In order to enhance the independent innovation ability of enterprises, to promote enterprises to increase R & D investment, to realize the development of industrial upgrading, as early as in the last century, China has introduced tax incentives to support the development of high-tech enterprises, but also formulated the conditions and methods for the identification of high-tech enterprises. With the increasingly fierce international competition in science and technology, China's high-tech enterprises and their development has put forward new requirements, high-tech enterprise identification conditions and methods have changed to increase policy support for science and technology-based enterprises, especially small and medium-sized enterprises. At present, enterprises must meet the eight conditions stipulated in Article 11 of the Administrative Measures for the Recognition of High-tech Enterprises to be recognized as high-tech enterprises. Enterprises recognized as high-tech enterprises, you can enjoy the tax rate of 15% of the enterprise income tax, loss carry-forward years extended and many other tax incentives, but the enterprise is not carefree, the relevant departments, if the enterprise is found to be inconsistent with the conditions of the determination and the determination of the agency to confirm the review, the tax authorities can be recovered by the enterprise has been enjoying the tax incentives. Recently, A enterprise due to obtain industrial incentives and subsidies for high-tech income accounted for less than 60%, was recognized by the agency to cancel the qualification of high-tech enterprises, the tax authorities accordingly recovered the enterprise three years of taxes nearly ten million yuan. This paper intends to analyze and discuss the nature of the administrative act of the qualification of high-tech enterprises, the tax nature of the industrial incentives and subsidies, and the lawfulness and reasonableness of the tax authorities' recovery of the three-year tax in the light of the case.

I.Introduction of the case: Enterprise A received the industrial incentive subsidy from the management committee, which led to the high-tech income ratio not meeting the standard to be canceled the high-tech qualification, and the recovery of taxes amounting to ten million yuan.

(i) Basic facts of the case

In June 2021, according to the Administrative Measures for the Recognition of High-tech Enterprises (Guo Ke Fa Huo [2016] No. 32, hereinafter referred to as the Recognition Measures) and the Guidelines for the Recognition and Management of High-tech Enterprises (hereinafter referred to as the Guidelines for the Work), Enterprise A obtained the qualification of high-tech enterprise and obtained the certificate of high-tech enterprise, with the certificate number of GR2021********, valid for three years. The certificate is valid for three years.In December 2021, Enterprise A received industrial incentive subsidy funds from the Management Committee of A and declared the subsidy funds as special-purpose financial funds as non-taxable income for tax purposes.

In June 2024, the tax authorities found that the tax return of Enterprise A for the year 2021 was wrongly filled in, and the subsidy funds should be treated as taxable income instead of non-taxable income, and then the subsidy funds were included in the taxable income, and the percentage of high-tech income of Enterprise A for the year 2021 was 56%, which did not conform to the item (6) of Article 11 of the “Measures for Determination of High-tech Product (Service) Revenue for the Recent Year”. It does not comply with the provisions of Article 11(6) of the Recognition Measures that “the proportion of the revenue from high-tech products (services) in the recent year to the total revenue of the enterprise in the same period shall not be less than 60%”. Accordingly, the tax authority submitted a request for review to the management organization of high-tech enterprises in Province A. In November 2024, the management organization of high-tech enterprises in Province A submitted a request for review.

In November 2024, after review, the agency confirmed that Enterprise A did not meet the conditions for high-tech enterprise certification, and made a notice to cancel the qualification of high-tech enterprise of Enterprise A.In February 2025, the tax authority requested the tax authority to review the qualification of high-tech enterprise.

In February 2025, the tax authority issued a Notice on Tax Matters to Enterprise A to recover the underpaid enterprise income tax of Enterprise A for the years 2021, 2022 and 2023, plus late payment fees, which were estimated to be ten million yuan.

(ii) Enterprise's view

Enterprise A believes that the tax authority's procedure is illegal. The qualification recognition of high-tech enterprises belongs to administrative licensing, the cancellation of administrative licensing should be informed of the right to hearing, the recognition body did not inform the right to hearing, which is a procedural violation, and the tax authorities made the notification of recovery of tax with illegal administrative behavior, which is also a procedural violation.

Enterprise A also argued that the tax authority's factual findings were unclear and the application of law was improper.

Firstly, according to Article 7 of the Enterprise Income Tax Law, “The following income from gross income is non-taxable income: ...... (c) other non-taxable income as stipulated by the State Council”, and Article 26 of the Regulations for the Implementation of the Enterprise Income Tax Law. Article 26 of the Regulations for the Implementation of the Enterprise Income Tax Law, “Other non-taxable income prescribed by the State Council as referred to in Article 7(3) of the Enterprise Income Tax Law refers to the financial funds obtained by the enterprise and approved by the State Council for the special purposes prescribed by the competent departments of finance and taxation of the State Council”.The government subsidies obtained by Enterprise A belong to the industrial subsidy funds, which are exclusively used for the purpose of supporting the development of enterprises. The government subsidy funds obtained by Enterprise A are industrial award funds, which are exclusively used to support the development of enterprises and meet the requirement of special purpose, meanwhile, the funds are issued by Administrative Committee A approved by the State Council, which is approved by the State Council, and therefore constitute non-taxable income.

Secondly, according to Article 11 of the Measures for Determination, there is no requirement that the conditions for determination should be met after the year of determination, combined with the principle of favoring the taxpayers, the tax authorities shall not expand the interpretation of the conditions for determination to the period of enjoying the tax preferences.When Enterprise A submitted the qualification information of high-tech enterprise in 2021, it has already met the conditions for determination and has obtained the qualification of high-tech enterprise, even if the tax authorities include the funds for industrial incentives and subsidies of the administrative committee into the taxable income. industrial incentive subsidy funds into the taxable income, resulting in the proportion of high-tech income not meeting the standard, it should not recover the tax during the validity period of the certificate.

Finally, even if, according to the viewpoint of the tax authorities, the conditions for recognition under Article 11 of the Recognition Measures cover the validity period of the certificate, i.e., the period of enjoying tax preferences, even though the proportion of high-tech revenues of Enterprise A in the year 2021 did not exceed 60%, the proportion of high-tech revenues of Enterprise A exceeded 60% in both the year 2022 and the year 2023, the tax authorities should only recover the underpaid corporate The tax authorities should only recover the underpaid enterprise income tax for the year 2021, and should not recover the enterprise income tax for the years 2022 and 2023.

(iii) Views of the tax authorities

The tax authorities held that, firstly, the qualification determination of high-tech enterprises belonged to administrative confirmation, and there was no need to fulfill the hearing procedure, and the procedure of the Notice on Tax Matters issued by them was lawful. Secondly, there is no fund management method or specific management requirements for the government subsidy funds obtained by Enterprise A. It is not a non-taxable income, but a taxable income, and after it is included in the total income, the percentage of high-tech income of Enterprise A in the year 2021 does not meet the standard, and it does not meet the conditions for the determination. It is not improper for the tax authorities to recover the tax benefits already enjoyed by Enterprise A since the year of non-compliance with the determination according to the notice of the determination organization.

(iv) Focus of Dispute

According to the viewpoints of both sides of the tax authority and enterprise, we can summarize that there are three focuses of dispute in this case:

First, is the qualification recognition of high-tech enterprise an administrative license or an administrative confirmation?

Secondly, whether the industrial incentive subsidy funds are non-taxable income or taxable income?

Third, after the disqualification of two years of high-tech income ratio are up to standard, the tax authorities to recover three years of tax is appropriate?

II.the qualification recognition of high-tech enterprises does not belong to administrative license, but belongs to administrative confirmation

(i) The qualification recognition of high-tech enterprises does not belong to administrative licensing

According to Article 2 of the Administrative License Law, administrative license refers to the act of granting the administrative organ to engage in specific activities based on the application of the citizen, legal person or other organization, after examination in accordance with the law. Article 12, “the following matters can be set administrative licensing: (a) directly related to national security, public security, economic macro-control, ecological environmental protection, as well as directly related to personal health, life and property safety and other specific activities, need to be approved in accordance with the statutory conditions of the matter; (b) the exploitation of limited natural resources, the allocation of public resources, as well as directly related to the public interest, such as market access for specific industries, etc., the administrative licensing law shall be in accordance with the law, and shall be in accordance with the law. (ii) the exploitation of limited natural resources, allocation of public resources and market access for specific industries directly related to the public interest, matters requiring specific rights; (iii) the provision of public services and directly related to the public interest of the occupation, industry, the need to determine the qualifications, qualifications, such as special credibility, special conditions, or special skills; (iv) directly related to public safety, personal health, life and property safety of important equipment, facilities, products, goods, need to be in accordance with the technical standards, Technical specifications, through inspection, testing, quarantine and other means of validation; (E) the establishment of enterprises or other organizations, the need to determine the subject matter of the qualification; (F) laws and administrative regulations can be set administrative licensing of other matters.

Accordingly, administrative licenses specifically include general licensing, licensing, accreditation, approval and registration. The object of general licensing is a specific activity, such as pharmaceutical licensing; licensing for market access to specific industries, such as coal mining licensing; accreditation is mainly for engaging in specific industries, practice qualifications, qualifications, such as legal professional qualification certificate license, construction business qualifications; approval mainly includes testing, inspection, quarantine, such as pig slaughtering and quarantine; registration is mainly applicable to the establishment of the organization, such as the enterprise registration of industry and commerce. As for the touting provisions of the license must be established by law or administrative regulations.

For high-tech enterprise qualification recognition, obviously does not belong to the general license, licensing, approval, registration. As far as recognition is concerned, although the qualification of high-tech enterprises needs to be recognized by the recognition agency, the high-tech industry is not an industry that provides services for the public and is directly related to public interests. At present, there is no law or regulation will be high-tech enterprise qualification for administrative licensing, does not belong to the bottom of the situation, therefore, we believe that high-tech enterprise qualification is not administrative licensing.

(ii) high-tech enterprise qualification recognition belongs to administrative confirmation

At present, there is no law or regulation on administrative confirmation, according to the general statement, administrative confirmation refers to the administrative organs and legally authorized organizations in accordance with the legal authority and procedures of the administrative relative's legal status, legal relations or relevant legal facts to screen, to determine, recognize, prove and declare the specific administrative act. Such as the issuance of a certificate of disability. Administrative confirmation has the characteristics of confirmation, it does not change or change the legal facts for the purpose, only to the existing or established legal facts, emphasizing the confirmation from there to confirm.

The qualification accreditation of high-tech enterprises is fully in line with the definition and characteristics of administrative confirmation, i.e., the accreditation agency, according to the “Accreditation Measures” and “Working Guidelines”, screens the enterprises that have objectively met the conditions of high-tech enterprises, and confirms and proclaims them through the issuance of certificates of high-tech enterprises. In other words, even if the enterprise does not have the high-tech enterprise certificate, the fact that the enterprise belongs to the high-tech enterprise can be recognized, and with the high-tech enterprise certificate means that the state proves that the enterprise belongs to the high-tech enterprise, and it can enjoy the preferential tax policies during the validity period of the certificate.

(iii) Summary

Although the qualification of high-tech enterprises is not an administrative license, the qualification of high-tech enterprises is not required to cancel the qualification of high-tech enterprises in accordance with the provisions of the Administrative License Law, the obligation to perform the hearing procedure. However, we believe that the organization still needs to start the hearing procedure and inform the enterprise of the right to a hearing.

First of all, from the origin of the hearing procedure, which originated from the principle of natural justice in the common law system, the purpose is to protect the basic rights of citizens, legal persons and other organizations and control the exercise of administrative power. Although the current high-tech enterprise qualification of the relevant laws and regulations do not require the qualification of the agency to cancel the qualification need to start the hearing procedure, inform the enterprise to enjoy the right to a hearing, but the abolition of high-tech enterprise qualification is equivalent to deprive the enterprise to enjoy the right to preferential tax policies, related to the legitimate rights and interests of the enterprise, and even the survival of enterprises, this case, once the cancellation of the qualification of high-tech enterprise A, it will bear the burden of back taxes, late fees of nearly ten million yuan, the tax, the late payment. In this case, once the qualification of Enterprise A as a high-tech enterprise is canceled, it will bear the unfavorable consequences of paying nearly ten million yuan of taxes and late payment fees, which may lead to the difficulty for Enterprise A to survive and hinder the development of high-tech industry. Therefore, the organization should fulfill the obligation of hearing procedure to cancel the qualification of high-tech enterprise, and inform the enterprise to enjoy the right of hearing.

Secondly, the principle of procedural propriety requires the administrative organ to implement administrative management, except for those involving state secrets, commercial secrets and personal privacy protected by law, it should be open and pay attention to listen to the opinions of citizens, legal persons and other organizations; it should strictly follow the legal procedures, and safeguard the right to information, participation and relief of the relative administrative management and the interested party according to law. Accordingly, the hearing procedure is to protect the relative right to know, the right to participate and the right to remedy the key. Through the initiation of the hearing procedure can make the determination of the agency more comprehensive grasp of the facts and the application of the law, to prevent partiality, to ensure that the procedure and the results of justice.

Finally, according to the principle of lightness, the Administrative Penalty Law stipulates that the administrative relative shall be informed of the right to a hearing when a larger fine is imposed on the administrative relative, and the provisions of each province also indicate that a fine of more than 10,000 yuan on a legal person is a larger fine. In this case, enterprise A cancellation of high-tech enterprise qualification, need to pay back taxes, late fees of nearly ten million yuan, is a thousand times the fine of 10,000 yuan, the determination of the agency should be more organized hearing procedures, informing the enterprise can request the organization of the hearing.

In summary, we believe that the determination body did not inform Enterprise A of its right to a hearing, which was improper, and that the tax authorities also improperly issued a Notice of Tax Matters to Enterprise A to recover the tax based on the determination body's notice of cancellation of Enterprise A's qualification as a high-tech enterprise.

III. Industrial incentive subsidy funds are not non-taxable income and are taxable income

(i) Industrial incentive subsidy funds are not non-taxable income

According to the Notice of the Ministry of Finance and the State Administration of Taxation on the Issues of Enterprise Income Tax Treatment of Special Purpose Fiscal Funds (Cai Shui [2011] No. 70), the industrial incentive and subsidy funds obtained by Enterprise A shall meet the following four conditions at the same time, and only then belong to non-taxable income. Namely:

1. The enterprise obtains financial funds from the financial departments and other departments of the people's governments at or above the county level;

2. The enterprise is able to provide the fund disbursement documents stipulating the special purpose of the funds;

3. the financial department or other governmental departments allocating the funds have specialized fund management methods or specific management requirements for the funds;

4. The enterprise accounts for the funds and the expenditures incurred with the funds separately.

In this case, A management committee belongs to the State Council approved the establishment of the economic development zone management committee, A enterprise to obtain A management committee issued industrial incentives and subsidies funds also meets the first element; A enterprise also obtained A management committee issued to support the A enterprise industrial development of the funds disbursed by the red head document, in line with the second element; A enterprise to the funds also set up industrial incentives and subsidies funds ledger, records Enterprise A also set up an industrial incentive subsidy fund account to record the income and expenditure of the fund, which conformed to the fourth constituent element. However, Enterprise A was unable to provide the Administrative Committee of A or the financial department with special fund management methods or specific management requirements for the fund, which did not meet the third element. Therefore, the industrial incentive subsidy funds obtained by Enterprise A do not satisfy the constituent elements of non-taxable income and do not belong to non-taxable income.

(ii) Industrial incentive subsidy funds are taxable income

According to Article 6 of the Enterprise Income Tax Law, “The income obtained by an enterprise from various sources in monetary and non-monetary forms is the total income. It includes: ...... (ix) other income”. According to Article 22 of the Regulations for the Implementation of the Enterprise Income Tax Law, “Other income referred to in Article 6 (IX) of the Enterprise Income Tax Law ...... includes ...... subsidy income... ...etc.”. Accordingly, the funds obtained by Enterprise A from industrial incentives and subsidies belong to other income, which is also taxable income.

(iii) Summary

According to the Working Guidelines, “The ratio of revenue from high-tech products (services) is the ratio of revenue from high-tech products (services) to total revenue for the same period. ...... Total revenue means total revenue minus non-taxable revenue. Total revenue and non-taxable income in accordance with the “Enterprise Income Tax Law” and “Regulations for the Implementation of the Enterprise Income Tax Law”. enterprise A to obtain industrial incentives and subsidies should be used as part of the total income of the enterprise in 2021, the tax authorities found that enterprise A's high-tech income ratio does not meet the standard.

IV.After the disqualification, the proportion of high-tech income reached the standard in two years, and the tax authorities recovered the tax for three years with legality but not reasonableness.

(i) It is legal for the tax authorities to recover the tax of Enterprise A for three years.

According to Article 2 of the Announcement of the State Administration of Taxation on Relevant Issues Concerning the Implementation of Income Tax Preferential Policies for High and New Technology Enterprises (Announcement No. 24 of 2017 of the State Administration of Taxation, hereinafter referred to as the “Document No. 24”), “For the high and new technology enterprises that have obtained the qualification of high and new technology enterprise and enjoy tax preferences If the tax authorities find in the course of their daily management that they do not meet the conditions for identification as stipulated in Article 11 of the Measures for Identification during the process of identification of high-tech enterprises or during the period of enjoying the preferences, they shall request the identification organization to conduct a review. If the review confirms that it does not meet the identification conditions, the certification body shall cancel its qualification as a high-tech enterprise and notify the tax authorities to recover the tax concessions it has enjoyed since the year in which it does not meet the identification conditions during the validity period of its certificate”.

Accordingly, the determination conditions is a broader concept, including both the conditions of the high-tech enterprise determination and the conditions during the enjoyment of tax incentives. Enterprises that do not meet the conditions of the determination, can not obtain the qualification of high-tech enterprises; enterprises such as obtaining high-tech enterprise certificate is valid for any one year, does not meet the conditions of the determination, will be canceled the qualification of high-tech enterprises, accordingly, the tax authorities to recover the tax from the failure to meet the conditions of the determination of the year to the expiration of the certificate for the year.

In this case, Enterprise A was recognized in June 2021, although it meets the conditions for recognition, but in December 2021, it obtained industrial incentives and subsidies, resulting in failure to meet the conditions for recognition, that is, within the validity period of the certificate, it does not meet the conditions for recognition, and the tax authorities have the right to recover the tax concessions enjoyed in the years 2021, 2022 and 2023 according to the law. Therefore, it is legal for the tax authorities to recover the tax of Enterprise A for the three years.

(ii) It is not reasonable for the tax authorities to recover Enterprise A's tax for three years.

From the viewpoint of legislative purpose, the tax preference given to high-tech enterprises is to support the development of scientific and technological innovation, and it is not reasonable to recover the tax of Enterprise A for three years.

In March 1985, the CPC Central Committee issued the Decision of the CPC Central Committee on the Reform of the Science and Technology System (Zhongfa [1985] No. 6), which required that the whole party must attach great importance to and give full play to the great role of science and technology, and carry out a systematic reform of the science and technology system. The Decision of the CPC Central Committee on Further Governance, Rectification and Deepening Reforms was adopted at the Fifth Plenary Session of the Thirteenth Central Committee of the CPC in November 1989, which required that in the next ten years, China should strive to approach or reach the international advanced level in certain fields, and to lay the foundation of the scientific and technological revitalization of our country in the twenty-first century, and the Decision has become a basic guideline to support the development of the high-tech industry and high-tech enterprises. With this, the State Council issued the Notice of the State Council on the Approval of the National High-tech Industrial Development Zone and the Provisions of the Relevant Policies (Guofa [1991] No. 12), approving the Conditions and Measures for the Recognition of High-tech Enterprises in the National High-tech Industrial Development Zone formulated by the State Science and Technology Commission (now changed to the Ministry of Science and Technology), and approving the Provisions of Taxation Policy of the National High-tech Industrial Development Zone formulated by the State Administration of Taxation. The State Administration of Taxation has approved the Provisions on Taxation Policies of National High-tech Industrial Development Zones to support the development of high-tech enterprises.

In 2007, the 17th CPC National Congress was held, proposing to improve independent innovation capability and build an innovative country. Accordingly, the Ministry of Science and Technology (MOST), the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly promulgated the Measures for Recognition and the accompanying document Working Guidelines, in order to further enhance the comprehensive innovation capability of China's high-tech enterprises centered on independent research and development, and to promote the upgrading and development of high-tech industries.

In 2015, the Fifth Plenary Session of the 18th CPC Central Committee was held, which put forward the five development concepts of innovation, coordination, green, openness and sharing. Accordingly, in 2016, the Ministry of Science and Technology, the Ministry of Finance, and the State Administration of Taxation revised the “Recognition Measures” and “Working Guidelines” to include strategic emerging industries, modern service industries and new industries in the scope of support, and at the same time increase the support for science and technology-based small and medium-sized enterprises (SMEs), and appropriately relax the conditions of recognition for SMEs to help the public entrepreneurship and innovation.

Visible, high-tech enterprise qualification since its birth, is to support scientific and technological innovation, promote the development of high-tech enterprises, and then give high-tech enterprise tax incentives. In this case, enterprise A only 2021 annual high-tech income ratio does not meet the standard, does not meet the conditions, but 2022, 2023, are in line with the conditions, the tax authorities in accordance with the 25% tax rate to recover enterprise A 2022, 2023 annual enterprise income tax, and support the development of scientific and technological innovation, support for the development of high-tech enterprises of the legislative purpose of the contrary, does not have the reasonableness.

From the viewpoint of the principle of proportionality, it is not reasonable to recover the tax of Enterprise A for three years.

The principle of proportionality requires that the tax authority should choose the way that causes the least damage to the relative's rights and interests when there are various ways to effectively realize the administrative objectives. 24th Circular will clarify the recovery period in Article 16 of the Recognition Measures “from the year of failure to comply with the conditions for recognition” to “from the year of failure to comply with the conditions for recognition within the validity period of the certificate”. The reason for this is to avoid the expansion of the recovery period due to the misunderstanding, so as to effectively protect the legitimate rights and interests of taxpayers. In this case, the tax authorities recovered the tax of Enterprise A for three years only because the proportion of high-tech income of Enterprise A in 2021 did not meet the standard, which essentially infringed the legitimate rights and interests of Enterprise A. As a matter of fact, the tax authorities' recovery of Enterprise A's tax for the year 2021 can achieve the goal of safeguarding the national tax interests, but the recovery of Enterprise A's tax for the years 2022 and 2023 far exceeds the necessary limit, and essentially deprives Enterprise A of the right to enjoy the tax preferential policies for high-tech enterprises that Enterprise A essentially enjoys in the years 2022 and 2023, which is in violation of the principle of proportionality and does not have reasonableness.

(iii) Summary

In this case, although the tax authorities recovered Enterprise A's three-year enterprise income tax with legality, we believe that the administrative behavior does not have reasonableness, not only contrary to the legislative purpose of supporting the development of high-tech enterprises, but also contrary to the basic requirements of administration in accordance with the law, is not conducive to the construction of the government of the rule of law.

V.Conclusion

This case has sounded an alarm for high-tech enterprises. After obtaining the qualification of high-tech enterprise, the enterprise should keep vigilance on the non-recurrent profit and loss matters during the three-year validity period, focusing on whether there are changes in the indexes of high-tech revenue, R&D expenses and scientific and technological personnel, and do the regularized and proactive work of preventing and controlling the tax risks. If the non-recurring profit and loss matters cause the enterprise not to meet the recognition conditions, the high-tech enterprise should report to the recognition organization in time and take the initiative to re-submit the materials that meet the recognition conditions and obtain the new qualification recognition of high-tech enterprise, in order to prevent from losing a lot of money due to small losses, and being recovered by the tax authorities for the tax concessions that have been enjoyed since the year of non-compliance with the recognition conditions.