Editor's Note: In practice, to collect taxes and fees related to real estate auctions in the civil enforcement procedure, some local tax authorities and people's courts have jointly issued normative documents, attempting to establish an operational pathway for assisting in deducting and transferring such taxes and fees. However, such documents not only lack a clear higher-level legal basis but also essentially exceed the boundaries of authority of normative documents, and thus urgently need to be sorted out. Taking a demonstrative enforcement ruling of the Beijing Higher People's Court as an example, this article analyzes why people's courts should not support tax authorities' deduction and transfer of transaction-related taxes and fees from auction proceeds, and further sorts out the legal remedies for creditors whose rights and interests are damaged during the civil enforcement process.

01 Modes of Jointly Issued Documents by Local Tax Authorities and Courts for Collecting Taxes and Fees from Real Estate Auctions

In the practice of civil compulsory execution cases, tax authorities often send a Letter Requesting Assistance in Tax Collection to the enforcement court, requesting the deduction and transfer of taxes and fees arising from real estate auctions from the auction proceeds. The basis for this claim is usually Article 4 of the Reply of the State Taxation Administration on Tax Issues Concerning the People's Courts' Enforcement of the Property of Persons Subject to Enforcement (Guoshuihan [2005] No. 869). To further refine the operational procedures, some local tax authorities have also jointly issued guiding opinions and other normative documents with local courts (e.g., Xiangshuifa [2021] No. 54, Ludishuifa [2017] No. 42, Zhegaofa [2015] No. 111, Gangaofa [2023] No. 64), attempting to provide more specific enforcement bases for tax and fee collection. However, it should be noted that both Article 4 of Guoshuihan [2005] No. 869 and these joint local documents have significant legality defects. The reason is that these documents essentially constitute a disguised expansion of administrative authority and the addition of judicial obligations, which exceed the statutory authority scope of normative documents and cannot serve as a legitimate basis for enforcement.

From the content of the joint documents issued by some local authorities, two main operational modes for paying taxes and fees related to court-conducted real estate auctions in civil enforcement procedures have been formed:

The first mode is that tax authorities request the enforcement court to assist in tax collection. The specific process is as follows: After the people's court legally auctions the real estate of the person subject to enforcement, it will, before distributing the auction proceeds, send a Notice of Real Estate Disposal and Transaction and other transaction-related information to the competent tax authority at the location of the real estate; after receiving the information, the competent tax authority will calculate the total amount of taxes that the person subject to enforcement should pay for the auction based on the transaction price of the real estate and the applicable tax rates, and then send a Letter Requesting Assistance in Tax Collection to the enforcement court to formally apply for the deduction and transfer of such taxes from the real estate auction proceeds; the enforcement court will, in accordance with the Letter Requesting Assistance in Tax Collection issued by the tax authority, directly deduct the taxes to be borne by the person subject to enforcement from the auction proceeds and transfer the deducted amount into the account designated by the tax authority.

The second mode is that the purchaser advances the payment of taxes and fees payable by the person subject to enforcement. The specific process is as follows: After the real estate auction is concluded, the enforcement court will issue an enforcement ruling to the competent tax authority for real estate; the competent tax authority for real estate will calculate the types of taxes involved in the disposal and the amount payable based on the enforcement ruling and the transaction price of the real estate, and then notify the person subject to enforcement to declare and pay taxes in accordance with the law; if the person subject to enforcement fails to complete the declaration within the time limit, the tax authority will promptly make a tax determination; regardless of whether the person subject to enforcement has declared in accordance with the law or the tax authority has made a tax determination, the competent tax authority will issue a Letter Requesting Assistance in Tax Collection to the enforcement court; thereafter, the taxes and fees payable by the person subject to enforcement shall be advanced by the purchaser during the real estate transfer registration process; after advancing the payment, the purchaser may apply to the enforcement court for deducting and refunding the amount from the auction proceeds by presenting the tax payment certificate of the person subject to enforcement issued by the tax authority. The purchaser shall independently declare and pay the deed tax and stamp duty that they should bear as the transferee of the real estate.

Although the above two operational modes have been applied to a certain extent in local practice, they suffer from insufficient legal basis. Such operations will not only directly reduce the total amount of auction proceeds available for distribution, lower the proportion of debt repayment for mortgage creditors and ordinary creditors, and damage the legitimate rights and interests of creditors, but also disrupt the distribution order of enforcement funds in civil enforcement, which is not conducive to the fair and efficient conduct of the enforcement procedure. In response to this practical disorder, an enforcement ruling of the Beijing Higher People's Court has given a clear response. This ruling not only provides an important model for handling similar cases but also directly rejects the practice of some local tax authorities applying to courts for assisting in deducting and transferring taxes and fees from real estate auction proceeds, thus providing a key direction for clarifying such disputes.

02 An Enforcement Ruling of the Beijing Higher People's Court Rejects the So-Called "Assistance in Deducting and Transferring Taxes and Fees" Stipulated in the Aforementioned Local Normative Documents

Let us take a specific look at this case. In the enforcement procedure of the financial loan contract dispute case between Company A and Company B, the Beijing No. 4 Intermediate People's Court entrusted the Beijing Property Rights Exchange to auction the state-owned land use right and seven sets of real estate owned by Company A (the person subject to enforcement). The purchaser won the auction with the highest bid of RMB 401.33 million, and the Beijing No. 4 Intermediate People's Court received the auction proceeds of RMB 401.33 million. Afterwards, several creditors, including Company B (the mortgage creditor), applied to the court for participating in the distribution of the proceeds. As the court in charge of distribution, the Beijing No. 4 Intermediate People's Court legally distributed the auction proceeds, formulated a fund distribution plan, and served it on the person subject to enforcement and other relevant parties. In response to this distribution plan, the Baoding High-Tech Zone Tax Bureau filed a written objection, requesting the court to assist in deducting and transferring the taxes and fees payable by the person subject to enforcement from the auction proceeds, claiming that the court had a statutory obligation to provide assistance, and at the same time applying for terminating the property distribution procedure of the case and revoking the property distribution plan. After review, the Beijing No. 4 Intermediate People's Court made the Ruling (2017) Jing 04 Zhiyi No. 160, dismissing the objection application on the ground that the Baoding High-Tech Zone Tax Bureau lacked standing and had no right to object to the court's enforcement act of fund distribution.

Dissatisfied with this ruling, the Baoding High-Tech Zone Tax Bureau applied to the Beijing Higher People's Court for reconsideration, arguing that it was a creditor, a party or interested party in the enforcement case, and that the claim for collecting taxes such as land appreciation tax from Company A was a preferential compensation claim. The Beijing No. 4 Intermediate People's Court should first repay the taxes before distributing the remaining funds in accordance with the statutory order. After review, the Beijing Higher People's Court held that there were no provisions in the laws and judicial interpretations governing civil enforcement that allow tax priority to participate in the distribution of enforcement funds and be realized with priority in the enforcement procedure. The Baoding High-Tech Zone Tax Bureau had no direct legal interest in the fund distribution act of the Beijing No. 4 Intermediate People's Court and did not have the status of an interested party. Therefore, its objection application should be dismissed in terms of procedure. Finally, the Beijing Higher People's Court made the Ruling (2017) Jing Zhifu No. 65, dismissing the reconsideration application of the Baoding High-Tech Zone Tax Bureau and upholding the original ruling.

From the ruling logic of this case, we can extract two core legal rules, which provide clear guidance for handling similar issues in practice:

First, regarding the standing of tax authorities to file objections to enforcement acts. According to Article 236 of the Civil Procedure Law, parties and interested parties who believe that an enforcement act violates the law may file a written objection with the people's court in charge of enforcement. This provision clearly defines the subjects eligible to file objections to enforcement acts as parties and interested parties. According to Paragraph 1 of Article 2 of the Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Objections to Enforcement and Reconsideration Cases, if an objection to enforcement does not meet the acceptance conditions, a ruling shall be made to reject the acceptance; if it is found after filing the case that the conditions are not met, a ruling shall be made to dismiss the application. In the context of this case, the specific enforcement act in question was the distribution of funds in accordance with the enforcement procedure, and the subjects of fund distribution were determined before the court conducted the auction (i.e., civil entities with creditor's rights). Before the court conducted the auction enforcement act, the Baoding High-Tech Zone Tax Bureau was not a creditor and did not belong to the civil entities with creditor's rights in the fund distribution. The tax bureau neither claimed civil rights over the subject matter of enforcement nor qualified as an interested party. Therefore, the dismissal of its objection by the Beijing No. 4 Intermediate People's Court and the dismissal of its reconsideration application by the Beijing Higher People's Court were both in line with the law.

Second, regarding whether tax priority applies in the civil enforcement procedure. The tax authority's claim to prioritize the deduction and transfer of taxes and fees from auction proceeds essentially means exercising tax priority in the enforcement procedure, but the ruling of the Beijing Higher People's Court clearly rejected this claim. In practice, there are also other cases that hold the same view that tax priority does not apply in the civil enforcement procedure, such as (2024) Yue 08 Zhifu No. 109, (2024) Liao Zhifu No. 352, and (2019) Chuan 1621 Zhiyi No. 65. The core logic of such rulings is that the civil enforcement procedure of the people's court belongs to the civil litigation procedure, which is different from the administrative law enforcement procedure, and the nature of the procedure determines the application of law. Tax authorities have the duty to collect taxes, but tax collection (an administrative act) and civil enforcement (a judicial act) belong to different procedures. In the civil litigation procedure, priority should be given to the application of the Civil Procedure Law and relevant judicial interpretations, rather than simultaneously applying the Tax Collection and Administration Law. Among the existing laws and regulations, only the Enterprise Bankruptcy Law stipulates that tax authorities enjoy tax priority in the civil litigation procedure. There are no provisions in the laws and judicial interpretations governing civil enforcement that allow tax priority to participate in the distribution of enforcement funds and be realized with priority. Therefore, tax priority cannot be applied beyond the bankruptcy procedure in other situations. In addition, tax collection is a statutory administrative function of tax authorities, and the determination of the tax collection link, the fund involved, and the taxpayer to whom the tax notice is issued all fall within the scope of the administrative authority of tax authorities. The proceeds from the disposal of the mortgaged property of the person subject to enforcement in this case do not fall within the scope of preferential tax collection.

Looking back at this enforcement ruling of the Beijing Higher People's Court, it is clear that it did not support the tax authority's claim to prioritize the deduction and transfer of real estate transaction taxes and fees from auction proceeds. An important reason behind this is that there are no normative documents jointly issued by tax authorities and courts in Beijing for collecting taxes and fees from real estate auctions (as mentioned earlier), so the court could make rulings in full compliance with statutory rules without improper interference from local operational guidelines. The author believes that people's courts across the country should refer to the ruling logic of the Beijing Higher People's Court and, at the same time, legally sort out the local normative documents that have been issued in practice and require courts to assist in deducting and transferring real estate transaction taxes and fees. From the perspective of the statutory rules for civil enforcement distribution, "the enforcement court shall, after deducting enforcement expenses and repaying claims with priority, repay ordinary claims in the order of property preservation and the seizure, attachment, and freezing of property during enforcement for the proceeds from the conversion of enforced property." This rule does not mention the preferential repayment of real estate transaction taxes and fees, and such taxes and fees do not fall within the scope of enforcement expenses. The aforementioned local normative documents lack the support of higher-level laws, regulations, and rules, so their legality cannot be established and they should be repealed.

03 Key Points of Remedies for Creditors Whose Rights and Interests Are Damaged Due to Tax Authorities' Claim for Deducting and Transferring Taxes and Fees in the Civil Enforcement Procedure

In the aforementioned case, the court did not assist the tax authority in deducting and transferring taxes and fees, and also dismissed the tax authority's objection to enforcement and application for reconsideration. However, in practice, if the court has already deducted and transferred taxes and fees from the real estate auction proceeds in accordance with the tax authority's claim, how should mortgage creditors and other entities whose rights and interests are damaged seek legal remedies, and what key points should they grasp?

First, in terms of choosing a remedy method, priority should be given to the pathway of "objection to enforcement act → reconsideration of enforcement → supervision of enforcement → procuratorial supervision," as this pathway is more feasible in practice. On the other hand, administrative reconsideration or administrative litigation filed against the Letter Requesting Assistance in Tax Collection sent by tax authorities to the court is often not accepted in practice, because such letters are deemed internal coordination acts rather than actionable administrative acts. At the same time, special attention should be paid to the statutory time limits for each link, such as 10 days, 6 months, and 2 years. The links are closely connected with tight time limits, and any delay beyond the time limit will directly result in the loss of the right to remedy.

Second, in terms of professional support, it is recommended to entrust tax lawyers to participate in a timely manner to improve the efficiency and success rate of remedies. According to Article 12 of the Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Objections to Enforcement and Reconsideration Cases, the people's court shall conduct a written review of cases involving objections to enforcement and reconsideration. For cases with complex circumstances and major disputes, a hearing shall be held. During this process, professional tax lawyers, with their in-depth understanding of both tax law and enforcement procedures, can assist creditors in sorting out legal bases, preparing evidence materials, and conducting accurate communication with the collegial panel on key issues; if the case meets the conditions for a hearing, they can also act as agents to apply for the hearing and participate in cross-examination, so as to strive for a more favorable review environment for creditors.

In addition, it is necessary to promptly apply for a stay or suspension of enforcement to avoid difficulties in recovering the funds after deduction and transfer. Given that once the auction proceeds are deducted and transferred to the tax authority, it will be very difficult to recover them subsequently, creditors should, when meeting the statutory conditions or having reasonable grounds, promptly apply to the enforcement court for a stay or suspension of the release of enforcement funds. According to Article 10 of the Provisions on the Administration of Enforcement Funds and Property, if a case is legally suspended or stayed, or there are other legitimate reasons, the release of enforcement funds may be delayed upon approval; the Standards for the People's Courts in Handling Enforcement Cases also clearly specifies several circumstances under which the people's court shall rule to suspend enforcement. Creditors may file an application in accordance with the above provisions and in light of the actual circumstances of the case, so as to strive for critical buffer time for the protection of their rights and interests.

04 Conclusion

In practice, some people's courts, at the request of tax authorities, deduct and transfer taxes and fees from real estate auction proceeds and allow taxes to participate in the distribution of enforcement funds. This not only exposes good-faith creditors to the uncontrollable risk of a reduced debt repayment ratio but also may implicitly encourage tax authorities to neglect their daily tax collection duties, leading to the "free-rider" phenomenon. It should be clarified that tax collection is a statutory administrative function of tax authorities, and the specific tax collection links, objects of collection, and scope of funds involved all fall within the scope of administrative authority. The proceeds from the auction of the mortgaged property of the person subject to enforcement do not fall within the scope of preferential tax collection. In addition, people's courts have no statutory obligation to assist in deducting and transferring taxes and fees, and the additional assistance requirements stipulated in some normative documents are essentially improper restrictions beyond the authorization of the law and should not be used as the basis for enforcement. Only by returning to the statutory rules of civil enforcement and comprehensively sorting out local normative documents that lack legality can the legitimate rights and interests of creditors be effectively protected, the core function of the enforcement procedure—resolving disputes and determining rights to realize creditor's rights—be truly exerted, and the disruption of fund distribution order and damage to judicial fairness and creditors' interests caused by improper deduction and transfer of taxes and fees be avoided.