Editor's Note: As an important part of the real estate tax system, the liquidation and recovery of land value-added tax often lead to disputes between tax authorities and enterprises due to the application of rules. This article takes a final case of land value-added tax liquidation dispute of a real estate development enterprise ruled by Tianjin Higher People's Court (2024) Jin Xing Zhong No. 32 as the starting point, focusing on three core controversial issues: the determination of the submission of liquidation materials, the definition of the nature of taxes, and the starting point of the tax recovery period. Combined with local tax administration rules and basic principles of tax law, it conducts an analysis to provide a reference for clarifying the adjudication logic of similar cases.

01 Dispute Case over Land Value-Added Tax Liquidation of Yuan Moumou Company

(i) Basic Facts of the Case

In September 2010, Xinkaihe Tax Office in Tianjin orally notified Yuan Moumou Company to conduct land value-added tax liquidation for its developed "Jinpin Jiayuan" project. In October 2010, Yuan Moumou Company entrusted Wanxiang Tax Office to issue the Land Value-Added Tax Liquidation Verification Report. The report stated that as of August 31, 2010, the sales proportion of the "Jinpin Jiayuan" project had reached 99.37%, and the land value-added tax to be supplemented was 1.6572 million yuan. On November 5 of the same year, Yuan Moumou Company paid 1.65 million yuan in taxes according to the conclusion of the report, and the payment was recorded as "pre-levy on non-ordinary residential buildings" in the relevant payment voucher.

On January 24, 2022, Xinkaihe Tax Office issued the Tax Matter Notice (Jin Bei Shui Xin Tong 〔2022〕 No. 13). After verification: the total income from real estate transfer of the project was 230 million yuan (including 163 million yuan for ordinary residential buildings and 67 million yuan for non-ordinary residential buildings); the total amount of deductible items was 204 million yuan (including 150 million yuan for ordinary residential buildings and 54 million yuan for non-ordinary residential buildings); the payable land value-added tax was 3.8324 million yuan; the supplementary land value-added tax to be paid was 540,500 yuan; and the handling period was February 24, 2022.

Yuan Moumou Company disagreed with the above Tax Matter Notice. After paying all the supplementary taxes on April 11, 2022, it applied for administrative reconsideration to Hebei District Tax Bureau. After review, Hebei District Tax Bureau decided to maintain the specific administrative act of Xinkaihe Tax Office. Due to continued dissatisfaction with the reconsideration result, Yuan Moumou Company filed an administrative lawsuit, and the first-instance court ruled to reject its claim. After Yuan Moumou Company appealed, the second-instance court ruled to reject the appeal and uphold the original judgment.

(ii) Views of All Parties

Yuan Moumou Company held that: After Xinkaihe Tax Office orally notified it to conduct liquidation, the company had entrusted Wanxiang Tax Office to issue the Verification Report and submitted the complete set of liquidation materials as required at the beginning of 2011. Since the tax authority did not raise any objection to the incompleteness of the materials, it should be presumed that the liquidation materials had been completely submitted; the 1.65 million yuan paid in November 2010 was the final liquidation tax paid in accordance with the Verification Report rather than a prepayment; the tax authority failed to complete the liquidation review within 90 days and failed to order declaration within the three-year tax recovery period, so the tax involved had exceeded the recovery period.

The tax authority held that: The declaration of land value-added tax liquidation requires the simultaneous submission of the declaration form, the list of liquidation materials, and relevant materials. The submission of the Verification Report is only one of the subsidiary conditions for the liquidation declaration procedures. If Yuan Moumou Company fails to completely submit the above materials, it should be deemed that the liquidation declaration has not been completed; the 1.65 million yuan was clearly recorded as "pre-levy on non-ordinary residential buildings" in the payment voucher, which belongs to prepaid tax; the provisions on the tax collection period are not applicable to this case, and the collection period has not expired. Even if the recovery period is involved, it should start from the expiration of the tax payment period specified in the Tax Matter Notice.

The court held that: Yuan Moumou Company claimed to have submitted all liquidation materials including the Verification Report as required, but failed to provide sufficient evidence to prove it, so it should be deemed that the land value-added tax liquidation declaration has not been completed. The land value-added tax liquidation takes the issuance of the review conclusion by the tax authority as the final procedure. When the liquidation is not completed, the amount of tax to be supplemented is not determined, and the time limit is also not determined, so it is not subject to the restriction of the recovery period stipulated in Article 52 of the Tax Collection and Administration Law. The time limit determined by the review conclusion is the starting point of the recovery period.

It can be seen that the disputes between the tax authority and the enterprise mainly focus on three core issues: First, whether Yuan Moumou Company has completely submitted all liquidation materials including the Verification Report; second, whether the nature of the 1.65 million yuan tax paid by the company in November 2010 should be defined as liquidation tax or prepaid tax; third, whether the land value-added tax involved has exceeded the three-year recovery period, and how to determine the starting point of the recovery period. The following will analyze these key issues one by one.

02 Combining Tianjin's LVAT Administration Rules, It Should Be Presumed That the Enterprise Has Submitted All Liquidation Materials

The determination of whether Yuan Moumou Company has fully fulfilled its liquidation obligations needs to be comprehensively analyzed in combination with the specific provisions of the Measures for the Administration of Land Value-Added Tax Liquidation for Real Estate Development Enterprises in Tianjin (Jin Di Shui 〔2010〕 No. 49) that were valid at that time, as well as the burden of proof of both the tax authority and the enterprise and the actual tax administration situation.

According to Article 7 of Document No. 49, "In one of the following circumstances, the competent tax authority may require the taxpayer to conduct land value-added tax liquidation: (1) For a real estate development project that has passed the completion acceptance, the proportion of the transferred real estate construction area to the total salable construction area of the entire project is more than 85%, or although the proportion does not exceed 85%, the remaining salable construction area has been leased or self-used; ..." In this case, the sales proportion of the "Jinpin Jiayuan" project reached 99.37%, which obviously meets the condition of "may require liquidation". According to the regulations, for projects that do need liquidation, the competent tax authority should issue a Land Value-Added Tax Liquidation Notice. However, in this case, the tax authority only notified orally, which is less standardized than a written notice, laying hidden dangers for subsequent disputes over the submission of materials.

Article 8 of Document No. 49 clearly stipulates that land value-added tax liquidation includes two methods: one is self-liquidation by the taxpayer; the other is that the taxpayer entrusts a tax intermediary to carry out liquidation verification. After being entrusted, the tax intermediary should issue a Verification Report in the specified format, and the tax authority may accept the verification report that meets the requirements. In this case, Yuan Moumou Company chose the second method and entrusted Wanxiang Tax Office to issue the Verification Report, which is in line with the liquidation mode regulations at that time. However, there are differences in the acceptance procedures between the two liquidation methods. Article 11 of Document No. 49 stipulates that "For projects where the taxpayer entrusts a tax intermediary to issue a Verification Report for liquidation and pays taxes, the competent tax authority's management department shall directly handle the tax payment procedures after verifying the submitted materials." Unlike projects where the taxpayer conducts self-liquidation, the tax authority does not need to issue a Land Value-Added Tax Liquidation Acceptance Notice. This provision highlights the important position of the Verification Report in the liquidation procedure at that time, with significant effectiveness and the function of simplifying the liquidation declaration and acceptance procedures. In practice, real estate development enterprises entrust intermediaries to issue verification reports, usually believing that they have entered the scope of liquidation obligations, and will submit them to the tax authority to fulfill their liquidation obligations after completion.

In this case, the tax authority and the enterprise have different opinions on whether the enterprise has submitted the complete set of materials for liquidation declaration. At this time, the allocation of the burden of proof becomes crucial. According to general rules, although the burden of proof lies with the taxpayer, it is necessary to consider the unequal relationship between the tax authority and the taxpayer in terms of management and being managed. In particular, this material submission behavior is directly related to major substantive issues such as the nature of tax payment and the tax recovery period, which should have been supported by more complete rules (for example, the tax authority issues a receipt when the enterprise submits materials). However, in the case of imperfect actual rules, combined with the fact that the enterprise has submitted the Verification Report, it should be presumed that it has submitted all materials.

From the perspective of common sense and tax administration logic, this presumption is reasonable. As a comprehensive verification of the project's income, costs, and appreciation amount by a professional institution, the formation of the Verification Report must rely on basic materials such as sales contracts and cost vouchers. Submitting the report alone without supporting materials is neither in line with intermediary verification norms nor contrary to the reasonable appeal of the enterprise to complete liquidation. More importantly, Document No. 49 clearly stipulates that the tax authority must organize a review within 90 days after acceptance. If the materials are incomplete, the tax authority shall legally require supplementation and correction in a timely manner. However, in this case, the tax authority did not request supplementation and correction for nearly ten years after receiving the Verification Report, which obviously violates the principles of tax administration. In this case, simply denying the enterprise's declaration behavior on the grounds that the enterprise failed to prove that it had submitted all materials obviously failed to fully consider the provisions of Tianjin's land value-added tax management documents at that time on the acceptance procedures for taxpayers entrusting intermediaries to issue Verification Reports for liquidation, nor did it balance the differences in the burden of proof between the tax authority and the enterprise.

Based on the relevance between the Verification Report and supporting materials, and the fact that the tax authority has not required supplementation and correction for a long time, it should be presumed that Yuan Moumou Company has submitted all liquidation materials. If the tax authority claims that the materials are incomplete, it needs to reasonably explain its long-term failure to request supplementation and correction; if it cannot explain, it should bear the consequences of failing to prove its claim.

03 The Nature of the 1.65 Million Yuan Tax Should Be Defined as Liquidation Tax

What needs to be further clarified is whether the 1.65 million yuan land value-added tax paid by Yuan Moumou Company on November 5, 2010 is liquidation tax or prepaid tax.

Article 16 of the Implementation Rules of the Interim Regulations on Land Value-Added Tax stipulates: "If a taxpayer obtains income from transferring real estate before the completion and settlement of the entire project, and cannot calculate the land value-added tax due to the determination of costs or other reasons, land value-added tax may be levied in advance, and liquidation shall be conducted after the entire project is completed and settled, with overpayment refunded and underpayment supplemented. Specific measures shall be formulated by the local tax bureaus of provinces, autonomous regions, and municipalities directly under the Central Government in accordance with local conditions." This provision establishes the "prepayment + liquidation" management model for land value-added tax, where prepayment is a temporary collection measure before the project is completed and settled, and liquidation is the final calculation of the overall tax payable after the project meets the conditions.

In addition, there are two dimensions in the confirmation of tax liability for land value-added tax: "one-time confirmation" and "secondary confirmation". Unlike the risk-oriented review of ordinary taxes, the land value-added tax liquidation review is a special and comprehensive review, but its essence is "secondary confirmation". After the occurrence of the liquidation obligation, the taxpayer determines the tax payable through self-calculation or intermediary verification and declares and pays it, which belongs to "one-time confirmation" and is the core embodiment of fulfilling the liquidation obligation; the subsequent review by the tax authority is a special review of the declared content, belonging to "secondary confirmation", rather than the only basis for determining tax liability.

From the background of the payment of the 1.65 million yuan tax, it is closely bound to the liquidation procedure. Yuan Moumou Company paid the amount after entrusting Wanxiang Tax Office to issue the Verification Report, in accordance with the conclusion of the report that "the land value-added tax to be supplemented is 1.6572 million yuan", and the amount is highly consistent with the verification conclusion. This act is completely in line with the provisions of Article 11 of Document No. 49, which stipulates that for projects where the taxpayer entrusts an intermediary to issue a Verification Report for liquidation and pays taxes, the competent tax authority shall directly handle the tax payment procedures after verifying the materials. It belongs to the tax payment completed by the taxpayer through self-declaration in the process of fulfilling the liquidation obligation, and is the core link of the liquidation declaration procedure. It can be seen that the payment of this tax is a sign that the enterprise has completed the "one-time confirmation" of land value-added tax, with the attribute of liquidation tax.

It should be noted that the label "pre-levy on non-ordinary residential buildings" on the payment voucher is not sufficient to deny the essence of it being liquidation tax. In practice, the formal labeling on the payment voucher may be affected by factors such as the tax system's operating habits and simplified information entry, resulting in procedural deviations, but it cannot replace the determination of the legal nature of the act. From the perspective of the purpose of the act, when the project's sales proportion reached 99.37% and entered the liquidation stage, Yuan Moumou Company paid this tax, which was obviously for the performance of the overall project liquidation result, rather than a phased prepayment during the sales process.

04 The Land Value-Added Tax of the Project Involved Has Exceeded the Recovery Period

The biggest core dispute in this case is the application of the tax recovery period. Yuan Moumou Company claims that this case has exceeded the three-year recovery period, while the tax authority believes that the provisions on the tax collection period are not applicable. Even if the recovery period is involved, it should start from the day after the tax payment period specified in the Tax Matter Notice. To clarify this dispute, it is necessary to comprehensively analyze in combination with the Tax Collection and Administration Law and its implementation rules, the Reply of the State Taxation Administration on Issues Concerning the Time Limit for Recovering Arrears of Tax (Guo Shui Han 〔2005〕 No. 813), and the characteristics of land value-added tax administration.

Article 52 of the Tax Collection and Administration Law clearly stipulates three circumstances for the tax recovery period: If the failure to pay or underpayment of tax is caused by the responsibility of the tax authority, the recovery period is three years; if it is caused by the taxpayer's calculation errors or other mistakes, the recovery period is three years, and in special circumstances, it can be extended to five years; for tax evasion, tax resistance, or tax fraud, there is no time limit for recovery. Article 83 of the Implementation Rules of the Tax Collection and Administration Law further stipulates that "the time limit for supplementing and recovering taxes and late fees stipulated in Article 52 of the Tax Collection and Administration Law shall be calculated from the date on which the taxpayer or withholding agent should pay but failed to pay or underpaid the tax." The Reply of the State Taxation Administration on Issues Concerning the Time Limit for Recovering Arrears of Tax (Guo Shui Han 〔2005〕 No. 813) stipulates that "the provisions on the recovery period in Article 52 of the Tax Collection and Administration Law refer to the situation where the failure to pay or underpayment of tax caused by the responsibility of the tax authority or the taxpayer is not discovered within a certain period, and no recovery shall be made after the expiration of this period. For arrears of tax that have been declared by the taxpayer or investigated and handled by the tax authority, the tax authority is not subject to the restriction of the recovery period stipulated in that article and shall recover the tax in accordance with the law without time limit." Accordingly, the unpaid or underpaid taxes applicable to the tax recovery period must be those not discovered by the tax authority, while the unpaid or underpaid taxes that have been investigated and handled by the tax authority are not subject to the restriction of the recovery period, and there is naturally no issue of the starting point of the recovery period. In the process of land value-added tax liquidation, if the tax authority determines that the taxpayer has unpaid or underpaid taxes after the liquidation review procedure and makes a decision to recover the supplementary tax, it obviously constitutes the arrears of tax that have been investigated and handled, and is no longer subject to the restriction of the recovery period.

Specifically in this case, the tax authority served the Tax Matter Notice on Yuan Moumou Company on January 24, 2022, notifying it to pay the supplementary tax of 540,500 yuan before February 24, 2022. At this time, this tax has constituted the arrears of tax that the tax authority clearly knew and had investigated and handled, and is no longer an undiscovered tax. The tax authority's recovery of this tax is no longer subject to the restriction of the recovery period, so February 24, 2022 cannot be the starting date of the tax recovery period. The view held by the courts in the two instances that the tax recovery period should start from that date is obviously wrong, conflicting with the provisions of the State Taxation Administration.

It can be seen that the logic behind the judgment is that after the taxpayer completes the liquidation declaration, it enters the tax authority's liquidation review procedure, which is not subject to any time limit. The tax authority can issue a conclusion within three months, six months, or even three years, five years, or ten years later. As long as no liquidation review conclusion is issued, the tax liability for land value-added tax is uncertain, and there is no need to apply the tax recovery period, which is obviously wrong. Combined with the characteristics of land value-added tax administration, the applicable rules of the recovery period can be further clarified: For projects that should be liquidated, if the taxpayer fails to complete the declaration within 90 days after the liquidation conditions are met, the recovery period starts from the day after the expiration of the 90-day period; if the declaration and tax payment have been completed, the recovery period starts from the tax payment date. For projects that can be liquidated, if the tax authority does not notify liquidation, the tax liability does not occur, and there is no involvement of the recovery period; if the tax authority has notified liquidation, and the taxpayer fails to declare within 90 days, the recovery period starts from the day after the expiration of the 90-day period; if the declaration and tax payment have been completed, the recovery period starts from the tax payment date. In this case, the tax authority issued the tax document more than ten years after Yuan Moumou Company submitted the liquidation materials, which obviously exceeded the recovery period, and its recovery behavior should not be supported.

Conclusion: The establishment of the tax recovery period aims to urge tax authorities to perform their review duties within the statutory time limit, ensuring both the efficiency of tax administration and the stability of taxpayers' rights. For land value-added tax, after the taxpayer completes the liquidation declaration and tax payment, there may be a situation of "underpayment of tax". The tax authority should conduct liquidation review in a timely manner. As a special tax inspection work, its liquidation review should also be subject to the restriction of the tax recovery period. If the tax authority is negligent in exercising its functions and powers and discovers the underpayment of tax after the expiration of the recovery period, it should bear the corresponding adverse consequences. In practice, for similar cases where misjudgments occur due to deviations in the understanding of liquidation procedures, the nature of taxes, and the rules of the recovery period, the parties can safeguard their rights through appeal channels after the judgment takes effect, and if necessary, with the help of professional tax lawyers, to effectively protect their legitimate rights and interests.