Tax Administrative Appeal

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37 Tax Administrative Appeal

RIGHTS/OBLIGATIONS OF PLAINTIFF/DEFENDANT

TRIAL PROCEEDINGS AND JUDGEMENTS

COMPENSATION

This appeal forms part of China's overall administrative appeal system. It allows parties that believe tax administrative acts of the tax department have infringed upon their legal rights or interests, to seek redress through the judicial system, by applying for a tax administrative appeal to examine the legality and appropriateness of those acts.

The aim of the appeal system is to allow the People's Court to fulfill its responsibilities in the following areas:

Ensuring that cases are tried correctly and in a timely manner.
Safeguarding the legal rights and interests of taxpayers, withholding agents, or other concerned parties, as well as other counterparts of the tax administration.
Monitoring the execution of administrative acts by the tax department, and upholding its actions where execution is in accordance with prevailing laws.

OVERVIEW

Where citizens, legal entities, or other organizations believe that the tax department or members of its staff have carried out unlawful or inappropriate tax administrative acts that have infringed upon their legal rights or interests, they may by law seek a tax administrative appeal with the People's Court to examine the legality and appropriateness of the acts.

Criteria

A tax administrative appeal can proceed only if the following criteria are met:

The plaintiffs are citizens, legal entities, or other organizations that believe specified tax administrative acts have infringed upon their legal rights or interests.
There is an identifiable defendant.
There is a request for an appeal.
There are evidential grounds for an appeal.
The case falls within the scope of cases that can be accepted by the People's Court.
The case falls under the jurisdiction of the court the appeal.

SCOPE

This section discusses various tax administrative acts that can be brought up for administrative appeal under the Law of the People's Republic of China on Administrative Appeal as well as relevant tax laws and regulations.

Collection-Related Activities

Determinations made by the tax department on the following issues in the course of collecting taxes may be brought up for appeal:

Taxpaying entities, tax base, tax scope, taxable objects.
Applications of tax rates.
Tax stage.
Tax reductions, tax exemptions.
Tax refunds.
Time limits for tax payment, places for tax payment.
Collection of taxes, collection of tax arrears and interest charged for late payments.
The withholding and collection of taxes by withholding agents and units entrusted by the tax department.

Guaranty Measure-Related Activities

The following actions undertaken by the tax department in the course of implementing guaranty measures may be brought up for appeal.

Notifications to banks or other financial institutions to freeze taxpayers' deposits.
Confiscation or sealing up of taxpayers' commodities, goods, or other property.

Acts of Omission Related to Guaranty Measures

The following act of omission by the tax department in the course of implementing guaranty measures may be brought up for review:

Failure to rescind guaranty measures, thereby infringing upon the legal rights or interests of taxpayers or other litigants.

Payment Enforcement-Related Activities

The following activities undertaken by the tax department in the course of enforcing tax payment may be brought up for appeal:

Notifications in writing to banks or other financial institutions to deduct taxes from the deposits of taxpayers, withholding agents, or guarantors.
Selling by auction impounded or sealed-up commodities, goods, or other property belonging to taxpayers, withholding agents, or guarantors.

Punitive Activities

The following punitive actions or penalties undertaken by the tax department may be brought up for appeal:

The imposition of fines.
The expropriation of property or illegal gains.
The suspension of rights to refunds of export taxes.

Acts of Refusal Related to Taxpayer Applications

Refusals by the tax department to handle or reply to applications, or execute/expedite procedural formalities, in contravention of prevailing laws, may be brought up for appeal:

Refusal to approve tax reductions, tax exemptions, or tax refunds.
Refusal to credit taxes.
Refusal to rebate taxes.
Refusal to issue tax registration certificates or sell invoices.
Refusal to issue tax payment memoranda or receipts.
Refusal to identify normal Value-Added Tax (VAT) payers.
Refusal to extend deadlines for the filing of tax returns.
Refusal to approve deferred tax payments.

Others

Decisions by the tax department to remove the status of normal VAT taxpayers.
Actions by the tax department to take over invoices or stop selling invoices.
Actions by the tax department to order taxpayers to provide tax guaranties.
Failure by the tax department to confirm the validity of tax guaranties.
Actions by the tax department to notify the exit control department to prevent taxpayers from leaving China.
Other specified tax administrative acts by the tax department.

JURISDICTION

This section discusses which courts or State organs have jurisdiction to hear tax administrative appeals.

Overview

Various rules govern how the most appropriate court is chosen to preside over a tax administrative appeal.

Deciding factors include the significance of the case, and geographical or residential considerations. Under certain circumstances, cases may also be moved to another jurisdiction.

Choice of jurisdiction is governed by three main rules, discussed later:

Jurisdiction by level.
Jurisdiction by residence.
Jurisdiction by ruling.

Multiple Jurisdictions

Where two or more People's Courts have jurisdiction over an administrative appeal, the plaintiff may select one of the courts to hear the appeal.

Where the plaintiff appeals to two or more People's Courts with jurisdiction, the court that receives the plaint first shall handle the appeal.

Jurisdiction by Level

Selection of the court hearing the appeal may be based on the complexity or significance of the case, with the more complex or significant cases being heard by more senior courts.

Grassroots People's Courts: They shall preside over ordinary appeal cases within their jurisdictions.
Middle People's Courts, High People's Courts: They shall preside over important and complex appeal cases within their jurisdictions.
Supreme People's Court: It shall preside over important and complex appeal cases of national significance.

Jurisdiction by Residence

Selection of the court hearing the appeal may be based on physical location.

General Residence

For cases that fall under this category, selection is based on the location of the tax department that carried out the administrative act.

Under the following circumstances, the court hearing the case shall be the People's Court that has jurisdiction over the locale served by the tax department being held accountable for the primary act:

Where appeals are made directly to the People's Court (i.e., the litigants bypass the administrative review).
Where the litigants have gone through an administrative review, where the review department makes a ruling to maintain the act, and where the litigants object to this ruling.

Special Residence

For cases that fall under this category, selection is still based on location, but determined in accordance with processes laid out for the regulation of administrative law and administrative organs.

Where the case has gone through an administrative review and the review department has decided to amend the original administrative act, the court hearing the case shall be the People's Court that has jurisdiction over the locale served by the review department.
Where the tax department has notified the exit control department to prevent the plaintiff from leaving China, and the plaintiff is appealing against that act, the court hearing the case shall be the People's Court that has jurisdiction over the locale served by the review department, or the People's Court that has jurisdiction over the locale where the plaintiff has residence.
Where the appeal is related to immovable property, the court hearing the case shall be the People's Court that has jurisdiction over the locale where the property is situated.

Jurisdiction by Ruling

Under certain circumstances, another court may be required to take over jurisdiction of the case.

Transferred Jurisdiction

Where the People's Court hearing the case finds that the case is not within its jurisdiction, it shall transfer the case to another People's Court that does have jurisdiction.

Designated Jurisdiction

Where special circumstances prevent the People's Court that has jurisdiction over the case from exercising its authority in that jurisdiction, a higher People's Court may designate the jurisdiction for the case.

Where a dispute arises between two People's Courts over jurisdiction of the case, it shall be settled by mutual consultation. If the mutual consultation fails, the dispute shall be reported to a People's Court that is superior to both courts, so the higher court can designate the jurisdiction for the case.

Shifted Jurisdiction

Where the litigants bypass the administrative review process and appeal directly to the People's Court against an administrative act, a higher People's Court has the authority to take over the case from the lower People's Court and hear the case itself as a trial court. Alternatively, the higher court can shift the case to another lower court.

Where a lower People's Court believes a case that it is trying at first instance should be shifted to a higher People's Court for trial, the lower court can report the case to the higher court for a decision.

PARTICIPANTS

Overview

The participants in a tax administrative appeal are the key parties to the appeal by law.

Parties that have the right of appeal.
Parties that undertake the obligation of appeal.
Parties that have interest relation with the appeal dispute.
Parties that have interest relation with the result of the appeal.

Such parties include the litigants, co-plaintiffs, third parties, and agents appointed to participate on behalf of other parties.

The parties take on different designations at different stages of the appeal:

First trial: Plaintiff versus defendant.
Second hearing: Appellant versus appellee.
During the course of trial monitoring: Complainant versus complainee.
During the course of execution: Execution applicant versus execution applied entity.

Plaintiffs

Where a taxpayer, withholding agent, tax guarantor, tax litigant, or other counterpart of tax administration believes that the tax department or members of its staff have infringed upon his legal rights or interests, he may, by law, file an appeal with the People's Court. He then becomes the plaintiff in the appeal.

Under certain circumstances, there might be more than one plaintiff. They shall be referred to as joinders or joint plaintiffs.

Plaintiffs on Behalf

For various reasons, the entity that is entitled to file an appeal may be unable to do so. In such cases, other entities may apply on its behalf.

Where the entitled citizen is deceased, a close relative may file instead.
Where a legal entity or other organization has terminated, the legal entity or other organization that assumes its rights may file instead.

Agents Ad Litem

Under certain circumstances, an agent may be appointed to participate in the appeal in the name of the litigant, within specified limits, for the purpose of safeguarding the legal rights or interests of the litigant that he is representing:

Statutory agents ad litem: These are specified by law.
Designated agents ad litem: These are designated by the courts.
Entrusted agents ad litem: These are appointed by the litigants in accordance with prevailing laws.

Third Parties

Where the administrative act has a bearing on the interests of other parties (citizens, legal entities, or other organizations), these parties may participate in the administrative appeal as third parties, for the purpose of safeguarding their own legal rights or interests.

Defendants

General Principles

Where the plaintiff alleges that a specified tax administrative act by the tax department has infringed upon his legal rights or interests, and where the People's Court notifies the department that the plaintiff has filed an appeal, the department becomes the defendant in the appeal.

Under certain circumstances, there might be more than one defendant. They shall be referred to as joinders or joint defendants.

Defendants shall be named in accordance with the following rules:

Cases That Go Directly to Appeal

Where cases do not first go through an administrative review, the tax department that oversees the administrative act shall be the defendant.

Cases That Go Through Administrative Reviews

Where the review department decides to uphold the original administrative act, the tax department that carried out or was responsible for the original act shall be the defendant.
Where the review department amends the original administrative act, the review department shall be the defendant.
Where the review department fails to make a ruling within the specified time limit, the tax department that carried out or was responsible for the original act shall be the defendant.

Cases Involving Joint Execution

Where the tax department jointly carries out the administrative act with another tax department, or where the tax department jointly carries out the act with another administrative department, the departments involved shall be joint defendants.

Cases Involving Entrusted Execution

Where the tax department entrusts an organization to carry out an administrative act, the entrusting department shall be the defendant.

Where the tax department has been shut down, the tax department that assumes its duties shall be the defendant.

Incorrectly Named Defendants

Where the defendant named by the party filing an appeal against the tax administration is not the correct one, the People's Court shall ask the complainant to name a new defendant.

Otherwise, the case shall not be accepted.

RIGHTS/OBLIGATIONS OF PLAINTIFF/DEFENDANT

This section discusses the rights enjoyed by plaintiffs and defendants in a tax administrative appeal, as well as the obligations they must fulfill.

Plaintiffs

Rights

Plaintiffs engaging in an administrative appeal should be aware that they have the following rights:

The right to initiate an appeal.
The right to insist that the defendant enter a formal plea.
The right to apply for the suspension of the specified act.
The right to request that judges or other relevant staff withdraw from the case if they are related to the case in any way that creates a conflict of interests.
The right to agree or disagree with the defendant regarding the amendment of the act.
The right to withdraw the appeal.
The right to appeal to a higher court, or to withdraw an appeal to a higher court.
The right to appeal to a higher court on the effective judgment of court.
The right to ask the People's Court to implement enforcement measures against the defendant where the defendant refuses to abide by the judgement.
The right to ask for administrative compensation.
Other rights related to safeguarding their legal rights or interests (e.g., entrusting agents to participate in the appeal, requesting that they be allowed to address the court in their native languages).

Obligations

Plaintiffs bear two types of obligations: active and passive.

Active obligations require the plaintiffs to take certain actions:

Providing or amending evidence at the request of the People's Court.
Accepting court summonses and participating in the appeal.
Performing the effective judgment and ruling.
Being punctual and following the instructions of the court.

Passive obligations require the plaintiffs to abstain from certain actions:

Hindering or interfering with the rights of appeal of other persons.
Abusing rights of appeal.
Forging, hiding or damaging evidence.

Defendants

Rights

As the defendant in an administrative appeal, the tax department has the following rights:

The right to entrust an agent ad delim to represent the department in the appeal.
The right to ensure completion of evidence.
The right to request that judges or other relevant staff withdraw from the case if they are related to the case in any way that creates a conflict of interests.
The right to examine witnesses, evaluators, surveying persons, and verifying persons, during the trial.
The right to examine court records and apply for amendments to the records.
The right to appeal to a higher court against the judgement made by the court of first instance.
The right to apply to the People's Court for execution, where it wins the appeal.

The tax department is not allowed to take any of the following actions:

Initiate a tax administrative appeal on its own behalf.
Initiate a counter-appeal.
Apply for withdrawal of the appeal.
Collect at discretion information from the plaintiffs and witnesses.

Obligations

The tax department has to bear the following obligations in an administrative appeal:

To perform the right by law.
Not to abuse the right of appeal.
To enter a plea in response to the plaint.
To receive court summonses and participate in the appeal.
To observe statutory time limits, and follow the instructions of the court.
To truthfully state to the court the reason behind the administrative act.
To provide the factual and legal basis.
To implement the judgement/rulings of the People's Court.
To make compensation to the plaintiffs for any losses they might have sustained as a result of the administrative act.

TRIAL PROCEEDINGS AND JUDGEMENTS

Overview

The People's Court shall try tax administrative cases in conformity with prevailing tax laws, administrative regulations and local tax regulations applicable to the area, with reference to tax rules and measures formulated by the Ministry of Finance, the SAT, the People's Government at the provincial level, the People's Government of the provincial capital and the People's Governments of large cities, as approved by the State Council in accordance with relevant tax laws and administrative regulations.

Proceedings

Time Limits

After examination, the People's Court shall, within 7 days of receiving the plaint either register the case, or rule not to accept the case. Where the plaintiff objects to the ruling, he may appeal to a higher court.

The People's Court shall, within 5 days of registering a case, deliver a copy of the plaint to the defendant (i.e., the tax department).

Within 10 days of receiving the copy of the plaint, the defendant shall provide the People's Court with the relevant materials relating to the administrative act and submit its plea.

The People's Court shall, within 5 days of receiving the plea, send a copy of the plea to the plaintiff. Failure to submit the plea shall not affect the trial by the People's Court.

Suspension of Administrative Acts

During the appeal, the administrative acts shall continue to be executed, unless the following circumstances apply:

The defendant considers it necessary to suspend execution.
The plaintiff applies for suspension, and the People's Court rules for suspension.
Suspension is stipulated by prevailing laws and regulations.

Withdrawal of the Appeal

Under certain circumstances, the appeal may be withdrawn.

Where the People's Court has yet to issue a judgement/ruling on the case, it has the authority to make a ruling on whether the following actions are permissible:

Application for withdrawal by the plaintiff.
Withdrawal of the appeal by the plaintiff because the defendant has amended the administrative act and the plaintiff is satisfied with the amendment.

Failure of Participants to Appear

Where the plaintiff fails to appear before the court, even after two court summonses have been issued to him, and where he cannot provide an acceptable reason, the appeal shall be deemed to be withdrawn.

Where the defendant refuses to appear before the court, and cannot provide an acceptable reason, judgement may be made in the absence of the defendant.

Discovery of Administrative/Legal Violations

Administrative Violations

Where the People's Court finds during the case that the head of the tax department or the official directly responsible for the department has violated administrative disciplines, it shall turn over the relevant materials to that tax department, a higher tax department, or the supervisory department and human resource management department.

Legal Violations

Where the People's Court finds during the case that any of the concerned parties has committed a crime, it shall turn over the relevant materials to the public security department and the procuratorial department.

Judgements

At the conclusion of the case, the People's Court may, depending on the circumstances, make the following judgements:

Where the administrative act is supported by irrefutable facts, where it is based on applicable law and regulations, and where it conforms to legal procedures, the act shall be maintained.
Where the administrative act involves the following circumstances, the original act shall be annulled or partially annulled, and the defendant shall resume the act:
- Key evidence was lacking.
- The defendant incorrectly applied laws or regulations.
- The defendant did not comply with legal procedures.
- The defendant overstepped the boundaries of its duties.
- The defendant abused its authority in executing its duties.
Where the defendant fails to perform its legal duties, the defendant shall be ordered to perform those duties within a specified time limit.
Where the administrative penalty imposed by the tax department was unfair, the penalty shall be amended.

Resumption of Administrative Acts

Resumption

Where the People's Court rules that the defendant shall resume the act, and where a scenario arises similar to the one under which the defendant made its original determination, it cannot base its new determination on equivalent facts or grounds.

Time Limits

First Judgement

The People's Court shall, within 3 months of the case registration date, deliver the first trial judgement. Where special circumstances necessitate an extension, approval shall be sought from the High People's Court.

Where the case is heard by the High People's Court, approval for extensions shall be sought from the Supreme People's Court.

Final Judgement

The People's Court shall make the final judgement within 2 months of receiving the appeal lodgment. Where special circumstances necessitate an extension, approval shall be sought from the High People's Court.

Where the case is heard by the High People's Court, approval for extensions shall be sought from the Supreme People's Court.

Objections to Rulings

The litigants objecting the judgement of the first instance of the People's Court on tax administrative case have the right to appeal to the higher People's Court within 15 days after the receipt of the judgement.

Objecting the ruling decision of the People's Court in the first trial, the litigants have the right to appeal to the higher People's Court within 10 days after receipt of the ruling decision.

“Where litigants have appealed directly to the People's Court against an administrative act (i.e., they have bypassed the administrative review process), and where they object to the ruling by the People's Court, they have the right to appeal to a higher People's Court, within 15 days of receiving notification of the court ruling.

Where litigants have appealed to the People's Court against a ruling by the tax department, and where they object to the ruling by the People's Court, they have the right to appeal to a higher People's Court, within 10 days of receiving notification of the court ruling.”

In case of failure to appeal within the time limit, the judgement/ruling of the People's Court in the first trial shall be legally effective.

Appellate Review Principles

When hearing appeal cases, the People's Court shall abide by the following principles:

Where the first judgement was based on irrefutable facts, and correctly applies prevailing laws and regulations, the People's Court shall reject the appeal and uphold the judgement.
Where the judgement of the first trial was based on irrefutable facts, but incorrectly applies prevailing laws or regulations, the People's Court shall renew the judgement.
Where the judgement of the first trial was based on questionable facts or inadequate evidence, or where the judgement may have been influenced by incorrect application of legal procedures, the People's Court may take one of the following steps:
- Annul the judgement, and return the case to the previous People's Court for a re-trial. Where litigants object to a re-trial, they may further appeal to a higher court.
- Renew the judgement after determining the true facts of the case.

Judgements/Rulings Already in Effect

Incorrect Judgements/Rulings

Where litigants believe a judgement/ruling that is already legally effective is actually wrong, they may complain to the People's Court that presided over the previous trial, or to the People's Court at a higher level.

However, the judgement/ruling shall continue to be executed.

Illegal Judgements/Rulings

Where the People's Court finds a judgement/ruling that is already legally effective, violates prevailing laws or regulations, the People's Court may re-try the case.

Where the People's Procuratorial Department finds a judgement/ruling by the People's Court that is already legally effective, violates prevailing laws or regulations, the People's Procuratorial Department shall have the right to object to the appeal, in accordance with trial monitoring procedures.

Enforcement of Rulings

Litigants

Litigants must abide by the legally effective judgements/rulings of the People's Court.

Where the citizen, legal entity, or other organization refuses to carry out the judgement/ruling, the tax department may ask the People's Court that heard the first trial to implement the judgement/ruling in accordance with prevailing laws.

Where the citizen, legal person or other organization neither appeals nor carries out the judgement/ruling on the administrative act within the statutory time limit, the tax department may ask the People's Court to implement enforcement measures, or it may itself implement legally sanctioned enforcement measures.

Defendants

Where the tax department refuses to implement the judgement/ruling, the People's Court that heard the first trial may take the following measures:

Where the tax department refuses to reimburse fines or grant compensation, the court may notify the bank to transfer money from the departmental account.
Where the tax department fails to comply within specified time limits, the court may impose a fine of 50–100 yuan per day on the department, starting from the expiry of the time limit.
Where the tax department's refusal to implement a judgement/ruling is so serious that it constitutes an offence, the court may hold the head of the department or other relevant staff criminally liable.

The People's Court may also make a judicial proposal to a higher tax department, supervisory department, or human resource management department. The department that accepts the proposal shall treat the tax department in accordance with relevant rules, and inform the People's Court of the results.

COMPENSATION

This section discusses the granting of compensation to parties that have suffered losses as a result of a tax administrative act.

Claimants and Claimees

Where the tax department or members of its staff have infringed upon the legal rights or interests of citizens, legal entities, or other organizations, these parties have the right to claim for compensation from the State.

The tax department or those members of its staff responsible for the tax administrative act that have infringed upon the legal rights or interests of the claimants, resulting in losses for the claimants, shall bear responsibility for the compensation.

After making the compensation, the tax department shall order those members of its staff who committed deliberate or serious errors related to the administrative act to bear part or all of the compensation.