Viewpoint... Tax-related issues in real estate judicial auctions (II) common tax-related risks of judicial auctions.

In order to facilitate the buyer to handle the transfer of ownership and tax collection and management, it is generally stated in the "auction announcement" and "auction transaction book" issued by the court that all taxes and fees (including but not limited to income tax, land value-added tax, value-added tax and its surcharges, stamp tax, deed tax, etc.), possible tax arrears and arrears of utilities and property fees arising from this transfer shall be borne by the buyer. In view of this, bidders need to pay attention to the tax-related risks in the auction.

Pre-tax arrears are mainly taxes that should be paid but not paid according to regulations before the auction of the subject matter, such as unpaid property tax, urban land use tax and other taxes closely related to the use of real estate.

The pre-tax arrears are formed before the auction, regardless of whether the auction or not, this claim already exists, has nothing to do with the auction behavior, therefore, it does not belong to the transaction link tax, according to the provisions should not be paid from the judicial auction proceeds, nor should the buyer be required to bear. The tax on the transaction, by its nature, is the same as the auction fee and other related expenses, and is a tax that must be paid in the judicial auction process. Its purpose is also to guarantee the transfer procedures and the final completion of the auction in accordance with the law, and to realize the successful claim of the applicant, which should be paid first.

The first paragraph of Article 45 of the the People's Republic of China Tax Collection and Administration Law stipulates that when the tax authorities collect taxes, the tax shall take precedence over unsecured claims, unless otherwise provided by law; if the tax owed by the taxpayer occurs before the taxpayer sets up a mortgage or pledge on its property or the taxpayer's property is retained, the tax shall be executed before the mortgage, pledge and lien.

According to the above-mentioned legal provisions, for the pre-payment of taxes, the treatment is: in the auction of property security, if the tax arrears occurred before the security, the tax should be deducted from the auction proceeds, the tax has priority.

It should be noted that, whether for the executed person or the buyer, as long as the subject matter of the auction exists in the early tax arrears, there must be one party will bear the responsibility, if it is the buyer to bear, it will increase the cost of purchase, such as the executed person to bear, it may affect the realization of the applicant's claim.

1. Binzhou City Bincheng District People's Court Case

Case No.:(2020) Lu 1602 Zhiyi No. 61

The Bincheng District People's Court held that, in accordance with Article 45 of the the People's Republic of China Tax Collection and Administration Law: "Tax authorities collect taxes, and taxes have priority over unsecured claims, unless otherwise provided by law; the taxes owed by taxpayers occur If the taxpayer sets up a mortgage or pledge with his property or the taxpayer's property is lien, the tax shall be executed before the mortgage, pledge, and lien." In this case, the subject matter involved in the case was mortgaged on April 30, 2014, and the taxes and late fees owed before that totaled 24315.87 yuan, which should be paid by Red Star Motor Company. Red Star Motor Company, as the person subject to execution, fails to fulfill its obligations under the legal instruments in force,The Court auctioned all the subject matter involved in the case in accordance with the law, and withheld the above-mentioned fees in the auction, in accordance with the law.

2. Cases of Yantai Intermediate People's Court

Case No.:(2018) Lu 06 Zhifu No. 64

The Yantai Intermediate People's Court believes that the focus of this case is whether it is appropriate for the Muping District Court to give priority to the payment of taxes owed by the person subject to execution from the auction money. In the execution procedure, the legal taxes and fees of the executed person arising in the process of auction and sale of real estate can be paid in priority from the auction and sale price according to law, while for the taxes and fees owed by the executed person in history, the law and judicial interpretation do not stipulate that priority can be paid from the execution of auction and sale funds.In this case, the ''Tax Deduction Notice'' issued by the Muping Branch of the Yantai Local Taxation Bureau stated that the tax owed by the person subject to execution is not only the land use tax from April 1, 2006 to June 30, 2018, but also Including late fees, not the taxes and fees formed by the auction and sale itself, so the Muping District Court believes that the execution funds should be paid first to the history of the person subject to execution.

3. Case of Weifang Intermediate People's Court of Shandong Province

Case No.:(2019) Lu 07 Zhifu No. 137

The Weifang Intermediate People's Court held that the taxes owed by the executor Warner Company should be borne by the executor. Although the enforcement court sold the real estate of the executed person through Taobao,The enforcement court has the right to determine the relevant subject and amount of tax to be borne in accordance with legal principles and the actual circumstances of the case only if the laws and regulations do not provide for or are unclear about the tax arising from this transaction, and has no right to determine that the tax owed by Warner's history shall be borne by other subjects......

Through the above cases, it can be seen that on the issue of historical tax arrears of the subject matter of the auction, the provincial courts generally agree that the tax arrears should be collected in accordance with the provisions of the tax collection and administration law, and the court has the obligation to assist in the implementation.

Article 30 of the Provisions of the Supreme People's Court on Several Issues Concerning the Online Judicial Auction of the People's Courts (Fa Shi [2016] No. 18) stipulates that the taxes and fees formed by the online judicial auction itself shall be in accordance with relevant laws and administrative regulations., It shall be borne by the corresponding subject; if there are no regulations or unclear regulations, the people's court may determine the relevant subject and amount of taxes and fees based on legal principles and the actual circumstances of the case. Before the implementation of the judicial interpretation, the buyer's package tax clause of the buyer's full tax is basically used in the judicial auction practice, and after the implementation of the judicial interpretation, there are both the auction mode borne by the seller and the buyer, and the auction mode in which the buyer bears the full tax. In the case of a large amount of tax, such as the buyer to bear all, undoubtedly increase the cost, such as by the seller, because the seller is insolvent, will eventually affect the rights and interests of the applicant.

(1) Beijing High Court-Case No.:(2022) Beijing Zhifu No. 67

Summary of the case

Beijing No.4 Intermediate People's Court issued a "Bidding Announcement" on Taobao's judicial auction network platform, in which the first special reminder item 2 states that "the buyer shall bear the taxes and fees such as transfer of ownership after the auction is completed." Article 7 states that "the registration procedures for the transfer of the subject matter shall be handled by the buyer himself. The taxes and fees that should be paid by the person subject to execution in the transfer procedures shall be borne by the buyer and paid to the personnel of the relevant departments." The fifth item of the "Judicial Disposal Transaction Confirmation" issued stated that "the transfer expenses and other taxes related to the disposal of the subject matter shall be borne by the buyer, and the inability to transfer the ownership caused by this has nothing to do with the disposer". The buyer signs and confirms the "Judicial Disposal Transaction Confirmation", and affirms that it recognizes the bidding process and results, is responsible for its own bidding behavior, and is willing to bear corresponding legal responsibilities. The buyer rejected the objection to the execution and filed a reconsideration with the Beijing High Court.

View of Beijing High Court

The "Bidding Announcement" issued by the Beijing Fourth Intermediate People's Court on the Taobao online judicial auction platform stated that "the taxes and fees that should be paid by the person subject to execution in the transfer procedures shall be borne by the buyer" does not violate the subject of execution. The relevant laws and administrative regulations bear the provisions of taxes and fees, but clarify the bidding conditions for the buyer to bear the expenses. When Jiezuo Daily chemical company participates in the bidding, it is deemed to accept the conditions, be responsible for its own bidding behavior, and be willing to bear the corresponding legal responsibility.Moreover, the fifth item in the "Judicial Disposal Transaction Confirmation" signed by Jiezuo Daily Chemical Company after the bidding states that "the buyer shall bear the transfer fees and other taxes involved in the disposal object", which can also prove its approval of the tax burden caused by the auction and the consequences caused by it. Therefore, Jiezuo Daily Chemical Company should accept the relevant restrictions and abide by the relevant agreements. After the bidding transaction, pay the corresponding fees in accordance with the contents of the Bid Announcement and the Confirmation of Judicial Disposal.

(2) Shanghai High Court-Case No.:(2019) Huzhi Fu No. 116

Shanghai High Court View

The court believes that according to Article 30 of the provisions of the Supreme People's Court on Several Issues concerning the online judicial auction of the people's court, the taxes and fees formed by the online judicial auction itself shall be borne by the corresponding subjects in accordance with the provisions of relevant laws and administrative regulations, The people's court may determine the relevant subjects and amounts of taxes and fees according to the legal principles and the actual situation of the case.It can be seen that the statutory tax burden does not mean the exclusive nature of the tax-bearing subject, nor does it mean that the transaction subject has no right to re-agree on the tax-bearing subject, so the First Intermediate Court in this case network judicial auction in accordance with legal principles and the actual situation of the case to determine the relevant taxes and fees borne by the buyer is not inconsistent with the law. Zhang Jing, as a bidder, participated in the online judicial auction and should understand and accept the contents of the auction announcement. Therefore, on the premise that the First Intermediate People's Court has made an executive ruling on the auction transaction and confirmed the transfer of ownership of the real estate involved, the court will not support its objection to the issue of tax liability without legal and factual basis.

(3) Jiangsu High Court-Case No.:(2019) Su Zhifu No. 47

Viewpoint of Jiangsu High Court

According to Article 30 of the Provisions of the Supreme People's Court on Several Issues Concerning the Online Judicial Auction of the People's Court, the people's court shall not require the buyer to bear the taxes and fees that should be borne by the person subject to execution in accordance with relevant laws and administrative regulations.Bidders should carefully read the auction announcement issued by the people's court before participating in the bidding. If they believe that the contents of the auction announcement of the people's court are illegal, they should raise an enforcement objection before the auction starts and request the people's court to correct their illegal announcement. If the bidder does not raise an objection before the auction, but participates in the bidding in accordance with the auction announcement issued by the people's court, it shall be deemed that he has knowingly accepted the auction conditions set in the auction announcement of the people's court. After the successful bidding, it claims that the subject of execution shall bear the relevant taxes and fees on the grounds that the contents of the auction announcement are illegal, which in essence leads to its participation in the bidding on lower conditions, thus constituting the actual consequence of stipulating different bidding conditions for other bidders.It violates the provisions of Item 5 of Article 31 of the Provisions of the Supreme People's Court on Several Issues Concerning Online Judicial Auction by People's Courts.

(4) Henan High Court-Case No.:(2021) Yu Zhi Fu No. 415

Viewpoint of Henan High Court

According to Article 30 of the Provisions of the Supreme People's Court on Several Issues Concerning Online Judicial Auctions by the People's Courts, the taxes and fees formed by the online judicial auction itself shall be borne by the corresponding subjects in accordance with the provisions of relevant laws and administrative regulations; there are no regulations or If the regulations are unclear, the people's court may determine the relevant subjects and amounts of taxes and fees based on legal principles and the actual conditions of the case.In the auction in this case, the auction announcement clearly stated that "the registration procedures for the transfer of the subject matter shall be handled by the buyer himself, and all taxes, fees and other expenses that may be involved shall be borne by the buyer". The buyer can learn all the taxes and fees related to the auction according to the announcement of the auction before bidding. The participation of the company in the bidding and the signing of the "Confirmation of Auction Transaction" shall be regarded as the approval of the terms of the auction announcement, such as taxes and fees, which are borne by the buyer.

(5) Guangdong High Court-Case No.:(2021) Yue Zhi Fu No. 904

Viewpoint of Guangdong High Court

The people's court shall, in accordance with the provisions of relevant laws and administrative regulations, bear the taxes and fees formed in the online judicial auction by the corresponding subjects. If there are no provisions or the provisions are unclear, the people's court may determine the relevant subjects and amounts of taxes and fees according to the legal principles and the actual situation of the case. In this case, Qingyuan Intermediate People's Court issued an auction announcement in accordance with the auction procedure, and made it clear in the auction announcement that all taxes and fees involved in the real estate involved in the case were borne by the buyer. Yang Zhuan Xin, as a bidder participating in the auction of the real estate involved, should fully understand the contents, precautions and risk tips of the auction announcement before the auction.Yang zhuanxin participated in the auction and won the property involved at the highest price, indicating that he had known and accepted the conditions set by the auction of the property involved in the case in advance, and should bear all the taxes and fees required to handle the transfer procedures after successfully bidding for the property involved in the case.

(6) Shanxi High Court-Case No.:(2020) Jin Zhi Fu No. 161

Views of Shanxi High Court

The court believes that according to Article 30 of the provisions of the Supreme People's Court on Several Issues concerning the online judicial auction of the people's court, the taxes and fees formed by the online judicial auction itself shall be borne by the corresponding subjects in accordance with the provisions of relevant laws and administrative regulations, The people's court may determine the relevant subjects and amounts of taxes and fees according to the legal principles and the actual situation of the case.It can be seen that the statutory tax burden does not mean the exclusive nature of the tax-bearing subject, nor does it mean that the transaction subject has no right to re-agree on the tax-bearing subject, so Jincheng Intermediate Court in this case network judicial auction according to legal principles and the actual situation of the case to determine the relevant taxes and fees borne by the buyer is not contrary to the law.Niu Kunshan, as a bidder, participated in the online judicial auction and should understand and accept the contents of the bidding announcement and bidding instructions. Therefore, on the premise that Jincheng Intermediate People's Court has made an executive ruling on the auction transaction and confirmed the transfer of ownership of the real estate involved, it lacks legal and factual basis to raise objections to the issue of tax liability, and the court will not support it.

(7) Jilin High Court-Case No.:(2021) Ji Min Shen No. 2430

Viewpoint of Jilin High Court

upon examination, the court held that,Article 6 of the auction announcement stipulates: "The registration procedures for the transfer of the subject matter shall be handled by the buyer himself, and all taxes and fees involved and possible property fees, water, electricity and other arrears shall be borne by the buyer." This clause should be understood as an agreement between the original owner Lin and the buyer on how to bear the taxes and arrears related to the house involved in the case.At present, Lin Yabu obtained the house involved in the case through judicial auction, so according to the aforementioned agreement, all taxes, fees and arrears that may exist in the house shall be borne by Lin Yabu.

(9) Yunnan High Court-Case No.:(2021) Yun Zhi Fu No. 98

High Court View

At present, the tax law has clear provisions on the taxpayers of various taxes,The statutory tax burden does not mean the exclusive nature of the tax-bearing subject, nor does it mean that the transaction subject has no right to agree on the tax-bearing subject, nor does the legislation prohibit a third party other than the taxpayer from actually assuming the tax obligation on behalf of the legal taxpayer. That is, the tax law on the real estate transfer involved in the collection of taxes and fees, belongs to the management rather than the effectiveness of the norms, the tax law only clearly defines the taxpayer, but for the actual payment of taxes did not make mandatory or prohibitive provisions.

(10) Shaanxi High Court-Case No.:(2021) Shan Zhi Fu No. 146

Views of Shaanxi High Court

In this case,The Ankang Intermediate People's Court clearly stated in the "Auction Announcement" and "Auction Instructions" of the land and attachments involved in the case that all taxes and fees incurred during the transfer of ownership shall be borne by the buyer. That is, the burden of the above-mentioned taxes and fees should be included in the cost of the bidder's bid for the property involved, and the tax burden information contained in the announcement is in line with the provisions of the judicial interpretation. The buyer (the applicant) who voluntarily participates in the bidding shall be clearly aware of the relevant conditions stipulated in the announcement of voluntary acceptance of the auction, and shall participate in the bidding in accordance with the conditions and bear the corresponding expenses. If they do not accept the conditions stipulated in the auction announcement, they may choose not to participate in the bidding. After the buyer has successfully bid, if the content of the auction announcement is changed on the grounds that it should not bear taxes and fees, it will lead to a major change in the judicial auction conditions, that is, to set two different auction conditions before and after the auction, which is unfair to other potential bidders who have not participated in the bidding, and is not conducive to the stability of the judicial auction.Therefore, the buyer's request to change the way the auction announcement tax is borne after the bidding is completed will not be supported.

(1) Hebei High Court-Case No.:(2021) Ji Zhi Fu No. 155

Summary of the case

Because the executed person did not fulfill the obligations determined by the effective legal documents, Tangshan Intermediate Court on January 13, 2020 commissioned Taobao to auction the property and land under the names of the executed person Pan Shuyu and Zheng Linghua in accordance with the law. Taobao issued the "Announcement on Auction of Real Estate and Land in Lunan District, Tangshan City" on December 13, 2019. Article 8 of the announcement stipulates that the registration procedures for the transfer of the subject matter shall be handled by the buyer. All taxes and fees involved in the transfer of ownership shall be borne by the buyer in accordance with the provisions of laws and administrative regulations. In addition, other possible property fees, water, electricity, gas, cable TV and other arrears shall be verified by the buyer. Li Minghao won the highest bid in the public bidding for the "Tangshan Lunan District Real Estate and Land" project launched by the Tangshan Intermediate Court on Taobao on January 13, 2020 through bid number E4871. Due to the tax paid by the executor, the transfer cannot be processed. Objection and reconsideration.

Viewpoint of Hebei High Court

According to the Provisions of the Supreme People's Court on Several Issues Concerning the Online Judicial Auction of the People's CourtsArticle 30 stipulates that all kinds of taxes and fees arising from the auction of real estate involved in the case shall be borne by the corresponding subject in accordance with the provisions of laws and administrative regulations.The executive agency of the Tangshan Intermediate people's Court made it clear in the real estate auction announcement that all taxes and fees involved in the transfer of ownership shall be borne by the buyer in accordance with the provisions of laws and administrative regulations, which do not comply with the provisions of the law and should be corrected.

(2) Sichuan High Court-Case No.:(2021) Chuanzhifu No. 160

Views of Sichuan High Court

When the Intermediate People's Court of Chengdu City, Sichuan Province implements the online judicial auction of the house involved in the case, it requires in the "Bidding Announcement" and "Bidding Instructions" to handle all the taxes and fees that the buyer and the seller need to bear during the transfer of property rights. The related duties and fees paid are all the contents borne by the buyer, it does not comply with the provisions of Article 30 of the Provisions of the Supreme People's Court on Several Issues Concerning Online Judicial Auctions by People's Courts.According to the principle of statutory taxation, the subject of tax obligations cannot be changed due to the contents stated in the auction announcement. After the executed person's property is auctioned by the judicial auction, he should take the initiative to declare and pay taxes in accordance with the law. The taxes and fees formed by the auction itself shall be borne by the corresponding subjects in accordance with the provisions of relevant laws and administrative regulations,Taxes and fees not formed by this online judicial auction itself should not be borne by the corresponding subject.

(3) Qinghai High Court-Case No.:(2022) No. 6 Qingzhi Jian

Viewpoint of Qinghai High Court

The tax law contains the exclusive nature of the subject of tax and fee, and the identity of the tax payer cannot be transferred as a result of the provisions set out in the sale announcement. The provisions stated in the "Sale Announcement" of the City Court that "all taxes, fees and possible property fees, water, electricity and other arrears shall be borne by the buyer" do not comply with the above-mentioned tax regulations and tax laws. Invalid.

Through the above-mentioned cases, most courts have generally found that the "buyer's package tax" clause is valid. However, some courts have held that the package tax clause is invalid. After summarizing, the main reasons for the validity of the tax package clause are:

(1) Tax statutoryism provides for the taxpayer, but does not prohibit persons other than the taxpayer from paying taxes on their behalf, I .e. there is no mandatory or prohibitive provision as to who actually pays the tax.

(2) The tax package clause clearly stated in the auction announcement is an agreement between the buyer and the seller on the tax burden. When the bidding buyer participates in the bidding, it shall be considered that the conditions of the bidding announcement are recognized, and the voluntary choice to bear the amount is the punishment of its civil rights and interests, and the buyer violates the agreement of the auction announcement after the successful bidding, violates the principle of good faith, and is unfair to other bidders.

(3) The determination of taxpayers in tax regulations belongs to the administrative mandatory norms in administrative regulations. The provisions of the tax law on taxpayers are administrative mandatory provisions, so the agreement in the auction announcement that the buyer shall bear all the taxes violates the administrative mandatory provisions and will not lead to the invalidity of the tax package clause.

The main reasons for the decision were:

(1) The judicial auction is essentially a buying and selling relationship between the seller and the buyer. The tax law stipulates the tax liability of the buyer and the seller in the buying and selling relationship. According to the legal principle of taxation, the subject of tax obligation cannot be changed due to the contents specified in the Auction Announcement. The taxes and fees formed by the auction itself shall be borne by the corresponding subjects in accordance with the provisions of relevant laws and administrative regulations.

(2) The tax package clause is invalid in violation of the judicial interpretation of the auction provisions. Article 30 of the Supreme People's Court's "Provisions on Several Issues Concerning Online Judicial Auctions by the People's Courts" stipulates that, in the case of clear provisions in the tax law, the taxes and fees formed by the judicial auction itself shall be "in accordance with the provisions of relevant laws and administrative regulations. The subject shall bear the" tax package clause is invalid in violation of the judicial interpretation.

Article 8 of the the People's Republic of China Enterprise Income Tax Law stipulates that reasonable expenses actually incurred by an enterprise in connection with the acquisition of income, including costs, expenses, taxes, losses and other expenses, are allowed to be deducted in the calculation of taxable income. "Relevant expenditure" refers to the expenditure directly related to the acquisition of income, and "reasonable expenditure" refers to the necessary and normal expenditure in the production and operation activities included in the current profit and loss or the cost of the related assets.

Because the buyer's tax package clause does not change the taxpayer, even if the buyer or the applicant for execution bears the tax that should have been borne by the executed person, the taxpayer on the tax payment certificate issued by the tax authority is auctioned. The tax payment certificate cannot be deducted before the enterprise income tax for the buyer or the executor. Therefore, if the buyer or the applicant for execution bears the relevant taxes and fees, there may be a risk that the cost cannot be charged before the enterprise income tax.

According to Article 8 of the Provisional Regulations on Value-added Tax: The following input taxes are allowed to be deducted from the output tax: (1) The value-added tax indicated on the special value-added tax invoice obtained from the seller... According to the above provisions, if the buyer is a general taxpayer of value-added tax, it is necessary to obtain a special value-added tax invoice to offset the input tax. However, in judicial auctions, most of the auctioned parties are closed enterprises or poorly managed enterprises, which have been identified as abnormal by the tax department and cannot issue special VAT invoices. Therefore, the buyer may face the risk of not being able to obtain the special VAT invoice and not being able to offset the input tax. The State Administration of Taxation "Announcement on Issues Related to Tax Declaration of Deed Tax" (No. 67 of 2015), although there is a provision that "if the effective legal documents of the people's court and the arbitration committee have transferred the ownership of land and houses, and taxpayers cannot obtain invoices for the sale of real estate, they may apply for tax declaration of deed tax with the original execution order of the people's court and relevant materials, and the tax authorities shall accept it, however, it still does not solve the problem of the buyer's deduction of VAT and income tax costs.