Editor's Note: In recent years, the number of bankruptcy cases has continued to rise, and bankruptcy-related tax disputes have become more and more frequent. Whether the ordinary claims for late payment declared by the tax authorities can exceed the principal amount of tax is one of the focuses of the disputes. This involves the connection between the enterprise bankruptcy law and the tax administration law, and also concerns the coordination between the tax administration law and the administrative coercive law. This article takes the People's Court casebook a case included in as an entry point, analyzes the focal point in depth and draws conclusions, aiming to provide for the resolution of tax-related disputes in bankruptcyclear ideas and useful references .

01 Nanjing District Taxation Bureau v. Nanjing Company, Bankruptcy Claim Confirmation Dispute

(i) Basic facts of the case

On December 14, 2015, a company in Nanjing was admitted to bankruptcy liquidation by a court ruling.2022 On August 11, 2022, a district tax bureau in Nanjing to the administratordeclared a total of 690,000 yuan of claims , including 343,000 yuan of taxes and 347,000 yuan of late fees, with the payment period from May 31, 2010 to the date of bankruptcy acceptance, and the calculation of the late fee of 347,000 yuan based on the daily rate of five ten-thousandths of one percent.2022 On August On August 31, 2022, the administrator to made a "Letter of Initial Examination of Claim Filing" a district tax bureau of Nanjing, confirming the tax claim of RMB 343,000 yuan, the late payment ordinary claim of RMB 343,000 yuan, and disclaiming the part of the late payment that exceeded the principal amount of the tax by RMB 0.4 million yuan. Unsatisfied with the decision, the Nanjing District Tax Bureau filed a claim for confirmation with the Nanjing District People's Court, requesting confirmation that 0.4 million yuan of late payment fees constituted a bankruptcy claim.

On January 5, 2023, a district people's court in Nanjing made a judgment of first instance, supporting the litigation request of a district tax bureau in Nanjing. On July 25, 2023, the Nanjing Intermediate People's Court rendered a judgment of second instance, revoking the judgment of first instance and rejecting the litigation demands of a Nanjing District Tax Bureau, and Nanjing finally won the case.

(ii) Views of the parties

The issue in this case is whether the portion of late fees declared by the taxing authority in excess of the principal amount of the tax can be recognized as a bankruptcy claim.

A district tax bureau of Nanjing held that the administrator's failure to recognize the late payment in excess of the principal amount of the tax as a bankruptcy claim violated the provisions of the law, and that the amount of the late payment could not be recognized on the basis of the Administrative Compulsory Law, but should be determined on the basis of the Law on the Collection and Management of Taxes.

A company in Nanjing believes that the Administrative Compulsory Law is a law that regulates the implementation of administrative compulsory behaviors by all administrative organs, and the administrative compulsory behaviors of the tax authorities should belong to the scope of adjustment of the Administrative Compulsory Law. Paragraph 2 of Article 45 of the Administrative Compulsory Law is a mandatory provision of the law, and it is more conducive to the timely collection of taxes by the State to limit the upper limit of late payment.

The Nanjing Intermediate People's Court held that the tax authorities' imposition of late fees in order to compel taxpayers to fulfill their obligations to pay taxes belonged to the way in which the tax authorities carried out administrative coercion. The behavior of the tax authorities in charging late fees is in line with the conditions of application stipulated in Article 45 of the Administrative Compulsory Law, and should comply with the provision that the amount of late fees shall not exceed the amount of the obligation to pay money.

It can be seen that the root cause of the dispute between the tax enterprises lies in the conflict of norms between the Tax Administration Law and the Administrative Compulsory Law. The former does not set an upper limit for late payment of tax, while the latter clearly stipulates that the late payment shall not exceed the principal amount. In this regard, the first step is to start from the nature of the tax late payment, to judge whether it belongs to the administrative compulsory enforcement methods stipulated in Article 12 of the Administrative Compulsory Law, and then to argue whether the upper limit stipulated in Article 45(2) of the Administrative Compulsory Law is applicable.

02 Late payment of taxes should be subject to the Administrative Compulsory Law

(i) Late payment of taxes as a form of administrative enforcement

Article 12 of the Administrative Compulsory Law lists "the imposition of a fine or late payment" as one of the methods of administrative compulsory enforcement, and "late payment" is listed alongside "fine", both of which are punitive in nature, and is intended to urge the relative to fulfill his obligations as soon as possible by imposing an additional financial burden. Both of them are punitive in nature, aiming at urging the relative to fulfill their obligations as soon as possible by increasing their financial burden. As an enforcement penalty, late payment fee also has the nature of punishment, which is the amount of tax authorities to taxpayers in addition to their tax obligations, the purpose is to prompt taxpayers to fulfill their tax obligations. Therefore, the tax authorities to impose late payment fees, belong to the implementation of administrative enforcement.

This view is supported by many authorities. The Supreme Court Administrative Compulsory Law Research Group compiled the <<Administrative Compulsory Law>> Articles Understanding and Application (People's Court Press 2011 edition), clearly states that "the so-called late payment fee, refers to the beyond the tax, fees and charges prescribed payment period, levied on the payer a kind of money with the nature of punishment". The State Administration of Taxation in the "on the implementation of the Administrative Compulsory Law Notice" (Guo Shui Fa [2011] No. 120), also believes that the tax late payment belongs to a kind of administrative compulsory enforcement measures, and can be directly to the people's court, without the need to apply for administrative reconsideration and payment of late fees. the Standing Committee of the National People's Congress The Administrative Law Office of the Legislative Affairs Commission of further clarified that "in its book <<Administrative Compulsory Law>> Interpretation and Cases (2012 edition of China Democracy and Legal System Publishing House) the imposition of fines or late fees is an enforcement penalty in terms of theories" "In our country, the enforcement penalties mainly are against the behavior of "not fulfilling fines, the obligation to pay money such as , administrative charges, social insurance premiums, etc.taxes.

(ii) The provisions of the Administrative Compulsory Law shall be applied to the imposition of late tax charges.

The Administrative Compulsory Law is a general procedural law that regulates the administrative compulsory acts of administrative organs, and uniformly regulates administrative compulsory acts by clearly stipulating administrative compulsory acts and their specific types, implementation conditions and procedures. Although the Tax Administration Law stipulates that the tax authorities can take actions such as charging late fees, tax preservation and enforcement measures, the administrative compulsory behavior, except for the exceptions explicitly stipulated in the law, shall also comply with the Administrative Compulsory Law. Late payment of tax belongs to the implementation of penalties, is a way of administrative enforcement, naturally should be subject to the Administrative Compulsory Law of the amount of limitations constraints.

Specifically, the the tax late fee formula for calculating is: Tax Late Fee = Principal Amount of Tax Payment× Five Ten Thousandths of a Percent per Day× Number of Days of Late Payment. Article 32 of the Tax Administration Law only stipulates the tax principal and the rate of five ten-thousandths of a day, but does not specify the cut-off date for the number of days of late payment. In contrast, the Administrative Compulsory Law Article 45(2) of clearly stipulates the upper limit of late payment, i.e., tax late payment ≤ the principal amount of tax, and this provision should be applied in accordance with the law. Therefore, in bankruptcy proceedings, the portion of late payment fees declared by the tax authorities in excess of the principal amount of the tax cannot be recognized as an ordinary claim.

It may be argued that the State Administration of Taxation (SAT) replied in August 2012 through the question and answer section of its official website that "the imposition of late payment fees is carried out in accordance with the law on the collection and administration of taxes, and there is no question as to whether it can be exceeded in the principal amount of the tax", and therefore considered that the imposition of late payment fees was not subject to the administrative coercion law. However, this reply is not a formal source of law and cannot be used as a criterion for determination.

03 The imposition of late fees should be consistent with the purposes of tax administration and the principle of equitable discharge in bankruptcy

The current tax late payment discount rate of 18.25% per annum is much higher than the December 20, 2024 1-year Loan Market Quoted Rate (LPR) of 3.1%. Excessively high tax late fees will increase the burden of the parties to fulfill their tax obligations, and will also lead to exceeding the necessary limit, which violates the principle of administrative appropriateness. The Administrative Compulsory Law sets the upper limit of late payment fee to respond to the phenomenon of "sky-high late payment fee" in practice, which is conducive to the creation of a clear psychological expectation of the parties concerned, prompting them to fulfill their obligations faster and better, and forming a balance between tax collection management and the protection of the interests of the opposite party. At the same time, it is also conducive to urging the tax authorities to actively fulfill their duties and take other enforcement measures in a timely manner, which improves the efficiency of administrative management and is in line with the purpose of tax collection and management.

This provision is also in line with the principle of fair liquidation under the Enterprise Bankruptcy Law. The Enterprise Bankruptcy Law aims at the fair liquidation of claims and debts and the protection of the rights and interests of all parties, and specifies the order in which the various types of claims are to be discharged. Among them, tax principal claims are prioritized over other ordinary claims and will be liquidated in the second order, which has been guaranteed by the corresponding system. As an ordinary claim, if the late payment of tax is allowed to exceed the principal amount of tax and be settled proportionally with other ordinary claims in the same order, it will definitely crowd out the proportion of other ordinary claims, resulting in a lower amount of other ordinary creditors, which is not conducive to the protection of the interests of ordinary creditors in general. Therefore, limiting the upper limit of late payment of taxes helps to balance the interests of all parties and safeguard the realization of the principle of fair liquidation in bankruptcy proceedings.

04 Conclusion

In summary, in bankruptcy proceedings, the portion of late fees declared by tax authorities that exceeds the principal amount of tax owed cannot be recognized as ordinary claims. This conclusion is not only supported by the case (2023) Su 01 Min Zhong No. 6513 from the People's Court Case Database but is also corroborated by multiple other bankruptcy claim confirmation dispute rulings, including (2017) Min 0521 Min Chu No. 4885, (2019) Lu 01 Min Zhong No. 4926, (2019) Yu 0882 Min Chu No. 2819, (2022) Lu 0323 Min Chu No. 2159, (2023) Jin 02 Min Zhong No. 10624, (2024) Lu 1102 Min Chu No. 10089, and (2024) Chuan 3402 Min Chu No. 413.

Although the controversy over whether the late payment fee can exceed the principal amount has not been settled in the theoretical and practical circles, the Supreme Court requires judges to refer to similar cases in the casebook when hearing cases to avoid the occurrence of "different judgments for the same case". Accordingly, it is foreseeable that in the future, it will be difficult for the tax authorities to obtain support for the confirmation of claims for late payment in excess of the principal amount in bankruptcy proceedings, while the possibility of taxpayers winning the relevant administrative litigation will be significantly increased. If taxpayers encounter such disputes, it is recommended that they seek the assistance of professional tax lawyers in a timely manner. The administrator should also actively communicate with the tax authorities to seek their recognition of the provisions of the Administrative Compulsory Law to avoid disputes affecting the smooth progress of the bankruptcy proceedings.

In the long run, is expected to resolve the controversy over whether the late payment fee can exceed the principal amount. Late payment fee should be a kind of punishment measure for taxpayers who do not finish the tax within the period stipulated by the law, and it should not exceed the principal amount. From the dual perspective of maintaining a uniform legal order and protecting the legitimate rights and interests of taxpayers, Articles 59 and 67 of the Revised Draft of the Tax Administration Law (Draft for Public Comments), which are currently open to the public, split the current tax late payment fee into two parts, namely, tax interest and late payment fee, and the latter's definition with is consistent that of the Administrative Compulsory Law, and the application of the limitation provision should be non-controversial. Against the backdrop of the impending revision of the *Tax Collection and Administration Law*, tax authorities should reasonably limit their power to impose late fees based on considerations of legitimacy.