Recently, a listed company released an announcement that the company received a Tax Treatment Decision Letter issued by the Inspection Bureau in 2020, which required the company to make up for the late payment of taxes totaling 35.14 million yuan, of which only 180,000 yuan was involved in taxes. The company received regulatory attention from the SSE for failing to fulfill its information disclosure obligations in a timely manner. This paper intends to further point out and analyze four situations that may result in only adding late fees without paying back taxes, in light of the company's payment of back taxes and late fees.

      Ⅰ. Introduction of the case

      (Ⅰ) Basic facts of the case

      In August 2020, Company A received a Decision on Tax Treatment issued by the Inspection Bureau, stating that during the period from 2012 to 2016, Company A had the following four tax declaration irregularities:

      1. Failure to declare and pay value-added tax, business tax, urban maintenance and construction tax and pre-collected land value-added tax on the income derived from the sale of Project Z in accordance with the provisions of the Tax Law;

      2. 21 loan contracts signed were not declared for payment of stamp duty in accordance with the provisions of the Tax Law;

      3. In respect of enterprise income tax, Company A did not make pre-tax deduction for land value-added tax in accordance with the provisions of the Tax Law when making enterprise income tax settlement, and did not make pre-tax deduction for donation expenditure in accordance with the provisions of the Tax Law in the enterprise income tax settlement for the years 2013 and 2014;

      4. Company A did not recognize revenue and carry forward costs in respect of Project Z in accordance with the provisions of the Tax Law at the time of the 2012 to 2016 annual remittance.

      (Ⅱ) Decision on tax treatment

      1. Payment of back tax

      Company A shall pay back business tax of RMB90,000, land value-added tax of RMB70,000 and stamp duty of RMB20,000, with the total tax amount of RMB180,000 yuan.

      2. Payment of late fees

      Company A shall pay business tax late payment of RMB 180,000, value-added tax late payment of RMB 26.40, urban maintenance and construction tax late payment of RMB 14,000, land value-added tax late payment of RMB 140,000, stamp duty late payment of RMB 14,000, enterprise income tax late payment of RMB 34.8 million, and the total amount of late payment of RMB 35.14 million.

      Currently, the Company has paid the back taxes and late fees and received the tax completion certificates.

      (Ⅲ) Summary

      As the tax processing decision did not disclose in detail the specific circumstances of the case and the calculation of tax and late payment, the reason why the tax authorities in this case did not require Company A to make up for the EIT but incurred an EIT late payment of RMB 34.8 million could not be ascertained. In practice, if an enterprise fails to pay tax in advance in accordance with the law, or if the unpaid tax is offset against the overpaid tax in the past, the result of not paying tax but charging late fee may be formed. The following will be a specific analysis of the possible cases of not paying tax but charging late fee.

      Ⅱ.Possible scenario 1: not paying tax in advance according to the law, and the tax authorities recovering the late payment fee

      According to the provisions of the Enterprise Income Tax Law, the enterprise income tax shall be prepaid in monthly or quarterly installments. Enterprises shall, within fifteen days from the end of the month or quarter, submit prepaid enterprise income tax return to the tax authorities and make prepayment of tax. Taxpayers shall fulfill the obligation of prepayment.

      The prepayment of enterprise income tax is a means to ensure that the tax is deposited in the treasury in a balanced manner. According to the requirements of the Circular of the State Administration of Taxation on Strengthening the Work of Prepayment of Enterprise Income Tax (Guo Shui Han [2009] No. 34), in principle, the annual prepayment of enterprise income tax in each region should account for not less than 70% of the tax (prepayment + remittance) of the current year's enterprise income tax in the treasury. However, in practice, some enterprises believe that as long as they make up the full amount of tax at the time of remittance, even if the prepayment data is inaccurate, it will not cause any risk to the enterprise, and this understanding is wrong. According to Article 127 of the Regulations for the Implementation of the Enterprise Income Tax Law, in respect of the prepayment method, an enterprise shall make prepayment in accordance with the actual monthly or quarterly profits; if it is difficult to make prepayment in accordance with the actual monthly or quarterly profits, it may make prepayment in accordance with the monthly or quarterly average of the taxable income of the previous taxable year or make prepayment in accordance with any other method approved by the tax authorities. Once the prepayment method is determined, it shall not be changed arbitrarily within the tax year. The existing regulations have already clarified the method of prepayment of tax returns, i.e., in principle, enterprises should prepay according to the actual profit amount, and exceptionally, they may prepay according to the monthly or quarterly average amount of the taxable income of the previous taxable year, or according to other methods recognized by the tax authorities. If the amount of tax reimbursement is too high, the amount of tax prepayment is too low, or even the enterprise intentionally fails to make prepayment or underpayment, the tax authorities may, in accordance with Article 32 of the Law on Administration of Tax Collection, recognize the enterprise's failure to make prepayment of tax according to law as a "failure of the taxpayer to pay tax in accordance with the stipulated time limit", and then impose a recovery of the tax and a late payment charge on the taxpayer. The taxpayer will be required to pay the tax and late fees will be added. In the case that the taxpayer has a large amount of tax that should be paid in advance but has not been paid in advance for part of the month or quarter, and the enterprise has a loss or has zero income at the time of remittance, there will be a situation in which the tax is not to be paid back but a late fee is to be charged.

      As a matter of fact, the problem of late payment charges for non-payment of prepayment in accordance with the law is also reflected in the land value-added tax. For example, in Case No. (2021) Yu 0111 Minchu 1105, Real Estate Development Enterprise B obtained the land in question for the development and construction of Project X, and obtained the Commodity House Pre-sale License for Project X in October 2014, and in the process of pre-sale of the commodity house, Company B prepaid the land value-added tax of more than RMB210,000 for only part of the pre-sale of the house, and there was still a large amount of land value-added tax pre-paid. There was still a large amount of land value-added tax unpaid. Although Company B finally confirmed that the actual land value-added tax payable was RMB0 after liquidation, the tax authorities still recovered the late payment of land value-added tax (pre-collected) from Company B, totaling nearly RMB170,000, as the late payment of the pre-collected land value-added tax that Company B was required to pay was actually incurred in the current period. The court supported the view of the tax authority that "taxpayers should pay tax in advance but have not paid tax in advance and should be charged late fees" by comparing with the provisions on prepayment of enterprise income tax.

      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), if a taxpayer fails to make prepayment of tax in accordance with the deadline for prepayment of tax, the taxpayer shall be subject to late payment charges from the day after the expiry of the deadline for payment of tax in accordance with the relevant provisions of the Law on the Administration of Tax Revenue and the Implementing Rules thereof. As can be seen, regardless of the liquidation result, the taxpayer's late fulfillment of the prepayment obligation faces the risk of additional late fees. Therefore, taxpayers engaged in real estate development business should prepay land value-added tax in time and in full, and if they have difficulties and are unable to prepay, they should also apply for an extension to the tax authorities to avoid increasing their economic burden.

      Ⅲ.Possible Scenario 2: Offsetting tax arrears with refundable tax and only paying late fees corresponding to tax arrears

In the daily business activities of enterprises, if there are tax exemptions and exemptions such as first levy and then refund, tax authorities wrongly levied taxes, prepayment in accordance with the law and should be refunded by the remittance and liquidation of taxes, will be formed "refundable taxes". Article 79 of the Implementation Rules of the Tax Collection and Management Law provides that "when a taxpayer has both refundable taxes and unpaid taxes, the tax authorities may offset the refundable taxes and interest against the unpaid taxes first; if there is a balance after offsetting, it shall be refunded to the taxpayer". In addition, the Circular on Issues Relating to the Offsetting of Refundable Taxes against Unpaid Taxes (Guo Shui Fa 〔2002〕 No. 150) and the Approval Reply on the Scope of Taxpayers' Overpayment of Taxes and the Procedures for Refunding Interest (Guo Shui Han 〔2002〕 No. 566) also make it clear that overpayment of taxes can be used to offset the unpaid taxes and late payment fees. Accordingly, the overpayment of tax by an enterprise can be used to offset the tax it owes. In the above case, if Company A has an overpayment of tax, this check can be used to offset this overpayment of tax and interest, resulting in the phenomenon that some taxes (enterprise income tax, value-added tax and urban maintenance and construction tax) have not been required to pay back the tax, but late payment fees have been added.

      However, although it is theoretically feasible to offset tax arrears with refundable taxes, it is uneconomical in practice. This is because, in accordance with the law, prepayment of taxes caused by the settlement of tax refunds, enjoyment of tax incentives arising from export tax refunds and various tax reductions and exemptions refunds do not belong to the category of calculated interest, even if the refundable tax belongs to the "Taxation Collection and Administration Law", Article 51 of the responsibility of the tax authorities resulting in the tax overcollected, calculated interest is also only in accordance with the standard of the bank deposit interest rate, and the arrears of taxes in the case of failure to pay back the tax in a timely manner. The late payment fee is charged at five ten thousandths of a cent per day, which is equivalent to an annualized interest rate of 18.25%. Although the tax authorities can use tax refunds and taxpayers should make up the tax debt offset, on the surface of the taxpayer also has no additional monetary expenditure, but due to the refundable tax and tax arrears in the "interest" calculation rules are not equal, such an operation for the taxpayer is unfair.

      Ⅳ.Possible Scenario 3: Failure of betting, need to pay late fees on the income obtained in the previous period but not declared

The above case does not involve the transfer of equity, but in practice, the design of equity financing with a betting agreement may also produce tax calculation and late payment calculation "stripped" phenomenon. Specifically, the betting agreement is an agreement reached between the investor and the financier to adjust the valuation of the future target company by way of equity repurchase, performance compensation, etc., in order to solve the uncertainty, information asymmetry, and agency cost of the target company by both parties in reaching the equity financing agreement. validity under the premise of mandatory provisions. From the perspective of taxation, the author believes that the betting agreement is a conditional contract by nature, and the enterprise should treat the equity transfer and the betting agreement as one transaction in its tax treatment.

      However, even if they are treated as one transaction, due to the lack of specific provisions in the tax law on the tax treatment of the betting agreement, related tax-related disputes are still emerging in practice. For example, in 2014, Company C and Company D entered into an Equity Transfer Agreement and a Betting Agreement, agreeing that Company C would transfer 40% of the equity interest in Company E to Company D, with the pricing of the equity transfer being RMB27 million, and committing that if the number of profits of Company E for the three years from 2014 to 2016 was lower than the forecasted number, then Company C would pay performance compensation to Company D. In 2014, Company D paid the entire equity transfer price, and Company C cooperated with Company D to complete the equity change procedures. However, the promised profit was not realized in 2016, which triggered the compensation, and Company C then paid performance compensation to Company D in accordance with the agreement. company C deducted the performance compensation paid in the income from the equity transfer, and accordingly declared and paid the enterprise income tax in 2017. The provisions of Article 3 of the Circular of the State Administration of Taxation on Certain Tax Issues Concerning the Implementation of the Enterprise Income Tax Law (Guo Shui Han [2010] No. 79) state that "the income from the transfer of equity interests by an enterprise shall be recognized as the realization of the income when the transfer agreement takes effect and the procedures for the change of equity interests are completed". Accordingly, the tax authorities in law enforcement mostly recognized that the tax obligation of the equity transferor occurred upon receipt of the transfer price, and the subsequent performance compensation paid to the transferee due to the failure of the bet and the transfer of the equity was regarded as a single transaction, and the compensation could be deducted from the taxable income of the equity transferor, resulting in a tax rebate. Therefore, Company C should recognize the income at once when it received the price of the equity transfer in 2014, and its failure to declare and pay the income from the equity transfer at the time of remittance in 2015 belonged to "failure to pay tax in accordance with the prescribed time limit", and should be counted as a late payment fee. However, since Company C paid performance compensation to Company D, which was equivalent to refunding part of the equity transfer price to Company D, if the performance compensation paid by Company C had fully covered its previous income, the tax obligation of Company C disappeared, and there was no so-called "taxable amount". As the taxpayer's "unpaid or underpaid tax" is compared with the "taxable amount", according to the provisions of the Law on Administration of Tax Collection and its implementation rules, no matter whether the tax has not been paid in accordance with the prescribed period or due to mistakes in calculation, or even due to the existence of tax evasion, tax resistance, or even the existence of tax fraud, tax evasion, or the existence of tax resistance, or the existence of tax evasion. If there are cases of tax evasion, tax resistance or tax fraud, late payment fees will only be incurred if there is unpaid or underpaid tax. Under the aforementioned assumptions, there is no more unpaid tax after Company C pays performance compensation to Company D, so the calculation of late payment fee should be stopped on the date of its payment of performance compensation. However, before the payment of the performance compensation, the tax that Company C has not paid in accordance with the prescribed period is its unpaid tax, and the calculation of the late fee shall continue from the date of receipt of the price of the equity transfer. Therefore, in this case, there will be no need to make up the tax but need to pay late fees.

      Ⅴ. Possible scenario 4: real estate enterprises to increase the tax clearing loss, carry forward and reduce income tax but can not deduct the late payment fees

      In practice, real estate development enterprises to develop and build real estate, may be on different projects to set up separate project companies, some project companies only a project, no other subsequent development projects, according to the "State Administration of Taxation on the real estate development enterprises land value-added tax liquidation involves enterprise income tax rebate issues related to the announcement of the" Article 2 of the provisions of the Land Value-added Tax Clearance, if the land value-added tax clearance, the current year's enterprise income tax liquidation, the taxpayer may carry forward the losses incurred to the previous years of project development for additional deduction. If there is a situation where the project company has not declared tax on the income from the pre-sale of properties obtained during the pre-sale period, as mentioned above, tax arrears and late payment fees will be formed. Although the loss resulting from the liquidation of the land value-added tax may be adjusted to reduce the taxable income of the enterprise income tax for the previous taxable years, and thus may not be subject to the supplemental payment of enterprise income tax, its accumulated late payment fees cannot be deducted, and in accordance with the provisions of the Law on the Administration of Taxation and Collection and its implementation rules, the late payment fees for the failure to pay the tax in accordance with the prescribed period shall be calculated up to the date on which the conclusion of the land value-added tax liquidation audit is made. Therefore, this is also a situation in which there may be no need to pay back the tax, but the late payment fee is payable.