Tax Analysis Based on Cases

Analysis of Tax Administrative Disputes III: Legal Status and Powers of the Inspection Bureau in Tax Administrative Law Enforcement.

 

 

Foreword

 

After the publication of the previous article on why the respondent in the administrative review cannot be the defendant in the administrative litigation, a lawyer colleague raised a different opinion. There was no problem with his line of thinking, but the key was that the legal positioning of the Inspection Bureau was still relatively vague. For this reason, I promised to write an article to clarify it, and the differences would be easily resolved. In fact, the dispute over the nature of the powers of the Inspection Bureau has a long history. In order to explain its ups and downs in legal history, it is still necessary to use this typical case of the Supreme Court 5 years ago to convince people with virtue. After all, the one who tied the bell must untie it.

I. Case Brief

In January 2005, Guangzhou Defa Real Estate Construction Co., Ltd. (hereinafter referred to as Defa Company) entrusted an auction house to auction its own property located at No. 555, Renmin Middle Road, Guangzhou City, "Bank of America Center". According to the auction transaction price of more than 138 million yuan, it paid business tax of more than 6.9127 million yuan and dike protection fee of more than 124,400 yuan to the tax authorities, and obtained the corresponding tax payment certificates. In 2006, the First Inspection Bureau of Guangzhou Local Taxation Bureau (hereinafter referred to as Guangzhou Tax Inspection Bureau No. 1) inspected Defa Company's payment of local taxes and fees from 2004 to 2005 and found that the auction transaction unit price of the above-mentioned property of Defa Company was 2,300 yuan/㎡, which was less than half of the market price, and the price was seriously low. Therefore, in September 2009, it made the Tax Treatment Decision No. 66 [2009] of Guangzhou Tax Inspection Bureau No. 1, and verified that the transaction price of the above-mentioned property auctioned by Defa Company was more than 311 million yuan, and determined the business tax and dike protection fee payable based on this price. It was decided to recover the unpaid business tax of more than 8.6711 million yuan from Defa Company, and impose a late payment surcharge of more than 2.8051 million yuan on the business tax; it was decided to recover the dike protection fee of more than 156,000 yuan, and impose a late payment surcharge of more than 48,600 yuan on the dike protection fee. Defa Company refused to accept the decision and filed an administrative lawsuit. The first instance of the Tianhe District People's Court of Guangzhou City ruled to reject Defa Company's claim; Defa Company refused to accept the judgment and appealed to the Guangzhou Intermediate People's Court. The second instance ruled to reject the appeal and uphold the original judgment; Defa Company still refused to accept the judgment and applied to the Guangdong Higher People's Court and the Supreme People's Court for retrial. After the Guangdong Higher People's Court made a ruling to reject Defa Company's retrial application, the Supreme People's Court decided to form a collegial panel to hear the case in public on June 29, 2015.

 

Regarding the issue of the law enforcement subject and powers of the Inspection Bureau, Defa Company argued in its retrial: 1. The respondent, Guangzhou Tax Inspection Bureau No. 1, is not a qualified administrative subject. The Supreme People's Court's Reply Opinion on the Request Report of the Fujian Provincial Local Taxation Bureau Inspection Branch on Whether It Has the Qualification of an Administrative Subject ([1999] No. 25) stated on October 21, 1999 that "There is no legal basis for the Local Taxation Bureau Inspection Branch to make administrative decisions to the outside world in its own name." According to the above opinion, Guangzhou Tax Inspection Bureau No. 1 is not an independent administrative subject and naturally cannot be the subject of the lawsuit in this case. 2. The respondent exceeded its powers and had no right to verify the taxpayer's taxable amount. Article 9, Paragraph 1 of the Implementing Regulations of the Tax Collection and Administration Law stipulates that "The Inspection Bureau is responsible for investigating and handling cases of tax evasion, evasion of tax arrears, tax fraud, and tax resistance." This case does not fall under the category of "tax evasion, evasion of tax arrears, tax fraud, and tax resistance" and does not fall within the scope of the Inspection Bureau's powers. The respondent has no right to verify the taxable income of the retrial applicant's auction income. The sued tax treatment decision exceeds the scope of the respondent's powers and should be an invalid decision.

 

In response to the above retrial application claims, Guangzhou Tax Inspection Bureau No. 1 argued that: According to Article 14 of the Tax Collection and Administration Law and Article 9 of the Implementing Regulations of the Tax Collection and Administration Law, the respondent has independent law enforcement qualifications. According to Article 35 of the Tax Collection and Administration Law, the subject of tax verification is the tax authority, and the "tax authority" referred to in the Tax Collection and Administration Law includes the inspection bureaus of tax bureaus below the provincial level. There is no issue of the respondent exceeding its authority.

 

II. Judicial Judgment Opinions

The retrial court held that: The focus of the dispute in this case is whether Guangzhou Tax Inspection Bureau No. 1 can re-verify the taxable amount, collect supplementary tax, and impose a late payment surcharge on Defa Company after Defa Company paid taxes based on the auction transaction price formed by the auction of the property involved as the tax base during the tax inspection process on the grounds that the tax base price was significantly low and there was no legitimate reason. Combining the arguments and opinions during the retrial, the law enforcement qualifications and law enforcement powers of Guangzhou Tax Inspection Bureau No. 1 are reviewed as follows:

1. Regarding the issue of whether Guangzhou Tax Inspection Bureau No. 1 has independent law enforcement subject qualifications

The Tax Collection and Administration Law before the 2001 revision did not clearly stipulate the legal status of the inspection bureaus under the tax bureaus at all levels. After the revision of the Tax Collection and Administration Law, Article 9 of the 2002 Implementing Regulations of the Tax Collection and Administration Law further clarified the legal status of the inspection bureaus under the tax bureaus below the provincial level. The inspection bureaus of tax bureaus below the provincial level have the qualifications of administrative subjects. Although the Supreme People's Court made the Reply Opinion on the Request Report of the Fujian Provincial Local Taxation Bureau Inspection Branch on Whether It Has the Qualification of an Administrative Subject ([1999] No. 25) on October 21, 1999, it clarified that "There is no legal basis for the Local Taxation Bureau Inspection Branch to make administrative decisions to the outside world in its own name." However, this reply is an understanding and application of the Tax Collection and Administration Law before the 2001 revision. After the 2001 revision of the Tax Collection and Administration Law, this reply no longer has guiding significance for judicial practice because the object of interpretation has changed. Defa Company's argument that Guangzhou Tax Inspection Bureau No. 1 does not have independent law enforcement qualifications and has no right to make the sued tax treatment decision based on this reply opinion is not tenable.

2. Regarding the issue of whether Guangzhou Tax Inspection Bureau No. 1 exceeded its powers in exercising the power to verify the taxable amount

Article 9 of the Implementing Rules of the Tax Collection and Administration Law not only clarifies the legal status of the inspection bureau affiliated to the tax bureau, but also stipulates the scope of authority of the tax inspection bureau in principle, that is, it specializes in investigating and handling cases of tax evasion, evasion of tax recovery, tax fraud, and tax resistance. At the same time, the State Administration of Taxation is authorized to clearly divide the responsibilities of the tax bureau and the inspection bureau to avoid overlapping responsibilities. The 'Notice of the State Administration of Taxation on Issues Concerning the Responsibilities of Inspection Bureaus' (Guo Shui Han [2003] No. 140) issued by the State Administration of Taxation further stipulates: 'Before the State Administration of Taxation unifies and clarifies, the current responsibilities of inspection bureaus at all levels remain unchanged. The current responsibilities of the inspection bureau refer to: inspection business management, tax inspection, and investigation and handling of tax violation cases; all law enforcement activities that require checking accounts and documents or investigating and collecting evidence from taxpayers and withholding agents, and carrying out tax administrative processing (penalties) for their tax violations, are still the responsibility of inspection bureaus at all levels.' It can be seen from the above provisions that the scope of authority of the tax inspection bureau includes not only the investigation and handling of cases of tax evasion, evasion of tax recovery, tax fraud, and tax resistance, but also extended powers such as inspection management, tax inspection, investigation, and handling that are closely related to the investigation and handling of tax violations. When investigating and handling suspected tax violations, the verification of the amount of tax payable by the inspection bureau in accordance with the provisions of Article 35 of the Tax Collection and Administration Law is an inherent requirement and necessary extension of its authority, which is in line with the business characteristics and law enforcement rules of tax inspection. Before the State Administration of Taxation makes other divisions on the scope of authority of the tax bureau and the inspection bureau, the people's courts should respect the division of authority principles established by the local tax authorities based on the notice, as well as the conventions formed in law enforcement practice that comply with the rules of tax law enforcement. The argument of Defa Company that the sued tax processing decision exceeds the scope of authority of the Guangzhou Tax Inspection Bureau and should be an invalid decision is not tenable.

 

3. Analysis by Tax Lawyers

 1. The inspection bureau belongs to the dispatched agency of the tax bureau in terms of administrative organization

After the merger of national and local taxes in 202018, the tax authorities underwent major reforms. County-level tax inspection bureaus were abolished in various places, and cross-regional inspection bureaus were established to maintain the independence of the inspection bureaus. According to the current establishment, tax bureaus above the prefecture-city level are generally composed of internal departments, directly affiliated units, and dispatched agencies, among which the directly affiliated units of the provincial and municipal tax bureaus are called public institutions, while the dispatched agencies include the inspection bureau. For example, the State Administration of Taxation has seven dispatched agencies, namely the Tax Big Data and Risk Management Bureau and the special commissioner offices of the State Administration of Taxation stationed in Beijing, Shenyang, Shanghai, Guangzhou, Chongqing, and Xi'an, also known as the inspection bureaus stationed in the above regions. Nanning, Guangxi, where the author is located, is under the jurisdiction of the Guangzhou Inspection Bureau of the General Administration, which undertakes the supervision of the implementation of the decisions and deployments of the Party Central Committee and the State Council by the tax authorities in Henan, Hubei, Hunan, Guangdong, Guangxi, Hainan, and Shenzhen, the compliance inspection of tax law enforcement, the internal audit of finance, and the investigation of major tax-related cases across regions; another example is the dispatched agencies of the State Administration of Taxation Guangxi Zhuang Autonomous Region Tax Bureau, in addition to the Big Enterprise Tax Service and Management Bureau and the Tax Big Data and Risk Management Bureau, there are also five inspection bureaus, namely the Autonomous Region Inspection Bureau and the First, Second, Third, and Fourth Inspection Bureaus; another example is the dispatched agencies of the Nanning Municipal Tax Bureau of the State Administration of Taxation, in addition to the three tax sub-bureaus that are responsible for the service management of key tax source enterprises, the collection and management of vehicle purchase tax, and information data and risk management, there are also four inspection bureaus, namely the Municipal Inspection Bureau and the First, Second, and Third Inspection Bureaus. The above-mentioned inspection bureaus, as dispatched agencies, are subordinate to the corresponding tax bureaus, and their administrative level is generally half a level or one level lower than that of the corresponding tax bureaus.

2. The inspection bureau belongs to the tax authority authorized by law in terms of legal nature

The legal nature of the inspection bureau has been gradually established with the improvement of laws and supporting administrative regulations. On September 4, 1992, the 27th meeting of the Standing Committee of the Seventh National People's Congress deliberated and approved the 'Law of the People's Republic of China on the Administration of Tax Collection' (hereinafter referred to as the Tax Collection and Administration Law), which has been implemented since January 1, 1993, and has undergone four revisions in 1995, 2001, 2013, and 2015. Among them, during the revision in 2001, the scope of tax authorities was expanded to tax agencies established in accordance with the regulations of the State Council and announced to the public on the basis of the previous tax bureaus, tax sub-bureaus, and tax offices at all levels. Article 9 of the 'Implementing Rules of the Law of the People's Republic of China on the Administration of Tax Collection' (hereinafter referred to as the Implementing Rules of the Tax Collection and Administration Law), which was amended in October 2002, clearly states: The tax agencies established in accordance with the regulations of the State Council and announced to the public as mentioned in Article 14 of the Tax Collection and Administration Law refer to the inspection bureaus of tax bureaus below the provincial level.

Regarding the powers of the inspection bureau, Article 5 of the Tax Collection and Administration Law authorizes the State Council to stipulate the scope of tax collection and management. Article 9, Paragraph 2 of the Implementing Rules of the Tax Collection and Administration Law, as an administrative regulation formulated by the State Council, authorizes the State Administration of Taxation to divide the responsibilities of the tax bureau and the inspection bureau. Therefore, on February 28, 2003, the State Administration of Taxation issued a normative document, namely the 'Notice of the State Administration of Taxation on Issues Concerning the Responsibilities of Inspection Bureaus' (Guo Shui Han [2003] No. 140), which clarifies that the scope of authority of the inspection bureau includes not only the investigation and handling of cases of tax evasion, evasion of tax recovery, tax fraud, and tax resistance, but also extended powers such as inspection management, tax inspection, investigation, and handling that are closely related to the investigation and handling of tax violations. As for what specific content these extended powers include, the attitude of the judicial organs is that the tax authorities have the final say before new laws, administrative regulations, and tax normative documents are issued to negate this normative document.

3. A guiding opinion on trials has led to years of dispute over the identity of the inspection bureau

The fuse that ignited the dispute over the legal status of the inspection bureau was a reply opinion from the Supreme People's Court. In fact, before the revision of the Tax Collection and Administration Law in 2001, the tax authorities had always regarded the inspection bureau as an independent law enforcement entity. The 'Notice of the State Administration of Taxation on Issues Concerning the Qualification of Tax Inspection Agencies as Law Enforcement Entities' (Guo Shui Fa [1997] No. 148) clearly states: Tax inspection bureaus (sub-bureaus) established by the state tax bureaus and local tax bureaus at the provincial, prefectural, and county levels in accordance with the provisions of Article 8 of the 'Law of the People's Republic of China on the Administration of Tax Collection' have the qualifications of independent law enforcement entities. However, the effectiveness of this normative document is too low. Once it enters judicial proceedings, the people's court's primary consideration is whether there are clear provisions or authorizations in laws and administrative regulations. Against the background that laws and administrative regulations were not clear at that time, on October 21, 1999, the Supreme People's Court mentioned in the 'Reply Opinion on the 'Request Report on Whether the Inspection Sub-bureau of the Fujian Provincial Local Taxation Bureau Has the Qualification of an Administrative Entity'' (Xing Ta [1999] No. 25): In principle, we agree with your court's tendency opinion, that is, the inspection sub-bureau of the local taxation bureau lacks a legal basis for making administrative decisions to the outside world in its own name.

With the release of this judicial opinion, local courts successively saw cases of revoking the handling or penalty decisions of tax inspection (branch) bureaus based on it. With the revision and implementation of the Tax Collection and Administration Law on May 1, 2001, especially after the revision and implementation of the detailed rules for the implementation of the Tax Collection and Administration Law on September 30, 2002, the tax authorities' claims finally gained ground, and this reversal trend was curbed. However, this is, after all, the guiding opinion of the Supreme Court. Since then, in all cases where the inspection bureau is the defendant, its law enforcement subject status must be discussed until sixteen years after the relevant provisions of the Tax Collection and Administration Law are revised and implemented. The Supreme Court finally formally clarified in this case that the judicial document “Xing Ta [1999] No. 25” is no longer guiding for trial practice. On September 22 of the same year, the Supreme Court issued the "Decision on Abolishing Some Judicial Interpretations and Documents with the Nature of Judicial Interpretation (Batch 12)" (Fa Shi [2017] No. 17), formally abolishing this document with the nature of judicial interpretation on the grounds that it conflicts with the Tax Collection and Administration Law and the detailed rules for implementation of the Tax Collection and Administration Law. So far, the dispute over the identity of the inspection bureau has finally come to an end.

In summary, the inspection bureau is a branch of the tax bureau in terms of establishment and is administratively subordinate to the tax bureau, but its legal status belongs to the tax authority and has independent administrative law enforcement qualifications, and its powers are legal as long as they are related to investigating and dealing with tax evasion, fraud, deception, and resistance. Returning to the issue discussed by lawyer colleagues, since the inspection bureau itself is a tax authority, under normal circumstances, when applying for reconsideration, the inspection bureau that made the handling and penalty decision is the respondent for the reconsideration, and the tax bureau where it is located performs the duties of the reconsideration agency as the superior authority. If the reconsideration is upheld and enters the administrative litigation procedure, the inspection bureau and the tax bureau where it is located should become joint defendants. However, the specific tax administrative actions made through the tax major case trial procedure are very special. The previous two issues have been introduced in detail. Although the inspection bureau is the law enforcement subject and has signed and sealed the documents, it is not true to its name. The tax bureau where the trial committee is located is the one that actually makes the decision. Therefore, there is a unique phenomenon in tax administrative disputes where the reconsideration must be sought from the superior, and once the administrative litigation procedure is entered, the respondent for the reconsideration cannot be the defendant.