Editor's Note: Mergers and reorganizations help enterprises integrate resources, achieve rapid development and improve competitiveness, and are of great significance in promoting the transformation and upgrading of economic structure and realizing high-quality economic development. In terms of enterprise income tax policy, the Ministry of Finance and the State Administration of Taxation (SAT) have issued tax incentives for deferred tax on special tax treatment of mergers and reorganizations to reduce the tax burden of enterprises. However, in practice, due to the complexity of mergers and reorganizations, the special tax treatment procedure requirements are more detailed, some enterprises meet the entity elements of special tax treatment, but did not report the series of special tax treatment information to the tax authorities, in this case, whether the enterprise can still enjoy the special tax treatment deferred tax incentives, this paper intends to discuss with a case.

I. Introduction of the case: Company A meets the conditions for special tax treatment but fails to file tax adjustments by the tax authorities.

(i) Basic facts of the case

In May 2014, due to business reorganization, Company C acquired 90% of the equity interests in Company B and paid Company A, a shareholder of Company B, the consideration for the equity transfer, which was the equity interests in Company D held by Company C. The Company C has not transferred its equity interests to Company D since the completion of the reorganization transaction. Since the completion of the reorganization transaction, there has been no change in the substantive business activities of Company B and Company D, and neither Company A nor Company C has transferred its acquired equity. The parties to the reorganization, after study, considered that the reorganization business satisfied the conditions for special tax treatment as stipulated in the Circular of the Ministry of Finance and the State Administration of Taxation on Certain Issues Concerning the Enterprise Income Tax Treatment of Enterprise Reorganization Businesses (Cai Shui [2009] No. 59, hereinafter referred to as ''Circular No. 59''), unanimously chose to adopt the special tax treatment and, in the month of the equity transfer, completed the industrial and commercial registration. The Company unanimously chose to adopt the special tax treatment and completed the registration of industrial and commercial changes in the same month of the equity transfer, but did not submit to the tax authorities any information to prove that the reorganization business was in compliance with the conditions for special tax treatment, such as a description of the overall situation of the equity acquisition business and the contract of equity acquisition business.

In May 2015, when Company A handled the enterprise income tax remittance, it checked the box of filing A105100 "Details of Tax Adjustment for Enterprise Reorganization" in the filing form of the annual enterprise income tax return, and filled in "Amount on Account", "Tax Amount" and "Tax Adjustment Amount" under the special tax treatment in the "Details of Tax Adjustment for Enterprise Reorganization". "Tax Amount" "Tax Adjustment Amount" under special tax treatment.

Recently, the tax authorities found that Company A had adopted special tax treatment for its restructuring business but failed to report the information to the tax authorities, so they notified Company A that it was not allowed to adopt special tax treatment and should be treated in accordance with the general tax treatment, assessed the fair value of the equity interest acquired by Company A, and pursued the payment of Company A's unpaid enterprise income tax and imposed late payment fees.

(ii) Perspectives of taxpayers and enterprises

The tax authorities considered that the restructuring business of Company A occurred in 2014 and belonged to the matters of 2014 enterprise income tax remittance, and although Company A met the conditions for special tax treatment, it violated Article 11 of Circular No. 59: "Where an enterprise has undergone a restructuring that meets the conditions for special restructuring stipulated in this Circular and has elected special tax treatment, the parties concerned shall submit written filing information to the competent tax authorities to prove that it meets the conditions for various types of special restructuring when the annual declaration for the current year's enterprise income tax is completed. At the time of annual filing of the enterprise income tax return of that year, the parties shall submit written filing information to the competent tax authorities to prove that they meet the conditions of the various types of special reorganization. Enterprises failing to submit written filings in accordance with the regulations shall not be subject to the tax treatment of special reorganization business", and shall not be entitled to the deferred tax incentives for special tax treatment.

Company A believes that according to the Announcement on Several Issues Concerning the Administration of Collection of Enterprise Income Tax for Enterprise Reorganization Businesses (Announcement No. 48 of 2015 of the State Administration of Taxation, hereinafter referred to as "Announcement No. 48"), the filing requirements under Article 11 of Circular 59 are no longer applicable. Therefore, the tax authorities should not deprive Company A of its right to deferred tax benefits on the ground that Company A has not filed a report.

(iii) Root causes of disputes between taxpayers and enterprises

In this case, the tax authorities and enterprises had different understanding of the impact of the filing procedure of special tax treatment on substantive rights, which led to the dispute. The tax authorities believe that the failure to fulfill the filing procedure prevents them from enjoying the deferred tax incentives for special tax treatments, while the enterprises believe that the failure to file the case does not prevent them from exercising the substantive rights they are entitled to. Therefore, it is necessary to trace the origin of the changes in the administration of enterprise income tax incentives.

II. Changes in the administration of enterprise income tax incentives have different impacts on taxpayers' enjoyment of tax incentives

Enterprise income tax incentives refer to the incentives and care measures taken by the state in enterprise income tax in order to encourage and support the development of a certain industry or subject, including the policies of tax exemption and tax reduction granted to taxpayers in accordance with the laws and regulations; and the policies of deferred tax payment and installment tax payment granted to taxpayers in accordance with the laws, regulations and other relevant tax normative documents. How to let taxpayers enjoy EIT tax incentives in accordance with laws and regulations, and how to prevent the occurrence of falsification, illegal enjoyment of EIT tax incentives and damage to the national tax interests have always been important issues faced by tax authorities. Meanwhile, with the advancement of the reform of "management and service", the way of tax authorities' management of EIT preferences has also changed.

(i) Prior to 2008: "Approval system" + "Approval system" for the administration of EIT concessions

On August 3, 2005, the State Administration of Taxation issued the Administrative Measures for Tax Relief (for Trial Implementation) (Guo Shui Fa [2005] No. 129, now defunct), which specifies two types of administrative methods for tax relief. The first one is the approval type, which must be submitted by the taxpayer to submit the corresponding information to the tax authorities for application, and the tax authorities will issue the approval to the taxpayer for approval before the taxpayer can enjoy it, i.e., the "approval system". The second is the filing category, in which the taxpayer declares the corresponding materials and submits them to the tax authorities for filing, and the tax authorities, after registering and filing, inform the taxpayer that the taxpayer can only enjoy the benefits, i.e. the "approval system". Although the State Administration of Taxation used the word "filing" in this method, from the actual connotation, the taxpayers need to get the confirmation from the tax authorities beforehand to enjoy the tax preferences, so the "filing" is actually "approval". Therefore, "filing" is actually "approval".

At this stage, taxpayers' enjoyment of enterprise income tax incentives is subject to strict control by the tax authorities, and basically requires the approval or authorization of the tax authorities before they can enjoy them.

(ii) 2008-2014: "Approval system" + "Approval system" + "Filing system" for the administration of enterprise income tax concessions

On January 1, 2008, the Enterprise Income Tax Law came into effect. The tax authorities have made corresponding changes to the administration of enterprise income tax incentives.

On December 1, 2008, the State Administration of Taxation ("SAT") issued the Circular of the State Administration of Taxation on Issues Concerning the Administration of Tax Exemptions and Deductions for Enterprise Income Tax ("SAT") (GuoShuiFa 〔2008〕 No. 111, which is now invalid), and on May 15, 2009, the Supplementary Circular of the State Administration of Taxation on Issues Concerning the Administration of Tax Preferences for Enterprise Income Tax ("SAT") (GuoShuiFa 〔2009〕 No. 255, which is now invalid) was issued, which made it clear that In the future, all tax incentives formulated by the State, which are not explicitly for approval, will be subject to filing management, which will consist of two types: prior filing and post-filing of relevant information. Prior filing is the same as the "approval system" before 2008, and taxpayers are not allowed to enjoy tax incentives if they have not filed with the tax authorities; post-filing of relevant information, i.e., the "filing system", is to be reported by the taxpayers when they file their annual tax returns, and if the tax authorities find that they are not eligible for tax incentives after examination, the taxpayers shall be required to file with the tax authorities. If, after examination, the tax authorities find that the taxpayer does not meet the entity conditions for enjoying tax incentives, the tax incentives enjoyed by the taxpayer will be canceled and the tax will be recovered accordingly.

On April 39, 2009, the Ministry of Finance and the State Administration of Taxation ("SAT") issued Circular No. 59, which stipulates that enterprise restructuring can choose special tax treatment and requires the restructuring parties to submit written filing information to the tax authorities during the annual filing of the enterprise income tax return, and that the parties shall not be allowed to enjoy the deferred tax incentives of the special tax treatment without such filing. On 26 July 2010, the State Administration of Taxation also issued the Measures for the Administration of Enterprise Income Tax for Enterprise Restructuring Business (SAT Announcement No. 4 of 2010, hereinafter referred to as the "Announcement No. 4") to further clarify that, in the event of enjoyment of the special tax treatment, if the parties to the restructuring need to be confirmed by the tax authorities, the parties to the restructuring can choose to apply to the competent tax authorities by the restructuring leader, and then report to the provincial tax authorities to give confirmation. The parties to the reorganization may choose to apply to the competent tax authorities and submit to the provincial tax authorities for confirmation.

It can be seen that Circular 59 was born at this stage, and from the expression of Announcement No. 4, it can be seen that the management of deferred tax benefits for special tax treatment is "approval system", that is, it needs to be submitted to the tax authorities to enjoy.

In addition, it can be seen that, compared with the previous stage, the tax authorities have "relaxed" the management of taxpayers enjoying the preferential enterprise income tax policies, and added the "filing system" management, part of the preferential enterprise income tax policies, taxpayers can enjoy the first, and then submit the relevant information when making the annual declaration of enterprise income tax, and then audit. The taxpayers can enjoy some of the preferential enterprise income tax policies first, and then submit the relevant information when making the annual declaration of enterprise income tax, and the tax authorities will review and approve the information again.

Generally speaking, at this stage, the administration of enterprise income tax incentives consists of the "approval system", "authorization system" and "filing system".

(iii) 2014 to 2018: implementation of the "filing system" for the administration of enterprise income tax incentives

On September 15, 2014, the State Administration of Taxation ("SAT") issued the Opinions on Several Issues Concerning the Reform of the Administrative Approval System for Taxation (Taxation General Issue [2014] No. 107, hereinafter referred to as "Article 107") to further promote the reform of the administrative approval system, and to make it clear that "matters for which the administrative approval system for filing is implemented Taxpayers and other administrative counterparts shall submit filing materials to the tax authorities in accordance with the regulations, and the tax authorities shall use them as information to strengthen follow-up management, but shall not deprive or restrict the rights, benefits, qualifications or activities that taxpayers and other administrative counterparts are entitled to according to law, on the grounds that the taxpayers and other administrative counterparts have not filed in accordance with the regulations. Where a taxpayer or other administrative relative fails to fulfill the filing procedures in accordance with the provisions, the tax authorities shall deal with the matter in accordance with the law".

On June 8, 2015, the State Administration of Taxation ("SAT") issued the Measures for the Administration of Tax Exemptions and Deductions (SAT Announcement No. 43 of 2015, which is now invalid), which explicitly stipulates that all matters belonging to the approval category of tax exemptions and reductions must be expressly authorized and permitted by laws and regulations. At the same time, it further refined the filing-type regulations to make it clear that taxpayers may attach or send materials for filing to the tax return at the filing stage of the first-time enjoyment of tax reduction or exemption, or submit the filing information for filing within other prescribed periods after the filing of the levy period.

On August 3, 2015, the State Administration of Taxation ("SAT") issued the Announcement on Relevant Management Issues after the Cancellation of Some Tax Administrative Approval Matters (SAT Announcement No. 56 of 2015, partially lapsed), and on the 18th, it issued the Announcement on the Announcement on the Announcement on the 22 Cancelled Tax Non-Administrative Permit Approval Matters (SAT Announcement No. 58 of 2015), which made it clear that all the approval matters for the corporate income tax Preferential matters are all canceled for approval, and all of them are implemented in the way of filing management.

On November 12, 2015, the State Administration of Taxation ("SAT") issued the Measures for Handling Preferential Enterprise Income Tax Matters (SAT Announcement No. 76 of 2015, hereinafter referred to as "Announcement No. 76", which is now invalid), which provides for the administration of preferential matters provided for under the EIT Law and the preferential matters that the State Council and the National Autonomous Areas ("NARs") are authorized under the Tax Law to formulate. The Circular provides for the administration of preferential matters under the EIT Law and those authorized by the Tax Law to be formulated by the State Council and the national autonomous areas, including tax-exempted income, reduced income, additional deductions, accelerated depreciation, income exemption and deduction, taxable income credit, tax rate reduction, tax credits and exemption and deduction of the portion of tax shared by the national autonomous areas. Taxpayers enjoying EIT tax incentives are required to file the Filing Form of EIT Preferences and submit relevant information to the tax authorities. If a taxpayer has already enjoyed tax preferences but has not filed according to the regulations, the taxpayer shall make up the filing procedures in time after discovery. Upon discovery, the tax authorities shall order the taxpayer to file within a certain period of time.

It can be seen that at this stage, the concept of "filing" returns to the connotation of "original", and taxpayers enjoying the tax incentives stipulated in Circular No. 76 can just submit the "filing form" and relevant information to the tax authorities. Taxpayers enjoying the tax preferences stipulated in Circular No. 76 can just submit the "filing form" and relevant information to the tax authorities, and there is no need to obtain prior "approval" or "authorization" from the tax authorities.

At the same time, the administration of deferred tax benefits for special tax treatments has changed. Specifically:

On May 14, 2015, the State Council issued the Decision on the Cancellation of Non-Authorized Approval Matters (Guo Fa [2015] No. 27, hereinafter referred to as "Document 27"), announcing the cancellation of 49 non-administratively authorized approval matters, and the "approval of business that meets the conditions of special tax treatment regulations" was among the cancelled items. Approval of Businesses Qualifying for Special Tax Treatment Provisions" was among the canceled items.

On June 24, 2015, the State Administration of Taxation ("SAT") issued Announcement No. 48, specifying that the practice of filing declarations under Article 11 of Article 59 and confirmation by tax authorities under Article 16 of Announcement No. 4 will no longer be implemented, and that instead, declarations will be made and relevant information will be submitted at the time of annual remittance and settlement.

It can be seen that taxpayers enjoying the deferred tax incentives of special tax treatment do not need to obtain prior "approval" or "authorization" from the tax authorities.

(iv) 2018 to present: "Filing system" + "checking system" for the administration of enterprise income tax concessions

On April 25, 2018, the State Administration of Taxation ("SAT") issued the Measures for Handling Preferential Enterprise Income Tax Matters (SAT Announcement No. 23 of 2018, hereinafter referred to as the "Announcement No. 23"), which clarifies that the preferential enterprise income tax matters stipulated in the Act shall be handled in a manner of "self-determination, declaration and enjoyment, and retaining relevant information for inspection", i.e. the "inspection preparation system", and the "filing system" has been abolished.

Deferred tax benefits for special tax treatments continue to be administered on a "standby" basis.

(v) Summary

Through the above sorting out, we can summarize that the management of EITC is divided into four ways: first, "approval system", second, "approval system", third, "filing system", and fourth, "preparation system". The first is the "approval system", the second is the "approval system", the third is the "filing system", and the fourth is the "preparation system". At present, the first and second methods no longer exist, the third method is mainly applicable to tax incentives such as deferred tax and installment tax except for those stipulated in Circular 23, and the fourth method is applicable to tax incentives stipulated in Circular 23. Both the third and fourth ways do not require prior confirmation by the tax authorities, and if the tax authorities find that the taxpayer lacks information, they should order the taxpayer to make up for the lack of information, instead of denying the taxpayer's right to enjoy the tax incentives.

III. How should Company A break the ice?

(a) asserting that the tax authorities may order the submission of information by a deadline and may impose a fine of up to 10,000 yuan on Company A

As can be seen from the foregoing, the restructuring business of Company A occurred in the second stage, Company A did not submit to the tax authorities for filing and was not confirmed by the tax authorities, and Company A was not entitled to the deferred tax incentives for special tax treatment. However, according to the basic principle of applying the law from the old entity and the new procedure and the principle of favoring the taxpayers, the applicability of No. 107, No. 27 and No. 48 Announcement in this case should be affirmed. company A meets the substantive conditions of special tax treatment, and the failure to make procedural filing should not affect the entity right of the enterprise to enjoy the special tax treatment.

 (a) annual tax return and its schedules; ...... (c) information related to filing matters", Article 15, "Taxpayers who fail to make remittance in accordance with the prescribed period or fail to submit the information listed in Article 8 of these Measures shall be dealt with in accordance with the relevant provisions of the Tax Administration Law and its implementing rules", "Article 79", "Article 79", "Article 79", "Article 79" and "Article 79". Regulations", Article 62 of the Tax Collection and Administration Law, "Where a taxpayer fails to submit tax information in accordance with the provisions ...... of the Law, the tax authorities shall order rectification within a certain period of time and may impose a fine of If the circumstances are serious, a fine of not less than 2,000 yuan but not more than 10,000 yuan may be imposed", Company A was penalized.

This enforcement behavior has also been confirmed in practice. For example, in the administrative penalty case of a petrochemical company in Yongan City, the Second Inspection Bureau of Sanming City Taxation Bureau considered that a petrochemical company in Yongan City had not provided tax exemption filing information in accordance with the regulations, and then imposed a fine of RMB 1,000 yuan on Yongan City in accordance with Article 62 of the Law on Administration of Taxation, which provides that if a taxpayer or other administrative relative fails to fulfill the filing formalities in accordance with the regulations, the tax authorities shall deal with the matter in accordance with the laws. Therefore, according to the provisions of Article 62 of the Administrative Law and the Tax Collection and Management Law, a certain petrochemical company of Yong'an City was fined 1000 RMB as an administrative penalty.

(ii) Claims that the tax authorities failed to conduct a formal examination of the tax return and that the enforcement action was improper

According to Article 20 of Circular No. 79, "After accepting a taxpayer's annual tax return, the competent tax authorities shall audit the logic of the taxpayer's annual tax return and the completeness and accuracy of the relevant information. The focus of the audit mainly includes: (i) whether the figures of the taxpayer's annual enterprise income tax return and its schedules are consistent with those of the relevant items in the enterprise's financial statements, whether the logical relationship between the items corresponds to each other, and whether the calculations are correct. ...... (iii) whether the taxpayer meets the conditions for tax incentives, and whether the confirmation and application for tax incentives are in accordance with the prescribed procedures".

It is evident that the tax authorities have the obligation to audit the tax returns declared by the taxpayers.

In this case, Company A filed A105100 "Enterprise Reorganization Tax Adjustment Schedule" in the 2014 version of the enterprise income tax return, but did not submit relevant information to the tax authorities in line with the special tax treatment, and there was an obvious contradiction, and the tax authorities, when accepting Company A's tax return, should, according to common sense, have been able to review it and prompt Company A to supplement the filing information, but the The tax authorities failed to discover it and were at fault.

Even if the tax authorities insist on making tax adjustments to Company A, Company A can still make tax adjustments according to Article 52 of the Tax Collection and Administration Law: "If a taxpayer or withholding agent fails to pay or pays less tax due to the responsibility of the tax authorities, the tax authorities may, within three years, require the taxpayer or withholding agent to make up for the tax payment, but shall not impose a late payment fee. "Article 80 of the Implementing Rules of the Tax Collection and Administration Law states that "the responsibility of the tax authorities referred to in Article 52 of the Tax Collection and Administration Law refers to the improper application of the tax laws and administrative regulations or illegal law enforcement behavior of the tax authorities", so it is argued that the case has already exceeded the period for the collection of the tax, and that no late payment fee should be imposed. It was argued that the case had exceeded the tax recovery period and no late payment fee should be imposed.

(iii) Initiate legal remedy procedures to safeguard their legitimate rights and interests through legal means

As a matter of fact, these substantive defenses need to be realized through legal remedies, and Company A can pay the tax and late fees as required by the tax authorities, or provide corresponding guarantees, and then file an administrative reconsideration with the higher tax authorities of the tax authorities in accordance with the law, so as to resolve the conflicts within the tax authorities. If the desired result is not achieved, Company A can also file an administrative lawsuit to the People's Court, which will review the facts and evidence, the application of law and the enforcement procedures one by one, and its hearing of the tax case is, to a certain extent, free from the constraints of the tax administration system and even the whole administrative system, which is more favorable to Company A.