Tax litigation in China: overview

A Q&A guide to civil and criminal tax litigation in China.

This Q&A provides a high level overview of the key practical issues in civil and criminal tax litigation, including: pre-court/pre-tribunal process, trial process, documentary evidence, witness evidence, expert evidence, closing the case in civil and criminal trials, decision, judgment or order, costs, appeals, and recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Tax Litigation: Country Q&A tool.

The Q&A is part of the global guide to tax litigation. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxlitigation-guide.

Caroline Berube, HJM Asia Law & Co LLC
Contents

Overview of tax litigation

Issues subject to tax litigation

1. What are the most common issues subject to tax litigation in your jurisdiction?

There have been a number of changes to the tax administrative review process in China. Most of these changes stemmed from the introduction of the Enterprise Income Tax Law on 1 January 2008, which significantly changed the China tax system by:

  • Broadening the definition of a tax resident.

  • Increasing the documentation requirements for transfer pricing.

  • Introducing a general anti-avoidance rule.

These changes have had a significant impact on tax litigation in China in both the civil and criminal context.

This chapter discusses the current rules and regulations regarding tax litigation in China, examines the common procedures for administrative action, and highlights some of the key issues for companies to consider. The most common issue subject to tax litigation in China is tax evasion.

Legislative framework

2. Outline the legislative framework and principal pieces of legislation governing both civil and criminal tax litigation.

Civil tax litigation

The principal pieces of legislation governing civil tax litigation are the:

  • Individual Income Tax Law of the PRC, effective from 10 September 1980 (revised on 30 June 2011).

  • Enterprise Income Tax Law of the PRC, effective from 1 January 2008.

  • Administrative Penalty Law of the PRC, effective from 1 October 1996 (revised on 27 August 2009).

  • Administrative Reconsideration Law of the PRC, effective from 1 October 1999 (revised on 27 August 2009).

  • Administrative Procedure Law of the PRC, effective from 1 October 1990 (revised on 1 November, 2014).

  • Administration of Tax Collection Law of the PRC, effective from 1 May 2001(revised on 24 April 2015).

  • Rules for the Implementation of Administration of Tax Collection Law of the PRC, effective from 15 October, 2002 (revised on 9 November 2012 and 18 July 2013).

  • Regulation regarding Some Issues of the Evidences of the Administrative Procedure, effective from 1 October, 2002 (revised on 16 December 2008).

  • Measures on the Payment of Litigation Costs, effective from 1 April 2007.

Criminal tax litigation

The principal pieces of legislation governing criminal tax litigation are the:

  • Criminal Law of the PRC (revised on 11 November 2015).

  • Eighth amendment to the Criminal Law (issued on 1 May 2011).

  • Seventh amendment to the Criminal Law (issued on 28 February 2009).

Tax evasion and other criminal tax offences

 
3. What are the key elements that constitute tax evasion and other main criminal tax offences in your jurisdiction?

The main laws regarding tax evasion and related criminal regulations are the:

  • Criminal Law of the PRC, effective from 1 October 1997.

  • Amendment (VII) to the Criminal Law of PRC, effective from 28 February 2009.

  • Criminal Procedure Law of the PRC, effective from 1 January, 1980. The latest revision was enacted on 14 March 2012.

  • Interpretation in relation to the Performance of the Criminal Procedure Law, effective from 1 January 2013.

See also Question 6.

 

Pre-court/pre-tribunal process

Assessment, re-assessments and administrative determinations in civil law

4. Outline the procedure for tax assessments, re-assessments and administrative determinations in civil law.

The China tax authority is the State Administration of Taxation.

A taxpayer can request the State Administration of Taxation to review its decisions before matters proceed to the tribunal/court (see Question 5).

Resolving disputes before commencing court proceedings

5. What are the main procedures used to resolve disputes before commencing proceedings in a civil court/tribunal?

Generally, all income tax-related disputes stem from the decisions or actions of the tax authority. If a taxpayer wishes to challenge a decision by the tax authority, it can apply to the higher tax authority for reconsideration of the decision (Article 12(2), Administrative Reconsideration Law). During the period of administrative reconsideration, the taxpayer cannot initiate any administrative litigation (Article 16, Administrative Reconsideration Law). It is not mandatory to seek administrative reconsideration before commencing court proceedings.

The administrative reconsideration must be completed within 60 days from the date the application is accepted (Article 31, Administrative Reconsideration Law). If the taxpayer disagrees with the decision of the higher tax authority, it can begin administrative litigation to challenge this decision. The taxpayer must initiate any administrative litigation within 15 days from the date of the decision of the higher tax authority (Article 19, Administrative Reconsideration Law).

Elements of the offence in criminal law

6. What are the elements of the main criminal law offences in tax litigation?

Under earlier versions of the Criminal Law, the minimum amount of tax evaded required for the establishment of a criminal offence was RMB10,000 and equivalent to 10% of the taxpayer's total tax liability. However, this fixed amount did not provide the authorities with the flexibility and discretion required to apply the law evenly across the different regions of China, in which the standard of living can vary significantly.

The current Criminal Law provides a revised standard for criminal tax evasion. To constitute a criminal offence, the base amount of tax evaded by the taxpayer must be both:

  • "Relatively high". This is defined as:

    • the amount of tax evaded accounts for over 10% but under 30% of the total tax payable;

    • over RMB10,000 but under RMB100,000; or

    • if he commits tax evasion again after having been subject to administrative sanctions by the tax authorities for tax evasion more than once.

  • Equivalent to 10% of the taxpayer's total tax liability.

The new revision provides the authorities with more flexibility to apply the law across different jurisdictions in China.

Therefore, a taxpayer commits a criminal offence if he files a false tax return or fails to file a tax return with the intent of deception or concealment, if the amount of the tax evaded is "relatively high" and accounts for at least 10% of his tax liability. The offence is subject to a maximum term of imprisonment of three years and to a fine (section 3, Amendment (VII) to the Criminal Law (amendment to Article 201 of the Criminal Law)).

If the amount of tax evaded is high and accounts for more than 30% of the tax payable, a taxpayer must be sentenced to three to seven years' imprisonment and to a fine.

A person who fails to pay (or fully pay) a tax withheld or collected, and the amount of the tax liability in question is high, must be subject to the same punishment as above. If this breach is committed more than twice but penalty is not yet imposed, the amount involved will be accumulated.

Therefore, the authorities have flexibility to determine when to initiate criminal proceedings regarding tax evasion, but the penalties regarding the offences are stipulated in accordance with the amount of the evasion.

Early resolution

7. What are the main procedures used for the early resolution of criminal law offences before trial?

The Criminal Law provides taxpayers with the opportunity to avoid criminal proceedings and additional liability by paying any overdue tax and any relevant penalties associated with the outstanding balance. If, on receiving notice of the overdue tax balance and administrative penalty, the taxpayer satisfies the outstanding balance, then the taxpayer will not face any further criminal proceedings. In particular, section 3 of Amendment (VII) to the Criminal Law provides that if the taxpayer pays the charge on late payment of the overdue tax (after receiving notice from the tax authorities demanding arrears) and is subject to administrative punishment, the taxpayer will not be held criminally liable. The exception to this is where the taxpayer has been subject to criminal punishment for tax evasion in the last five years or has been subject to administrative punishment by the tax authorities two times or more.

 

Trial process

Format of the hearing/trial

8. What format does the hearing/trial take?

The trials can be held in public. However, if the case involves a state secret, personal privacy, business secret and other issues regulated by the law, it cannot be held in public.

If the claimant fails to attend the trial/hearing or leave in the middle of the trial/hearing without the court's approval, it is regarded as a withdrawal of the claim. If the defendant fails to attend the trial/hearing or leave in the middle of the trial/hearing without the court's approval, the judge can order judgment by default.

Role of the judge/arbitrator/tribunal members

9. What is the role of the judge/arbitrator/tribunal members in both civil and criminal tax litigation?

Civil tax litigation

The role of the judge in civil litigation is to adjudicate the civil claim and is subject to the internal appointment by the court.

Criminal tax litigation

The role of the judge in criminal litigation is to adjudicate the criminal proceedings and is subject to internal appointment by the court.

Commencement of proceedings: civil law

10. What is the procedure for commencing tax litigation proceedings in civil law and/or a taxpayer appealing a decision of the tax authority?

A taxpayer can begin proceedings against the tax authority using one of two possible methods:

  • Administrative reconsideration. The taxpayer can challenge a decision by the tax authority by appealing to the higher tax authority for administrative reconsideration. If that the higher tax authority rules in favour of the initial tax authority, the taxpayer can begin administrative proceedings within 15 days of the date of the administrative reconsideration decision.

  • Litigation. A taxpayer can also begin litigation directly within six months from the date they become aware of the initial administrative decision (Article 46, Administrative Procedure Law).

Most cases filed by the taxpayer must be filed in the lower people's court in the district where the relevant tax authority is located. The lower people's courts have jurisdiction over the administrative cases of first instance (Article 14, Administrative Procedure Law). However, in certain important or complicated cases, the intermediate court in the jurisdiction will take control over the action in the first instance. For example (Article 15, Administrative Procedure Law):

  • Proceedings instituted against the administrative acts of any department under the State Council or the people's government at county level or above.

  • Cases handled by the customs.

  • Major and complicated cases that arise in their area of jurisdiction.

  • Other cases under the jurisdiction of the intermediate people's court as specified by law.

The higher people's courts have jurisdiction as courts of first instance over major and complicated cases that arise in their areas of jurisdiction (Article 16, Administrative Procedure Law).

The Supreme People's Court has jurisdiction as the court of first instance over major and complicated cases arising throughout the country (Article 17, Administrative Procedure Law).

 
11. Must a taxpayer pay the disputed tax before leave to appeal the tax authority's decision is granted?

The execution of the administrative act (that is, payment of the disputed tax) must not be suspended during proceedings, except under any of the following circumstances (Article 56, Administrative Procedure Law):

  • Where the defendant considers that it is necessary to suspend payment.

  • Where the claimant or an interested person applies for suspension of payment and the people's court rules that such payment must be suspended as, in the opinion of the people's court, the execution would cause irremediable losses and the suspension of the act does not harm the national interests and public interests.

  • The people's court rules that such payment may severely damage the national interests and public interests.

  • Where suspension of execution is required by the provisions of laws or regulations.

If the party concerned is dissatisfied with the ruling on suspension or not suspension, it can apply for reconsideration once.

Commencement of proceedings: criminal law

12. What is the procedure for commencing tax litigation proceedings in criminal law?

Once the tax authority has determined that the amount of tax evasion is sufficient to constitute a crime, it will transfer the evidence to the competent judicial authority, which is generally the local public safety bureau (PSB) (Article 77, Administration of Tax Collection Law). Specifically, where a taxpayer or withholding agent is suspected to have committed an offence, the tax authority must hand over the case to the judicial authority and investigate any criminal liabilities (Article 77, Administration of Tax Collection Law).

Once the PSB has received the case, it can detain the taxpayer for up to 30 days, depending on how complicated the case is (Article 89, Criminal Procedure Law). If the PSB believes that it is necessary to arrest the suspect, it must submit an application for arrest to the People's Procuratorate during the period of detention (Article 89, Criminal Procedure Law). The People's Procuratorate must decide whether to arrest the taxpayer within seven days of receipt of the application for arrest from the PSB (Article 89, Criminal Procedure Law). If the People's Procuratorate decides to proceed with the arrest, the arrest and investigation period can last from two to seven months depending on the seriousness or complexity of the case (Articles 154, 156 and 157, Criminal Procedure Law).

The People's Procuratorate must decide whether to proceed with prosecuting the case within one to three-and-a-half months (Articles 169 and 171, Criminal Procedure Law). Once the case is filed, the court can follow either:

  • Standard procedure. The judgment must be issued within two to three months from the date the case is accepted by the court. In certain cases, the trial can be extended for another three months on approval by the higher court (Article 202, Criminal Procedure Law).

  • Summary procedure. The judgment must be made within 20 days to one-and-a-half months from the date the case is accepted by the court (Article 214, Criminal Procedure Law).

Government response

13. How has the government responded to recent civil and criminal law cases to improve the court procedure?

Civil law

Once the court receives a claim, the following elements must be examined to determine whether to accept the claim and register the case. The claim must include the following elements (Article 49, Administrative Procedure Law):

  • The claimant is the individual, legal entity or other organisation who alleges that his legal rights are infringed by the administrative act.

  • There is a specific defendant, which must be an administrative agency.

  • There are specific claims of litigation and relevant fact.

  • The case is within the jurisdiction of the court.

The court then determines whether to accept the claim and file the case in writing within seven days from the date it receives the claim (Article 51, Administrative Procedure Law).

Criminal law

See above, Civil law.

Burden of proof

14. What is the burden of proof in both civil and criminal tax litigation proceedings?

Civil law

The initial complaint submitted by the taxpayer must satisfy certain elements before it is accepted and registered with the court (see Question 13).

Additionally, the taxpayer must provide sufficient evidence to establish their claims in accordance with common litigation principles.

Once the taxpayer has met their burden, the burden shifts to the tax authority to demonstrate that the decision being challenged is accurate and must provide relevant support for such decision (Article 34, Administrative Procedure Law). However, during the course of litigation, the tax authority must not collect any evidence from the taxpayer or other witnesses (Article 35, Administrative Procedure Law).

Throughout the course of the proceedings, the court also has the power to demand additional evidence from either party (Article 39, Administrative Procedure Law).

Criminal law

For all criminal proceedings, the burden is on the People's Procuratorate (the Chinese authority responsible for criminal prosecutions) to demonstrate that the taxpayer has violated the relevant income tax regulations (Article 49, Criminal Procedure Law). Criminal proceedings are subject to a high burden of proof.

Main stages

15. What are the main stages of typical court proceedings for tax disputes?

Civil law

The pre-trial procedure is provided in Article 67 of the Administrative Procedure Law. Generally, there are fewer civil procedural delays and the trial process moves faster compared with many European countries.

Once the court has decided to accept the claim and register the case, it must deliver a copy of the claim and relevant evidence submitted by the taxpayer to the defendant (tax authority) within five days. The tax authority must submit its letter of defence and relevant evidence within 15 days from the date it receives the complaint from the court. The court must deliver the letter of defence and relevant evidence to the claimant within five days of receiving them from the defendant.

The trial is scheduled after the relevant evidence and claims have been delivered to each party with the judgment to follow after. In total, the judgment must be made within six months from the date the case was originally accepted and registered (Article 81, Administrative Procedure Law).

Criminal law

See Question 12.

 

Documentary evidence

Disclosure of documents in civil proceedings

16. What documents must the parties disclose to the other parties and/or the court in civil proceedings? Are there any detailed rules governing this procedure?

There are no disclosure obligations in civil proceedings in China and no detailed rules.

Special rules/considerations

17. Are there any special rules or considerations concerning the disclosure or discovery of documents in civil tax litigation?

If both parties acknowledge the validity of any documentary evidence during the pre-trial exchange, they will be precluded from objecting to the validity during the hearing (Article 35, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

Similarly, if the defendant is absent from the court hearing, any evidence submitted must not be deemed to be a valid basis for the judgment unless the evidence was submitted and acknowledged during the pre-trial exchange (Article 36, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

In addition to whether certain evidence can serve as the basis of a court's judgment, the court must also consider whether evidence must be kept confidential. Any evidence pertaining to state secrets, business secrets, personal secrets, or other confidential matters cannot be discussed publicly or argued during the hearing (Article 37, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

Parties must also submit the original documents to the court unless (Article 41, Regulation regarding Some Issues of the Evidence of the Administrative Procedure):

  • It is unreasonably difficult to present the original evidence and the court has approved the submission of a copy in lieu of the original.

  • The original document no longer exists and there is evidence to demonstrate that the copy to be submitted is a true and correct copy.

Disclosure in criminal proceedings

18. What documents must the parties disclose to the other parties and/or the court in criminal proceedings? Are there any detailed rules governing this procedure?

The lawyer for the taxpayer can review and make copies of any documentary evidence related to the case file from the case file from the day when the People's Procuratorate files the indictment (Article 38, Criminal Procedure Law).

A situation may arise where the taxpayer's lawyer suspects that the public safety bureau (PSB) or People's Procuratorate has collected evidence that was not submitted to the court but can prove the suspect's innocence or reduce the seriousness of the crime. As a result, the lawyer for the taxpayer can apply to the People's Procuratorate or the court to compel admission of the evidence (Article 39, Criminal Procedure Law).

Special rules/considerations

19. Are there any special rules or considerations concerning the disclosure of documents in criminal tax litigation?
 

Witness evidence

Trial considerations

20. Do witnesses of fact give oral evidence or do they just submit written evidence? Is there a right to cross-examine witnesses of fact?

Civil law

Witnesses of fact give oral evidence and it is not necessary for written evidence to be submitted. The cross-examination is undertaken by the judge and the opposing party.

Criminal law

See above, Civil law.

Witness preparation

21. Provide a brief outline of the procedure for preparing witnesses in both civil and criminal cases. Are there any special or unique features to consider for witness evidence in criminal cases?

Civil law

The rules regarding witnesses for income tax-related matters are provided in the Regulation regarding Some Issues of the Evidence of the Administrative Procedure.

In order to provide the witness evidence, the claimant or defendant must submit the following documents to the court (Article 13, Regulation regarding Some Issues of the Evidence of the Administrative Procedure):

  • Personal information (including, name, age and address, among others).

  • The written statement of the witness, which must be signed by the witness or affixed with personal seal if physical signature is inconvenient to make.

  • The written statement of the witness, which must include the date of issuance.

  • A copy of identity certificates attached to the witness evidence.

A party that wishes to have a witness(es) testify on its behalf must apply to the court before the deadline for the submission of evidence (Article 43, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

The witness must attend the court hearing in person, except for certain statutory situations provided in Article 41 and the absence is approved by the court (Article 41, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

In certain instances, the claimant (taxpayer) can compel the administrative officer who issued the original decision that is being challenged, to attend the court hearing (Article 44, Regulation regarding Some Issues of the Evidence of the Administrative Procedure). For example, the claimant can compel the administrative officer to appear as a witness if the taxpayer is challenging the:

  • On-site notes.

  • Category or quantity of the detained property.

  • Sample or the custodian of the inspected objects.

  • Identity of the administrative officer who has conducted the enforcement.

Criminal law

See above, Civil law.

Hearsay evidence in civil and criminal trials

22. Are there any rules concerning the introduction of hearsay evidence in civil and criminal trials?

Civil trials

See below, Criminal trials.

Criminal trials

The witness must attend the court hearing and be questioned by the People's Procuratorate and the defendant (taxpayer) and his lawyer (Article 59, Criminal Procedure Law). As a result, hearsay evidence is inadmissible.

 

Expert evidence

Expert reports in civil trials

23. What are the rules concerning the introduction of expert reports in civil trials?

The rules regarding expert evidence are provided in the Regulation regarding Some Issues of the Evidence of the Administrative Procedure.

Any expert report (appraisal) submitted to court must include the:

  • Information of client.

  • Items appraised.

  • Documents and materials submitted to the appraising agency.

  • Basis of the appraisal.

  • Applied technique and measure.

  • Information of the appraising agency.

  • Qualifications of the expert.

The expert report must be signed by the testifying expert and affixed with the appraising agency's seal (Article 14, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

The claimant (taxpayer) can submit evidence showing that the appraisal submitted by the defendant was defective. In this case, the claimant can apply to the court for reappraisal before its deadline to submit evidence (Article 29, Regulation regarding Some Issues of the Evidence of the Administrative Procedure). Additionally, either party can apply to the court for reappraisal against the expert report, which is issued by the agency designated by the court, under certain situations provided in Article 30. For example, the parties can apply for reappraisal when the claimant has the evidence or reasonable cause to prove that:

  • The inspection agency or the inspector is not qualified.

  • The inspection procedure is illegal.

  • The grounds for the report are not sufficient.

  • The report is not qualified as evidence.

While witnesses of fact must appear in order for their testimony to be submitted, an expert witness is only required to attend the court hearing on request by the opposing party. However, the court can exempt an expert from attending the hearing in certain scenarios. For example, the witness cannot be present in the count trial due to the force majeure or the distance to travel to the court is impractical (Article 41 and 47, Regulation regarding Some Issues of the Evidence of the Administrative Procedure).

Expert evidence in civil trials

24. What are the rules concerning the introduction of expert evidence in civil trials?

See Question 23.

Expert evidence in criminal trials

 
25. What are the rules concerning the introduction of expert evidence in criminal trials? Is it possible to introduce expert reports?

Expert evidence

The People's Procuratorate is responsible for submitting any evidence to support the charges (Article 49, Criminal Procedure Law). The investigating agency (usually the public safety bureau) must inform the suspect about the expert's opinion. If the defendant (taxpayer) wishes to contest the expert's opinion, he can apply for reappraisal or submit a separate appraisal prepared by his own expert witness to challenge the opinion (Article 146, Criminal Procedure Law).

The expert only attends the hearing in the event that the litigation party has objection against the expert's opinion and the court agrees to the objection. If the expert refuses to present under court's summons, the expert evidence will not be the basis of the judgment (Article 187, Criminal Procedure Law).

Expert reports

See above, Expert evidence.

Special considerations

26. Are there any special considerations for introducing expert evidence/reports in both civil and criminal trials?

Civil trials

See Question 23.

Criminal trials

Any time spent on any psychological examination or similar procedure of the defendant is not included in the proscribed timeframe for the criminal trial, if applicable (Article 147, Criminal Procedure Law).

 

Closing the case in civil trials

27. What are the rules governing the submission of both written and oral argument in closing a civil trial?

Generally, Chinese courts are more focused on documentary evidence than arguments made by lawyers. Therefore, opening and closing arguments do not have as much influence in China compared with other jurisdictions.

However, in the event that the documentary evidence is either ambiguous or contested, oral arguments can be instrumental in the court's determination.

 

Closing the case in criminal trials

28. What are the rules governing the submission of both written and oral argument in closing a criminal trial?

If the defendant's closing statement addresses new facts or evidence that the court believes can be relevant to the outcome, the court can request further arguments on the subject from each party (Article 236, Interpretation in relation to the Performance of the Criminal Procedure Law).

 

Decision, judgment or order

Civil law cases

29. What are the rules governing the issuance of a decision in civil cases?

There are seven possible outcomes for the administrative decision:

  • The court can uphold the initial administrative decision as correct and legal (Article 69, Administrative Procedure Law).

  • If the court determines that the administrative decision is defective, whether in part or in full, it can overturn the administrative decision or the defective element. Additionally, the court can demand that the tax authority issue a new decision to replace the defective decision (Article 70, Administrative Procedure Law).

  • The court can demand the administrative authority to perform its obligation within a certain time limit (for example, pay tax return, among others) (Article 72, Administrative Procedure Law).

  • The court can uphold the administrative decision, but amend the punishment proscribed in the decision (Article 74, Administrative Procedure Law).

  • The court can rule the administrative act is illegal but not to be annulled under some circumstances, such as where the annulment may seriously damage national and public interests, or have no actual influence on the tax payer (Article 75, Administrative Procedure Law).

  • The court can rule the administrative act is invalid if such administrative act is performed in significant and obvious illegal circumstances, for example, the executor having no legal capacity as an administrative subject and lack of basis while the tax payer applies for confirming such administrative actions as invalid (Article 76, Administrative Procedure Law).

  • The court can rule that an administrative act is illegal or invalid, then order the administrative authority to take remedial measures at the same time. If the tax payer suffers losses, the court can rule the administrative authority to bear compensation liability (Article 77, Administrative Procedure Law).

While the Administrative Procedure Law and its interpretation do not expressly require that a court state its reasoning when rendering its judgment, reasons for the decision can be stated in the judgment. However, the template for administrative judgments, which was issued by the Supreme People's Court on 8 December 2004, lists the reasoning behind the judgment (Fa Fa [2004] No. 25). In practice, courts generally will provide a summary of the reasoning when issuing their judgment.

Criminal law cases

30. What are the rules governing the issuance of a decision in criminal cases?

Unlike civil judgments or administrative decisions (see Question 29), all criminal judgments must expressly state the basis of the judgment and the reasons why the court either accepted or refused to accept the opinions of each party (Article 246, Interpretation in relation to the Performance of the Criminal Procedure Law).

 

Costs

31. How is the issue of costs determined in both civil and criminal cases?

Civil law

The Measures on the Payment of Litigation Costs governs the costs incurred from civil litigation and administrative litigation. The litigation expenses must be borne by the losing party, including any expenses related to expert evidence. In the event of a mixed judgment (that is, when the court partially overturns the administrative decision, see Question 29), these costs can be apportioned subject to the respective responsibility imposed by the court (Article 102, Administrative Procedure Law and Article 6, Measures on the Payment of Litigation Cost).

Criminal law

Taxpayers are responsible for paying their own legal fees. To date, there are no express rules regarding the costs for expert witnesses. However, in practice, courts follow the principle that "who addresses the evidence assumes the expenses". Additionally, expenses such as transportation, accommodation and meal costs for any expert witness are paid by the court (Article 63, Criminal Procedure Law and Article 207, Interpretation in relation to the Performance of the Criminal Procedure Law).

 

Appeals

Right to appeal in civil law

32. What are the main grounds for appealing a civil law decision?

Either party can appeal the judgment issued by the court of first instance in a civil proceeding.

Procedure to appeal in civil law

33. What is the procedure for appealing a civil law decision?

A party must submit an application for appeal within 15 days from the date the judgment was rendered or within ten days from the date the written verdict was issued. In the event that neither party files an appeal within this period, the judgment becomes final and binding. The application for appeal is generally submitted to the next higher level court (Article 85, Administrative Procedure Law).

In the event of an appeal, parties must follow the same timeframe for the submission of statements and relevant evidence as stipulated in the court of the first instance (Article 66, Interpretation of the Administrative Procedure Law) (see Question 10). The appellate court renders its judgment within three months from the date the appeal is accepted (Article 80, Administrative Procedure Law).

Right to appeal in criminal law

34. What are the main grounds for appealing a criminal law decision?

Either party can appeal the judgment issued by the court of first instance in a criminal proceeding. In order to appeal, a party must submit an application to appeal within ten days from the date the judgment was rendered or within five days of issuing the written verdict. In the event that neither party files an appeal within this time period, the judgment becomes final and binding (Article 219, Criminal Procedure Law).

Procedure to appeal in criminal law

35. What is the procedure for appealing a criminal law decision?

In the event that the defendant (taxpayer) wishes to appeal the judgment, he must submit the application for appeal to the court of first instance where the judgment was rendered. On receiving the application for appeal, the court of first instance will transfer the case to the higher court within three days (Article 220, Criminal Procedure Law).

If the People's Procuratorate wishes to appeal the judgment, it must submit its protest to the court of first instance where the judgment was rendered and copied to the higher court. However, if the higher People's Procuratorate deems that the protest is improper, the higher People's Procuratorate can withdraw the protest from the higher court and inform the lower People's Procuratorate of its decision (Article 221, Criminal Procedure Law).

If the higher court accepts the appeal, it must render its judgment within two months from the date it accepted the appeal. This timeframe can be extended by an additional two months on approval by the High People's Court (Article 232, Criminal Procedure Law).

 

Recent civil law developments and proposals for reform

36. Outline the main recent civil law developments in tax litigation in your jurisdiction. Are there any proposals to reform civil law tax litigation?

The most relevant area of interest regarding tax litigation in a civil context is the issue of tax shelters. One of the seminal cases regarding this issue is XuXingChu No. 86 (2011). The claimant, a corporate shareholder of a Shanghai construction company (the company), filed this claim against the Shanghai State Tax Bureau (the defendant) for its refusal to disclose tax information. In 2010, an unknown individual informed the defendant that the company had evaded tax in one of its construction projects. The defendant subsequently issued a notice to the company stating the tax payable for the project.

After receiving the notice, the claimant submitted numerous written requests to the defendant to provide further details regarding the relevant facts, regulations and calculations that were the basis for the notice. The defendant sent a written response refusing to provide the requested information to the claimant because the claimant was not a related person to the notice. The claimant then filed a claim against the defendant in the Shanghai Xuhui District People's Court to compel the defendant to respond to its inquiries.

The court determined that, according to Article 8 of Law Of The People's Republic Of China On The Administration Of Tax Collection (2001 version), the claimant was not in fact an "interested person" because the designation only applied to the taxpayer and the withholding agent, not a shareholder of either.

There are currently no proposals to reform civil law tax litigation.

 

Recent criminal law developments and proposals for reform

37. Outline the main recent criminal law developments in tax litigation in your jurisdiction. Are there any proposals to reform criminal law tax litigation?

One of the most contested and relevant issues regarding tax litigation in the criminal context is the sentence that applies to defendants who co-operate with the authorities. The courts generally show some leniency when the defendant confesses and co-operates. However, even defendants who confess and repay a portion of their evaded tax can face penalties such as imprisonment.

In the first case, the defendant, an individual in the iron production industry, issued fake financial reports to avoid RMB1,152,729.53 in taxes. The amount of tax evaded constituted approximately 30% of the total tax payable. The defendant signed a confession and paid back most of the outstanding tax, but a balance of RMB275,729.53 remained. The Zhuzhou Intermediate Court sentenced him to three years' imprisonment and a fine of RMB100,000.

In the second case, the defendant, a shareholder, concealed relevant facts and financial records of the company in order to avoid the payment of VAT. As a result of its actions, the company evaded RMB396,835.53, approximately 90% of the VAT payable. The defendant eventually paid back the VAT in full. As a result, the court sentenced the defendant to four years of probation instead of three years' imprisonment and a fine of RMB50,000.

In the third case, the defendants, a Shanghai trading company and two of its financial representatives had issued false VAT invoices, allowing the company and others to avoid payment of RMB400,000. Both defendants confessed and surrendered to the authorities. The trading company was fined RMB100,000 and the individuals were sentenced to three years of probation instead of three years' imprisonment and six months of probation instead of six months of detention.

There are currently no plans to reform criminal law tax litigation.

 

Contributor profiles

Caroline Berube, Partner

HJM Asia Law & Co LLC

T +86 20 8121 6605
F +86 20 8121 6505
E cberube@hjmasialaw.com
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Professional qualifications. Bar, Inner Temple, London, 1992; Cyprus Bar, 1993

Areas of practice. Corporate law; M&A; commercial law; intellectual property; business immigration; litigation and arbitration; compliance services

Non-professional qualifications. ASC/CAS Director, 2013; Appointed CIETAC arbitrator, 2014

Recent transactions

  • Advising a major US company in the retail sector regarding their corporate structure in Asia including setting up a subsidiary in Hong Kong used as the investment vehicle for the subsidiary in Shenzhen.
  • Advising a French client in the food retailing business and restaurant industry to restructure its operations in China and Singapore planning its exit strategy with his partners.
  • Advising a US client in the commercial kitchen equipment industry to restructure their management in China; investigate fraudulent acts; terminate various employees; draft confidential agreements to protect industrial property and sale and purchase agreements with suppliers.
  • Advising on labour law issues, reviewing and drafting various employment agreements for US, French and Dutch multi-national corporations and their local employees to ensure compliance with the relevant local labour laws.
  • Advising a Canadian company in the 3D and 2D animation industry to set up a regional headquarter in Singapore, negotiating a joint venture in Chinawood in Wuxi and registering various trademarks and patents in Asia.
  • Advising various US/Canadian companies specialised in designing recreational amusement parks or sport goods on their set up in China, their hiring needs and their international trademarks/patents registrations in China, New Zealand, Mexico, Spain, Cyprus and Australia.

Languages. English, French

Professional associations/memberships. Alliott Group; Alliance of Merger & Acquisition Advisors; American Bar Association; Canada China Business Council; China Italy Chamber of Commerce; Financial Women's Association of Singapore; Guangzhou German Chamber of Commerce; Interlegal; International Bar Association; International Business Law Consortium; Inter-Pacific Bar Association; Law Europe International; McGill Faculty of Law Advisory Board; New York State Bar Association; Primerus; Union Internationale des Avocats and the World Economic Forum.

Publications

  • Canadian International Lawyer Journal.
  • GTDL – Mergers & Acquisitions.
  • GTDL – Private Equity (Fund Formation) .
  • GTDL – Private Equity (Transactions).
  • IPBA Journal. Legal Aspects of Doing Business in Asia - Juris Publishing.
  • Lawyer Monthly Magazine.
  • Primerus Paradigm Magazine.
  • Singapore Straits Times.
  • Business Times.
  • Bloomberg News.
  • Asian Legal Business.
  • La Presse.

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