Editor's Note: This article takes the case of Wenzhou Tax Bureau applying for the bankruptcy liquidation of Company A as an entry point, analyzes the tax-enterprise conflicts in the dilemma of tax arrears execution, and further discusses the rules and values of tax write-off in the bankruptcy process. It aims to provide practical ideas and methods for enterprises and tax authorities to address tax difficulties, and promote the benign exit of market entities and optimal allocation of resources.

01 Case of Tax Authority Applying for Enterprise Bankruptcy Liquidation Accepted by Court

In the case (2024) Zhejiang 03 Po Shen 205, the Wenzhou Tax Bureau applied to the court for the bankruptcy liquidation of Company A, which was accepted. Founded on December 14, 2018, Company A is a limited liability company (sole proprietorship by natural person) registered with the Market Supervision Administration of a certain district in Wenzhou, with a registered capital of 300,000 RMB. Shareholder Ye Moumou subscribed for all capital contributions and held 100% of the shares, and the company's registration status is "in existence".

On July 3, 2023, the Wenzhou Tax Bureau issued the Wenzhou Tax Inspection Penalty [2023] No. 78, finding that Company A had engaged in the illegal act of issuing false value-added tax invoices and imposed a fine of 50,000 yuan. Meanwhile, the company also owed taxes and fees such as value-added tax, urban maintenance and construction tax, education surcharge, local education surcharge, and stamp duty, totaling 66,000 yuan. As of June 12, 2024, the above taxes and fines remained unpaid. After the tax authority inquired with the Wenzhou Real Estate Registration Service Center, vehicle management departments, and relevant banks, no property clues available for execution were found under the name of Company A. In view of Company A's inability to pay due debts and obvious lack of solvency, the Wenzhou Tax Bureau legally applied to the court for its bankruptcy liquidation.

The Wenzhou Intermediate People's Court held that Company A, as a limited liability company, is a corporate legal person and eligible for bankruptcy; it had long failed to fulfill the penalty decision made by the tax authority and the obligation to pay taxes, and was obviously unable to pay; Company A did not object to the bankruptcy liquidation application within the statutory objection period. In summary, the court held that Company A had met the bankruptcy causes stipulated in the Enterprise Bankruptcy Law. Accordingly, the court ruled on August 6, 2024, to accept the application for bankruptcy liquidation of Company A by the Wenzhou Tax Bureau.

02 Escalation of Conflicts and the Need for a Breakthrough in the Dilemma of Tax Arrears Execution

In the above case, if the Wenzhou Tax Bureau did not apply for the enterprise's bankruptcy, would there be other effective tax collection paths? When an enterprise falls into a dilemma of having no funds for operation and no assets available for execution, traditional tax collection means have completely failed. How should tax authorities respond in this situation?

From the perspective of tax authority law enforcement, they face not only a procedural dilemma—tax preservation measures such as sealing, seizing, and freezing cannot be implemented due to the enterprise's "naked" assets, and the enforcement process is stagnated due to the lack of property for execution, leading to long-term inability to close tax violation cases. This also implies substantial risks: the continuous hanging of tax arrears data forms "dead arrears", and the enterprise and its legal representative are included in the tax arrears announcement and dishonesty blacklist, which not only blocks the enterprise's normal cancellation channel but also subjects the responsible person to credit punishment. If this state continues, it will continuously intensify tax-enterprise conflicts. The enterprise loses the possibility of regeneration due to debt shackles, and the tax authority bears performance pressure due to the deterioration of collection indicators. If the opposition between the two parties lacks institutionalized guidance, it is highly likely to evolve into a systematic risk affecting the business environment.

It should be noted that if the enterprise's legal person or shareholders have acts such as transferring assets or false capital contribution, the tax authority can pursue taxes through legal means such as claiming subrogation rights, exercising revocation rights, or requiring shareholders to make up for capital contributions. However, when the enterprise indeed has no hidden property and objectively loses its solvency, simply maintaining the state of tax arrears will only make the conflict fall into a "deadlock". Even if the enterprise does not owe taxes maliciously and has no assets for execution, the continuous state of tax arrears will still lead to the intensification of tax-enterprise conflicts. The key to breaking this dilemma lies in whether tax authorities can promote the management of tax arrears write-off with institutional courage, and resolve conflicts through a standardized write-off mechanism to prevent the accumulation of tax-related contradictions from escalating into universal social conflicts.

03 How Can Tax Authorities Legally Write Off "Dead Arrears"?

In the practice of breaking the dilemma of tax arrears execution, the institutional rules for tax authorities to write off "dead arrears" are crucial. Tax authorities need to take the initiative and dare to use institutional means to write off dead arrears and resolve tax-enterprise conflicts.

What is "dead arrears"? According to Article 8 of the Interim Measures for the Accounting and Management of Unpaid Taxes (Guo Shui Fa [2000] No. 193), the detailed account of "write-off of dead arrears" reflects the unpaid taxes and late fees written off by tax authorities in accordance with laws and regulations based on court judgments or legal liquidation reports after the taxpayer goes bankrupt or is revoked, undergoes legal liquidation, is legally deregistered or has its legal person qualification revoked by the state competent authority, and the taxpayer has ceased to exist. Paragraph 3 of Article 15 of the Measures further clarifies that "for enterprises that are declared bankrupt, revoked, or dissolved and are preparing for asset and debt liquidation, the competent tax authority shall promptly propose to the liquidation institution the requirement to repay the unpaid taxes and late fees, and recover them in accordance with the liquidation order stipulated by laws and regulations. For bankrupt or revoked enterprises that have been legally deregistered or had their legal person qualification revoked by the state competent authority after legal liquidation, and the taxpayer has ceased to exist, the uncollectible unpaid taxes and late fees shall be reported to the provincial tax authority for confirmation and write-off in a timely manner in accordance with laws and regulations based on court judgments or legal liquidation reports."

It can be seen that the core of the dead arrears write-off system is to achieve the legal exemption of tax claims through a standardized process when the enterprise indeed has no property for execution and is determined to have lost its solvency through legal procedures. In the introductory case of this article, the Wenzhou Tax Bureau included the tax arrears and fines in the bankruptcy claim declaration by applying for the enterprise's bankruptcy liquidation, and finally completed the write-off of dead arrears through a court ruling, providing a reference for similar cases, which is worthy of recognition.

The author believes that the positive effect of writing off "dead arrears" lies in achieving "mutual salvation" for both tax authorities and enterprises. For tax authorities, according to Article 71 of the Work Rules for Tax Inspection, "if the person subject to execution indeed has no property to pay taxes, or is indeed unable to pay taxes in accordance with the bankruptcy liquidation procedure, or there are other legal circumstances for ending execution, the inspection bureau may fill in the Approval Form for Ending the Execution of Tax Violation Cases, and after being reviewed by the relevant departments of the tax bureau and approved by the director of the affiliated tax bureau in accordance with the authority and procedures stipulated by the State Tax Administration, end the execution." After the bankruptcy liquidation procedure confirms that the enterprise cannot pay taxes, the tax authority can end the execution of tax violation cases, promptly close the "dead arrears" enterprises, avoid long-term backlog of cases causing performance risks, and optimize the quality and efficiency of tax collection.

For enterprises and their operators, bankruptcy liquidation is by no means the end of business life. It legally solves debt burdens, and business owners are no longer included in the joint dishonesty punishment due to the tax arrears blacklist. The dishonesty label no longer becomes a barrier to restarting operations, allowing them to truly put down the debt shackles and see the dawn of rebirth in the cold winter of business failure. As emphasized in the Opinions on Promoting and Ensuring the Trustee to Perform Duties in the Bankruptcy Process (Fa Gai Cai Jin Gui [2021] No. 274) jointly issued by 13 departments in 2021, writing off "dead arrears" shall not require additional supporting documents in violation of regulations, or refuse to handle it on the grounds that taxes have not been fully paid. This policy orientation of "writing off when due" is precisely the warm care of the state for market entities.

The vitality of a system lies in continuous improvement. For the dead arrears write-off system, the next step could consider optimizing the internal assessment mechanism of tax authorities and moderately relaxing the performance evaluation pressure of dead arrears write-off, so that tax authorities dare to use and are willing to use this policy. The deeper logic is to establish the governance concept of "sharing business risks". Tax arrears caused by enterprise management failure are essentially an unavoidable risk cost in the market economy. As the formulator of market rules, the government should not simply regard it as a "failure" of tax collection but should, through legal procedures such as bankruptcy write-off, share this "growing pain" with enterprises, and finally form a benign cycle of standardized tax write-off, orderly enterprise exit, and efficient market operation. When the system can not only make violators pay the price but also allow honest operators to have the opportunity to start over after failure, such a market ecosystem can truly be called healthy and inclusive.

04 Conclusion

In daily operations, enterprises need to truthfully fulfill their tax obligations, dispose of assets according to law, and strictly abide by the provisions of the Company Law, putting an end to illegal acts such as transferring or concealing property. When an enterprise falls into the dilemma of tax arrears with no property available for execution, the dead arrears write-off system becomes the key path to balance tax collection and enterprise rebirth. When an enterprise is indeed unable to pay, tax authorities should write off dead arrears through legal channels such as bankruptcy procedures, avoiding excessive conversion of business risks into administrative law enforcement pressure. This is not only a deep practice of the "decentralization, regulation, and service" reform but also a necessary path for China's commercial civilization to move towards maturity, letting every subject struggling in the market understand that rules cannot be overstepped, but failure is not eternal. Under the sunshine of the system, honest operators always have the right to start afresh.