On June 20, 2008, the First Group of Pingyuan Villagers Committee of Simao Town, Simao City, Yunnan (Party A) and Pu'er Tianyin Commercial Trading Co., Ltd. (Party B) signed a land-for-shares business contract, agreeing to invest Party A's 21.55 mu of land to Party B for investment and construction, and Party B would invest and build according to the plan confirmed by both parties. During the 40-year cooperative development period, the right to use and dispose of the above-ground buildings, greening, and supporting facilities would belong to Party B. On August 10, 2010, the First Group of Pingyuan Villagers Committee of Simao Town (Party A), Pu'er Tianyin Commercial Trading Co., Ltd. (Party B), and Pu'er Tianwei Commercial Trading Co., Ltd. (hereinafter referred to as Tianwei Company) (Party C) signed a tripartite agreement, and Party A agreed to transfer all of Party B's rights and obligations to Party C. After Tianwei Company completed the construction of the property, it was leased to the outside world, and the property involved was not registered for property rights.

On March 28, 2017, the Inspection Bureau of the Local Taxation Bureau of Pu'er City, Yunnan Province (hereinafter referred to as the Inspection Bureau) inspected the local taxes and fees payable by Tianwei Company and determined that Tianwei Company had not filed tax returns and underpaid 209786.40 yuan of property tax calculated based on rental income. It issued a "Tax Treatment Decision" requiring Tianwei Company to pay the tax and late payment fees, and at the same time issued a "Tax Administrative Penalty Decision", deciding to impose a penalty of 50% of the underpaid property tax on Tianwei Company. On July 21, 2017, the Local Taxation Bureau of Pu'er City, Yunnan Province, accepted Tianwei Company's application for reconsideration and upheld the tax treatment and penalty decisions of the Inspection Bureau. Tianwei Company disagreed with the reconsideration decision, believing that the property owner of the property involved was the First Group of Pingyuan Villagers Committee of Simao Town, and that Tianwei Company should not pay property tax but should be paid by the property owner, and then filed an administrative lawsuit. The court of first instance held that because the property in this case had not been registered for property rights and the property rights were uncertain, Tianwei Company, as the property user, was the taxpayer stipulated in the above administrative regulations, and the court ruled to reject Tianwei Company's litigation request.

Tianwei Company refused to accept the first-instance judgment and appealed, arguing that the taxpayer of property tax is the property owner. Evidence such as the construction approval document for the property project, the certificate from Pingyuan First Group, and the notice from the real estate registration center all prove that the ownership of the property involved belongs to Pingyuan First Group. Although the land-for-shares business contract signed between Tianwei Company and Pingyuan First Group is nominally a shareholding business, it is actually a lease contract. During the 40-year lease term, although Tianwei Company enjoys the right to use the property involved, this right to use is not a right to use in the sense of property rights. Therefore, Tianwei Company is not the taxpayer of property tax. The appellees, the Inspection Bureau and the Local Taxation Bureau, argued that Tianwei Company invested, constructed, occupied, used, and leased the property involved. In the case where the property has not been registered for property rights, the property user should pay property tax, so Tianwei Company is a qualified taxpayer in this case.

The second-instance court held that: The issue of the property tax payer is the focus of the dispute in this case. The main reason for the dispute is that the appellant and the appellee have different understandings of Article 2, Paragraph 1 of the "Provisional Regulations of the People's Republic of China on Property Tax". The property right of a house refers to the ownership of the house. According to Article 9, Paragraph 1 of the "Property Law of the People's Republic of China", the establishment, modification, transfer, and extinction of real estate property rights shall take effect upon registration in accordance with the law. In the contract signed between Pingyuan First Group and Tianwei Company, although it contains expressions of intent such as Pingyuan First Group retaining ownership of the house involved, since the property registration has not been completed, this agreement only remains on the right at the contract level and has not become real estate ownership in the sense of property rights. Therefore, Pingyuan First Group cannot become the "property owner" stipulated in Article 2 of the "Provisional Regulations of the People's Republic of China on Property Tax". In addition, with reference to the "Reply of the State Administration of Taxation on How to Levy Property Tax When Property Rights Are Not Determined" (Da Di Shui Yi Zhuan [1999] No. 16), regarding the provision that "for houses sold by real estate development companies, they will no longer be recorded and accounted for in their accounting books, and if the unit purchasing the house has not obtained property rights, property tax may be paid by the user as the property rights have not been determined." According to the reply, the tax authority determines the property tax payer. In the case where the house does not have a property ownership certificate, it is generally handled as "property rights not determined", and "property tax is paid by the user". Based on this, the Inspection Bureau's opinion that the property involved does not have a property ownership certificate and belongs to property rights that have not been determined is based on law. Combined with the facts of the case such as Tianwei Company's actual operation and management of the property involved, leasing houses to the outside world in the name of the company, and collecting rent, the tax authority has corresponding factual basis for levying taxes at a certain percentage of the rent it collects.

1. Rural collective economic organizations can become taxpayers in the development of "three-industry land".

China's land can be divided into two categories according to its nature: land owned by the whole people and land owned by collectives. The "three-industry land" that we commonly refer to is the land left to rural collective organizations by the government to develop the tertiary industry in order to solve the employment and livelihood problems of farmers in and around the city after their land is requisitioned. Although "three-industry land" is located within the urban planning area, its nature is collectively owned land. At present, except for the 13 pilot cities for the construction of rental housing on collective land, it cannot be freely traded for real estate development, and can only obtain income through leasing or joint construction development.

Due to a lack of understanding of tax laws, many village collectives or partners believe that rural collective organizations are neither enterprises nor for-profit units and do not need to pay taxes when developing "three-industry land" in cooperation. In addition, the financial system of village collectives is unsound, and some village collectives have taxable activities but have not paid taxes, which has also led many people to mistakenly believe that as long as business activities are carried out in the name of the village collective, taxes do not need to be paid. However, this is not the case. Article 96 of the "Civil Code" defines collective economic organizations as special legal persons that can independently bear civil rights and obligations. The current "Enterprise Income Tax Law", "Provisional Regulations on Value-Added Tax", "Provisional Regulations on Property Tax", and "Provisional Regulations on Urban Land Use Tax" do not include the taxable activities of rural collective economic organizations in the scope of non-taxable or tax-exempt. In accordance with the requirements of the central government's "Opinions on Steadily Promoting the Reform of the Rural Collective Property Rights System", the Ministry of Agriculture and Rural Affairs has been continuously expanding the scope of pilot projects since 2018, and will basically complete the registration of rural collective economic organizations at all levels across the country with nationally unified social credit codes by the end of 2021. After standardized registration, rural collective economic organizations not only clarify their legal person status, but can also open bank accounts and engage in business management activities, which also lays the foundation for them to pay taxes in accordance with the law.

2. Property tax on taxable properties on "three-industry land" that have not been registered for real estate shall be paid by the actual user.

The 'Provisional Regulations on Property Tax' specifies five types of taxpayers: property owners, management units, pledgees, property custodians, and users. Property tax is generally paid by the property owner, but other beneficiaries of the property pay only when the property owner cannot perform taxable acts related to the property tax. Article 209 of the 'Civil Code' stipulates that the establishment, modification, transfer, and extinction of real property rights shall take effect upon registration in accordance with the law; without registration, it shall not take effect. The second instance court in this case held that the expression of intent regarding the ownership of the house in the contract, due to the lack of property registration, this agreement only remains at the contractual level and does not become real property ownership in the sense of property rights. Therefore, regardless of the contractual agreement during the cooperative development of 'Three-Industry Land,' the establishment of real property rights is subject to registration. When the property tax payment obligation arises, the taxpayer is the right holder registered for the real property, and only in the absence of real property registration and no property pledge can the property custodian or user be the property tax payer.

The State Administration of Taxation's 'Reply on How to Determine Property Tax Payers During the Period When Property Ownership Certificates Have Not Been Obtained' (Guo Shui Han [2002] No. 284) and 'Reply on the Issue of How to Levy Property Tax When Property Ownership Is Uncertain' (Da Di Shui Yi Zhuan [1999] No. 16) and other tax documents further confirm this principle established by tax administrative regulations, that is, during the period when property ownership certificates have not been obtained, according to Article 2 of the 'Provisional Regulations on Property Tax,' which states that 'if the property ownership is uncertain, the property tax shall be paid by the property custodian or user,' the actual user of the house should be determined as the property tax payer and pay the property tax.

3. Differences in the 'Three-Industry Land' cooperative development model will result in different property tax burdens.

In the cooperative development of 'Three-Industry Land,' regardless of how the commercial form changes, the current legal business models are only two: one is a cooperative business model that shares risks and benefits; the other is a real estate leasing model that does not bear operating risks and only collects fixed income. The State Administration of Taxation clearly stated in the 'Reply on Several Property Tax Business Issues in Anhui Province' (Guo Shui Han Fa [1993] No. 368): For properties invested in joint operations, the property tax should be treated differently when calculating and levying property tax based on the specific circumstances of the investment joint operation. For situations where properties are invested in joint operations, and investors participate in investment profit sharing and share risks, property tax is calculated and levied based on the original value of the property as the tax base; for situations where properties are invested and fixed income is collected without bearing joint operation risks, it is actually obtaining rent for the property in the name of joint operation, and the lessor should calculate and pay property tax based on the rental income according to relevant regulations.

According to the provisions of the 'Provisional Regulations on Property Tax,' property tax is divided into two types: tax calculated based on the residual value of the property and tax calculated based on rental income. First, the tax rate is 1.2% based on the taxable residual value of the property. The so-called taxable residual value of the property refers to the balance after deducting a certain percentage of the loss value from the original value of the property in accordance with laws and policies. The one-time deduction ratio is stipulated by the people's governments of each province, autonomous region, and municipality directly under the Central Government, of which the deduction ratio for above-ground buildings is 10%-30%, and the deduction ratio for underground buildings is 50%-80% of the original price. Second, the tax rate is 12% based on property rental income. Rental income includes monetary income and income in kind. For labor or other forms used as compensation to offset rental income, the rental standard should be determined according to similar houses locally, and the tax should be calculated and levied according to the rate.

Assume that the original value of the 'Three-Industry Land' property is 60 million, the local regulations stipulate that the deduction ratio is 30%, and the annual rental income is 6 million yuan. In the cooperative development process, if the joint operation model is selected, it is calculated at 1.2% of the remaining value after deducting the deduction ratio from the original value of the property, that is, 6000*(1-30%)*1.2%, and the property tax paid annually is 504,000 yuan; if the real estate leasing model is selected, it is calculated at 12% of the rental income, that is, 600*13%, and the property tax paid annually is 720,000 yuan.

In summary, in the cooperative development process of 'Three-Industry Land,' as long as the property on the land is located within the urban planning area and a property tax taxable act occurs, rural collective economic organizations may also bear the corresponding tax obligations. If the property on the 'Three-Industry Land' has not yet obtained a real estate registration certificate, the property tax should be paid by the actual user. At the same time, different business models will also generate different property tax burdens. Grasping the tax-related matters in the cooperative operation of 'Three-Industry Land' and conducting tax burden calculations in advance based on the corresponding business model will not only help standardize business behavior and prevent tax-related risks in the operation process, but also help to take the initiative in commercial negotiations and maximize benefits through contractual arrangements.