"Everything has a beginning and an end" and the functioning of a business is no exception. Bankruptcy is a way for enterprises to liquidate and withdraw from the market. The legal bankruptcy procedures for enterprises to deal with their debts and liabilities in a compliant manner will help them to play the role of the market in the allocation of resources and better adjust their industrial structure. Taxation issues are a major difficulty in bankruptcy proceedings, which, if not dealt with effectively, will affect the conduct of bankruptcy proceedings and jeopardize the interests of creditors. As there is no clear provision in the existing high-level laws and regulations, the tax-related problems in bankruptcy have been dealt with differently in practice for a long time, and there is a big controversy. This paper intends to discuss the handling of tax arrears found by the tax authorities at different stages of enterprise bankruptcy as an entry point for reference.

I. Jurisprudence: Is the tax payable after the date of acceptance of the bankruptcy application a tax claim?

Summary of the case: Company A uses two pieces of land in Area B of City A for its business operation, with the area of land occupied by Lot 1 being 5260.90 square meters, and the tax rate being RMB 15 per square meter per year; and the area of land occupied by Lot 2 being 50044.92 square meters, and the tax rate being RMB 15 per square meter per year; the tax bureau of Area B is the tax authority of the place where Company A operates, and Company A shall declare and pay urban land use tax, property tax and individual income tax to the tax bureau of Area B on a monthly basis. land use tax, property tax and individual income tax. Company A has failed to pay the corresponding taxes to District B Tax Bureau as scheduled since June 2018, and as of January 20, 2020, Company A owed District B Tax Bureau a total of RMB923,496.75 for property tax, urban land use tax, withholding and payment of personal income tax and late fees.On January 20, 2020, the Intermediate People's Court of Municipality A ruled to accept the application for bankruptcy and reorganization of Company A. According to the law, District B Tax Bureau declared its claims to the administrator and declared the taxes to the administrator. declared claims to the administrator, declared taxes of RMB1,527,607.46 and late payment fees of RMB461,251.09, totaling RMB1,988,858.55, and will continue to be incurred before actual payment.On September 3, 2021, the administrator issued a notice of review of claim form verification objections showing that the amount of the claim declared by the District B Tax Bureau was RMB923,496.75, which was in the nature of a tax claim. District B Tax Office appealed to the court against the administrator's determination of the notice of review. The court of first instance held that creditors should declare their claims to the administrator within the time limit set by the people's court for declaration of claims, and that claims not yet due were deemed due at the time of acceptance of the bankruptcy application, and rejected Area B Tax Bureau's claim for taxes due after the date of acceptance of the bankruptcy.Area B Tax Bureau filed an appeal against the decision.

Focus of the dispute: District B Taxation Bureau considered that it had the right to collect new taxes and late payment fees at any time, and that the review notice issued by the bankruptcy administrator on September 1, 2021 clearly stated that "the Taxation Bureau may continue to exercise its legal right to recover the tax claims after the date of acceptance of the bankruptcy and reorganization in accordance with the law".

Court Decision: The court of second instance held that bankruptcy claims were claims that arose prior to the declaration of bankruptcy, and that with regard to the new taxes arising after January 20, 2020, Article 46 of the Enterprise Bankruptcy Law stipulates that "unexpired claims shall be deemed to be expired at the time of acceptance of the bankruptcy application", so it can be seen that the point in time for determining the bankruptcy claims was based on the date of acceptance of the People's Court's decision. Article 46 of the Enterprise Bankruptcy Law stipulates that "unexpired claims are deemed to be due at the time of acceptance of the bankruptcy application". After the People's Court ruled on the acceptance of the bankruptcy application, the administrator of the bankrupt enterprise fulfilled the tax-related obligations in the name of the enterprise, such as tax declaration, etc., and the relevant taxes were newly generated after the ruling on the acceptance of the bankruptcy application, and could not be recognized as the bankruptcy tax claim. Therefore, the court did not support the claim of Tax Bureau of District B to recognize the above amount as tax claim.

The core issue of this case is whether the tax authorities can declare the tax incurred in the bankruptcy proceedings together with the claims. In the author's opinion, for the tax that has not yet occurred, the tax authorities should not be declared in the declaration of claims, such taxes have not actually occurred, the amount of tax involved can not be accurately defined, if declared will increase the uncertainty of the tax claims, affecting the bankruptcy process of the enterprise. The tax authorities can first inform the administrator of the possible future taxes involved in the declaration of claims, and when the taxes are actually incurred, the newborn claims will be dealt with.

II. Tax arrears found during the claim filing period are declared by the tax bureau to the administrator

Pursuant to Article 48 of the Enterprise Bankruptcy Law, creditors shall declare their claims to the administrator within the claim declaration period determined by the People's Court. The Announcement of the State Administration of Taxation on Several Matters Concerning Tax Collection and Management (SAT Announcement No. 48 of 2019, hereinafter referred to as "Article 48") also provides for the declaration of tax claims in bankruptcy proceedings: the tax authority shall declare the tax owed by the enterprise to the administrator within the time limit for declaration of claims as announced by the people's court. Some places have made more detailed provisions on this article, for example, in the Minutes of the Zhejiang Higher People's Court of the State Administration of Taxation of Zhejiang Province on Optimizing the Handling of Tax-Related Matters in the Bankruptcy of Enterprises, the tax authority in charge, upon receipt of the notification of the declaration of claims, shall copy the notification of the declaration of claims to the Inspection Bureau to which the debtor belongs, and shall check the taxes, late payment fees and penalties owed by the debtor according to the law and determine the tax owed by the debtor, together with human resources and social security departments, health care departments and other relevant departments, in accordance with the laws. departments and other relevant departments to determine the social insurance premiums owed by the debtor enterprise, the governmental non-tax revenues collected by the tax authorities, and their late payment fees (default fees) and fines. The audit bureau shall promptly inventory the status of the debtor's unpaid investigation taxes and fees as well as the status of outstanding audit cases, and provide timely feedback to the competent tax authorities on the results of the inventory. As mentioned above, the unpaid tax claims of enterprises declared by the tax authorities during the claim filing period are derived from the tax arrears inventoried by the competent tax authorities, as well as the status of the enterprises' checking and reimbursement of taxes and fees inventoried by the inspection bureaus, and the status of the outstanding inspection cases.

After the competent tax authorities and inspection bureaus have investigated the unpaid taxes of the bankrupt enterprises, the unpaid taxes (including taxes and surcharges) occurring prior to the date of acceptance of the bankruptcy shall be treated as priority claims, and shall be included in the bankruptcy expenses and co-beneficial debts, secured claims, wages and medical treatment, disability benefits and pension costs owed to the employees by the bankrupts, and the basic old-age pension and basic medical insurance costs owed to the employees, which shall be transferred to the employees' personal accounts, and the basic medical insurance costs that are required by laws and administrative regulations to be paid to the employees. After the compensation that should be paid to the employees as stipulated by laws and administrative regulations, the compensation shall be paid in priority before the ordinary bankruptcy claims.

For cases that are complicated and take a long time to audit, some places have made more detailed provisions, such as Zhejiang, which has issued a summary of the handling of tax-related matters in the bankruptcy of enterprises, stating that "if the tax authority misses the deadline for the declaration of claims due to the complexity of the case or the time-consuming process of checking and clearing of tax and fee claims, the tax authority may make additional declarations of tax and fee claims prior to the final submission of the plan of distribution of bankruptcy property to the meeting of creditors for a vote. Filing of Tax Claims. In reorganization or settlement proceedings, the deadline for supplementary declaration of tax and fee claims is before the voting on the draft reorganization plan or settlement agreement".

III. How to deal with newly discovered historical tax debts after the claim filing period has passed?

(I) Supplementary Declaration System for Tax Claims

In practice, there are cases where the enterprise is subject to tax audit due to the occurrence of upstream or downstream cases after the claim filing period, which in turn leads to historical tax arrears. For this part of tax arrears, on the one hand, unlike the aforementioned tax arrears which have been audited during the claim filing period, and unlike the outstanding cases which have been discovered during the filing period but due to the complexity of the cases, this part of tax arrears has been discovered after the claim filing period and has not been verified by the administrator and the creditors' meeting; on the other hand, this kind of claim is not a newborn claim, and there are currently great disputes over the subordination of the newborn claim to be satisfied, but Claims arising from undiscovered historical tax arrears do not fall into the category of taxable acts for the purpose of continuing business in bankruptcy proceedings.

Article 56 of the Enterprise Bankruptcy Law provides for a supplemental declaration system whereby "[i]f a creditor has not declared a claim within the time limit for declaration of claims as determined by the people's court, he or she may make a supplemental declaration prior to the final distribution of the bankruptcy estate; provided, however, that no supplemental distribution shall be made with respect to distributions that have been made previously. The costs of examining and confirming the supplementary declaration of claims shall be borne by the supplementary declarant". The Tax Administration Law and other relevant laws and regulations do not provide for this supplementary declaration system, but many high courts and tax bureaus have made similar supplementary declaration systems in their tax-related opinions on bankruptcy proceedings.

(II) What is "before final distribution"?

In practice, there is a controversy over the deadline for supplementary declaration of tax claims - "before final distribution", which is considered to be before the actual distribution of the bankruptcy estate to the creditors, and is also understood to be before the distribution plan of the bankruptcy estate is submitted to the meeting of creditors for voting. In this regard, the author believes that reference can be made to the practice of Zhejiang in dealing with the situation that "if the tax authority misses the deadline for filing claims due to the complexity of the case or the time-consuming investigation of the tax claims, the tax authorities can make additional tax claims before the distribution plan of the bankruptcy estate is finally submitted to the meeting of the creditors for voting," i.e., the deadline for filing additional tax claims The deadline for filing additional tax claims is before the bankruptcy property distribution plan, the draft reorganization plan or the draft settlement agreement is submitted to the final vote of the creditors' meeting. On the one hand, this helps to reduce the impact of the uncertainty of tax claims on the insolvency proceedings. If supplementary claims are allowed to be filed after the vote at the creditors' meeting, it will involve issues such as reformulation of the distribution plan and nullification of the distribution plan of the original creditors' meeting, which will impede the conduct of the insolvency proceedings and jeopardize the interests of the majority of the creditors. On the other hand, under the supplementary declaration system, "no additional distribution shall be made to the previously made distribution" fully reflects the protection of the interests of the majority of creditors under the system. In practice, some tax authorities are reluctant to declare their tax claims, believing that enterprise write-offs must be approved by the tax authorities and that tax claims need not be declared. However, according to Article 48 of the Enterprise Bankruptcy Law, creditors shall declare their claims to the administrator within the period determined by the people's court for the declaration of claims, and only the claims of employees need not be declared, which shall be listed and publicized by the administrator after investigation. Therefore, except for employee claims, the remaining claims, including tax claims, should be declared.

IV. How can the tax authorities recover the historical tax arrears when the enterprise has been bankrupt and written off?

For the historical tax arrears newly discovered by the tax authorities after the bankruptcy and write-off of the enterprise, there is a big controversy to whom the tax authorities should recover the tax during the recovery period, and in practice, there are cases that the tax authorities recover the tax from the written-off enterprise, and recover the tax from the shareholders and the actual controller, etc. The author believes that there is no basis in law for the tax authorities to recover the tax from the written-off enterprise. In the author's opinion, there is no basis in law to recover the tax from the written-off enterprise, and after the bankruptcy and write-off of the enterprise, the legal personality of the original company is lost, and the legal status as the main body of the responsibility no longer exists; as for the recovery from the shareholders or the actual controller, the tax authorities apply the relevant provisions of the Provisions of the Supreme People's Court on the Application of Several Issues of the Company Law of the People's Republic of China (II) to the shareholders and the actual controllers for the responsibility for the tax recovery period. However, due to the statutory nature of the tax obligation, when the tax law does not expressly grant the tax authorities the administrative power to recover tax directly from the shareholders of the taxpayer, the tax authorities lack the legal basis to directly pursue the liability of the shareholders, which will break through the boundary of the relative independence of the company and the shareholders, and make the shareholders' rights and interests be infringed upon. If the shareholders fulfill the full amount of capital contribution obligations in accordance with the law and regulations, there is no evasion of capital contribution, false liquidation, malicious transfer of property and other behaviors, the tax authorities can not be recovered from the shareholders of the tax owed by the canceled enterprise.

In recent years, in order to continuously optimize the business environment, serve the high-quality development of the economy, improve the efficiency of bankruptcy cases, reduce the exit costs of market entities, and ensure that tax claims are settled in accordance with the law, the Higher People's Courts in Zhejiang, Anhui, Jiangsu, Guizhou, Henan and other places and the tax bureaus have jointly issued the opinions on the implementation of the tax-related issues in the enterprise bankruptcy procedures, and clarified the declaration of tax claims in the bankruptcy procedures (including the main body of the declaration, the declaration, the declaration, the duration of the declaration, the registration of claims, etc.). These opinions clarify issues such as declaration of tax claims in bankruptcy proceedings (including the subject of declaration, content of declaration, declaration period, registration of claims, etc.), tax declaration (involving the discharge of non-normal households, etc.), credit repair of reorganized enterprises and tax write-off of bankrupt enterprises. These local implementation opinions provide guidelines for enterprises to deal with tax-related issues in bankruptcy proceedings under the general framework of the Tax Administration Law and Circular 48, so as to promote the bankruptcy process more efficiently and safeguard the legitimate rights and interests of creditors. In some cases, enterprises owe large amounts of tax in history, but due to various reasons, they have not been discovered by the tax authorities during the claim filing period, and many of them have a sense of luck. However, if the enterprise is susceptible to being implicated due to upstream and downstream cases, the large amount of tax debts will affect the realization of the rights and interests of other creditors, which in turn will affect the process of bankruptcy. Therefore, enterprises should actively investigate themselves, and the administrator should take the initiative to send the notice of claim declaration and other declaration materials to the competent tax authorities after the date of acceptance of bankruptcy, so as to lay the foundation for the effective declaration, examination and settlement of tax claims in the future.