China's laws, regulations and judicial interpretations have not made clear provisions on the judicial auction after the abortive auction against the debt in kind link tax issues, the applicant accepts the debt in kind, its legal status is equivalent to the buyer. In accordance with the provisions of the tax law, all kinds of taxes have legal taxpayers, but in practice, the executor usually insolvency, no incentive to cooperate with the collection of taxes and fees, taking into account the problem of tax collection, part of the court usually ruled by the applicant to bear the relevant taxes and fees, or inheritance of auction notices in the tax provisions for processing. In this paper, the tax in judicial auction as an entry point, analyze the judicial auction after the abortive auction in kind against the debt link tax situation and rationality, for readers' reference.

I. Is it reasonable for the buyer in a judicial auction to bear all taxes and fees?

In the compulsory execution procedure, the court conducts or commissions an auction company to publicly dispose of the debtor's property in accordance with the procedure to settle the creditors' claims. The issue of the tax and fees to be borne in the process of property auction has long been controversial. On the one hand, the property subject is usually real estate, and the transfer involves a number of taxes such as value-added tax, land value-added tax, income tax, deed tax, etc., and the amount of taxes and fees is usually large; on the other hand, in most of the taxes, the transferor is the legal taxpayer but lacks the ability to pay the taxes, so in order to promote the auction process and realize the realization of the cash, the court usually decides that the buyer should bear all the taxes and fees, that is, the The "Tax Inclusion Clause".

The application of the tax clause in practice has long been controversial. In recent years, the relevant part of the regulations or explanations issued to respond to this issue, such as the "Supreme People's Court on the people's court network judicial auction of a number of issues of the provisions of Article 30, due to the network of judicial auctions itself the formation of the tax, should be in accordance with the provisions of the relevant laws and administrative regulations, by the corresponding subject; there is no provision or the provisions of the unknown, the court can be based on the principles of the law and the actual situation of the case to determine the The court may determine the relevant subject and amount of the tax or fee according to the legal principles and the actual situation of the case. In September 2020, the State Administration of Taxation (SAT) mentioned in its Reply to Recommendation No. 8471 of the Third Session of the Thirteenth National People's Congress that it is a reasonable practice that the taxes and fees for the auction of real estate shall be borne by the buyer and seller in accordance with the provisions of the law. The Supreme People's Court will further propose requirements to courts at all levels, including requiring courts at all levels to improve the content of auction notices to the greatest extent possible, fully and comprehensively disclosing the defects of the subject matter, and, at the same time, requiring courts at all levels to strictly implement the provisions of the Judicial Interpretation on taxes and fees to be borne by the corresponding subjects in accordance with the law, and strictly prohibiting the requirement that buyers generalize in auction notices to bear the full amount of the taxes and fees.

And for the judicial auction after the abortive auction in rem against the tax burden, because the laws and regulations have not been clearly stipulated, there are also a lot of controversy. In the implementation of the subject matter of the auction or sale is unsuccessful, the applicant can only choose to accept the debt in kind to settle their claims. Although the auction notice in the tax provisions of many disputes, but such tax provisions will generally be clear in advance in the auction notice, the bidders based on the bidding behavior can be presumed to be willing to bear the tax provisions of the agreement to assume, but in rem, the applicant does not have the right to choose. This will give rise to two key issues, one is the debt in kind can inherit the auction notice for the tax agreement? Second, after the auction in rem against the debt of the tax should be shared between the applicant and the executor?

II. After the auction in rem against the debt in kind tax burden whether to inherit the provisions of the judicial auction?

Articles 23 to 25 of the Provisions of the Supreme People's Court on the Auction and Sale of Property in Civil Execution by the People's Courts stipulate that, in rem payment of debt after the abortive auction refers to the situation where the applicant for execution accepts the property auctioned off at the reserved price for the second abortive auction of movable property, the second abortive auction of immovable property or other property rights, the third abortive auction of real estate or other property rights or the failure to realize the property at the auction for the purpose of offsetting the debt. In the process of real estate in rem, the applicant is mainly involved in deed tax and stamp duty, and the executor is involved in value-added tax and surcharge, land value-added tax, enterprise income tax, stamp duty, etc., and the amount of taxes and fees involved in the executor is usually higher. The applicant needs to obtain the relevant tax clearance certificate before applying for transfer and registration based on the execution ruling on debt in kind, which triggers greater implementation objections in practice due to the lack of a clear provision on the tax burden.

Some court rulings state that the tax burden of the debt in kind directly follows the provisions of the auction, such as (2020) Guangdong Executive Review No. 577 ruling that "the tax burden of the debt in kind should be inherited from the auction, the tax burden of the sale, otherwise, the change of the tax burden is essentially a change of the value of the credit, which does not conform to the foregoing. Judicial interpretation of the provisions of the auction reserve price as the offset value of property in rem".

In the author's view, the debt in rem after the auction is different from the auction, according to the "Supreme People's Court on the people's court civil execution of the provisions of the auction, sale of property", such as the subject matter of the execution of the auction or sale is unsuccessful and the applicant for the execution of the applicant or other execution of the creditor's refusal to accept the property against the debt, the people's court will be lifted sealing, seizure, freezing, and the property will be returned to the executor. After the subject matter of the execution of the auction or sale is unsuccessful, the applicant for execution can only choose to accept the debt in kind to settle their claims. As mentioned above, the judicial auction of the tax assumption clause in the auction notice is generally clearly set out, the bidders based on the bidding behavior can be presumed to be willing to assume the assumption of the tax clause agreed to assume the way, but in the debt in rem, the applicant does not have the right to choose whether to accept the tax terms, the inheritance of the auction notice of the tax terms increase the applicant in the implementation of the stage of the cost, and detrimental to the legitimate rights and interests of the applicant executor. The tax clause in the notice of the inheritance auction increased the cost of the applicant in the execution stage and jeopardized the legitimate rights and interests of the applicant.

III. Judicial practice: two common ways to bear the tax after the auction in kind against the debt

(I) In accordance with the provisions of the tax law, the applicant and the executed person "each bear their own taxes".

After the Provisions of the Supreme People's Court on Several Issues Concerning the People's Court's Network Judicial Auction came into effect on January 1, 2017, some courts relied on the provision that "the taxes and fees formed by the network judicial auction shall be borne by the corresponding subjects in accordance with the provisions of the relevant laws and administrative regulations", and made the decision that "each shall bear its own taxes". The judgment of "each tax shall be borne by the corresponding subject" was made accordingly. For example, the auction notice issued by the Yunnan Provincial Higher People's Court states that "the taxes and fees formed by this auction shall be borne by the corresponding subjects in accordance with the provisions of the relevant laws, administrative regulations, etc., and if the provisions are not clear, they shall be borne by the buyer." 

The Supreme People's Court mentioned in (2017) Supreme Law Enforcement Supervision No. 324 that the current law does not clearly stipulate the tax and fee issues arising from the transfer of debt-bearing property after a judicial auction or foreclosure. In practice, it is more common and relatively reasonable for the People's Court to determine the standard of tax and fee borne by both parties to a judicial auction or debt offset with reference to the relevant provisions on autonomous sale and purchase in civil transactions. "In this case, the Guangdong High Court in accordance with the Zhuhai Intermediate Court (2009) Zhuhai Intermediate Law Enforcement Zi No. 161 quater ruling to determine the rules of the tax burden, combined with the Zhuhai City, Guangdong Province, Local Taxation Bureau audit issued by the "real estate transfer tax exemption certificate," and ultimately determined by the executor to bear the transferor's taxes and fees (including business tax, urban construction tax, education surcharges, embankment protection fee, personal income tax, and a portion of the stamp duty), and that the practice of having the applicant executor who accepts the set-off bear the buyer's taxes and fees (deed tax, another portion of the stamp duty, and the registration fee of the Real Estate Registration Center, and the transaction service fee) is not in violation of the law."

(II) the applicant to bear the transfer tax arising from the debt in rem

Whether in the judicial auction or after the auction in rem, the court supported the tax package clause a big reason is to consider the actual collection of taxes and fees. In execution cases, as the taxpayer of most taxes, the transferor is usually the executor who does not have the ability to repay the debt, and taking the buyer as the object to bear the taxes and fees is more favorable to the collection of taxes and fees, and in practice, there are quite a number of courts that have made rulings in favor of the tax package clause based on this.

In (2017) Gui Enforcement Review No. 16 ruling, the court held that, in the execution case, in rem debt set-off does not necessarily generate taxes and fees, and there is no corresponding tax provision for in rem debt set-off, the debt set-off ruling is explicitly made by the applicant executor to hold the ruling to the relevant institutions to handle the relevant property rights for the transfer and registration procedures, and there is no requirement for the executed person to bear any responsibility for the property rights for the transfer of property rights, and as an applicant executor should be aware of the fact that, after the debt set-off Property rights change registration will produce relevant costs, but still accepted the results of the final execution of the debt in kind. The applicant executor in the case after the end of the implementation, to the relevant administrative departments to apply for the transfer of the offsetting registration procedures, and then request the original executor to bear the relevant costs have no factual and legal basis.

In the author's opinion, the taxpayers of each tax obligation is legal, taxable behavior, should bear the obligation to pay taxes and fees. The implementation rules of the tax collection and management law, article 3, paragraph 2, "the taxpayer shall in accordance with the provisions of the tax laws and administrative regulations to fulfill their tax obligations; their contracts, agreements and other contracts signed with the tax laws and administrative regulations, all invalid." The agreement of the tax package in the civil legal relationship does not exempt the taxpayer from the statutory tax obligations, if the buyer does not pay the corresponding tax in accordance with the requirements, the tax authorities still have the right to recover the tax from the statutory taxpayer and pursue the relevant legal responsibility. For the case where the court ruled that the applicant should bear all the taxes and fees, the applicant can file an execution objection for relief in accordance with the provisions of the "Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Execution Objections and Reconsideration Cases by People's Courts".