the tax due to the responsibility of the tax authorities, and the taxpayer cannot be levied a late fee.

(II) Based on the public force of administrative acts, the trust interests of taxpayers should be protected.

According to the principle of administrative law, once an administrative act is made, it has the power of public order and certainty, and is binding on both the administrative organ and the relative. If the administrative act is illegal, the administrative organ has the right to revoke or change. However, if the administrative act has caused the administrative relative to have trust in it, and the administrative relative has already made certain behavior on the basis of this trust, the administrative organ shall protect the trust interests of the administrative relative when considering revoking the illegal or improper administrative act. If the illegal administrative act is seriously unlawful and must be revoked, the taxpayer shall be compensated for the loss suffered by the taxpayer as a result of trusting the administrative act after the specific administrative act has been revoked.

With reference to the relevant provisions of the Administrative Licensing Law, the administrative licenses obtained by citizens, legal persons or other organizations in accordance with the law are protected by the law, and the administrative organs may not change the administrative licenses that have come into effect without authorization. If an administrative organ changes or withdraws an administrative permit that has entered into force in order to meet the needs of the public interest, and if this causes property damage to a citizen, legal person or other organization, the administrative organ shall compensate for it in accordance with the law.

According to the provisions of Article 69 of the Administrative License Law, the administrative organ abuses its power, neglects its duties, exceeds the scope of its authority, violates the legal procedures, and grants a relative who does not have the qualifications, which is a major violation of the law should be withdrawn, but needs to protect the interests of the relative.

In this case, even if the current competent tax authorities that the previous administrative action is a major violation of the need to be revoked to change, then should not harm the interests of taxpayers, that is, in this case should not be levied late payment. If there is underpayment of tax, the tax can be recovered within a period of time, but since there is no underpayment of tax in this case.

IV. Management of land value-added tax and risk response

(I) Improve the tax association system and fully grasp the provisions of the tax law.

First of all, real estate enterprises should establish and improve the company's tax system, especially the financial officer should formulate the internal control system of land value-added tax pre-sale. At the stage of pre-sale of commercial properties, they should comprehensively audit and count the fulfillment of land value-added tax pre-collection, and declare and pay the land value-added tax pre-collection within the specified period.

Secondly, it should fully grasp the provisions of the tax law and legally enjoy the tax policies. In the event that the enterprise but has financial difficulties, it can apply to the tax authorities for a tax extension. However, according to China's "Tax Collection and Management Law" and other relevant regulations, taxpayers who cannot pay tax on time due to special difficulties need to be reported to the competent tax authorities for approval by the provincial tax authorities and approved by the State Taxation Bureau and Local Taxation Bureau of the provinces, autonomous regions and municipalities directly under the Central Government before they can defer the payment of tax, and the maximum period shall not exceed three months.

(II) Real estate development enterprises should strengthen the communication with tax authorities.

There is no national uniform regulation on the management of advance collection of land value-added tax at present, but each local authority is authorized to formulate relevant regulations and standards on its own. The financial personnel should maintain communication with the competent tax authorities to clarify the specific methods of local land value-added tax pre-collection, the specific pre-collection rate and the scope of exemption from pre-collection.

In addition, in practice, there are cases where the tax authorities are unable to contact the real estate development enterprises and thus serve the relevant tax legal instruments in the form of announcements. In this case, whether it is late prepayment of land value-added tax, late declaration of liquidation, or any other refusal to declare after notification of the declaration, it constitutes a light case of tax evasion punishable by fines and late payment penalties, and a heavy case of tax evasion for which the enterprises will be held criminally liable. Therefore, each enterprise should keep in touch with the tax authorities. 

(III) Avoiding other land value-added tax-related risks

Strengthen the management of internal information to avoid the loss or non-compliance of some bills for costs and expenses found at the later stage of liquidation due to imperfect management of internal information and mismanagement of bills and vouchers, which will lead to the reduction of costs and expenses.

Avoid confiscatory expenditures. As expenditures such as administrative fines and land idling fees are non-deductible items, enterprises should strengthen supervision during the development and construction process, construct the project safely, and strictly implement the planning, as well as communicate well with the environment, safety supervision and other departments to avoid facing administrative fines.

Avoid the risk of false opening. Improve the contract review system and financial management system of real estate enterprises, do a good job of accounting audit, and eliminate the inflow of non-compliant invoices and false invoices.