Editor’s Note: In the current practice of tax dispute resolution, due to the precondition of tax payment, many enterprises are unable to pay taxes or provide guarantees, and thus cannot directly seek legal remedies against tax treatment decisions. Instead, they have to file administrative lawsuits only against tax penalty decisions. When taxpayers challenge the tax assessment matters (i.e., tax disputes) that serve as the basis for penalties in penalty litigation, how should courts hear such cases? In recent years, courts in different regions have held sharply divergent views, and an increasing number of judgments have ruled not to examine tax disputes in penalty litigation proceedings. This paper sorts out and analyzes different judicial views in practice, and demonstrates that courts shall conduct a comprehensive review of the underlying tax treatment decisions in tax administrative penalty litigation, so as to provide practical references for the protection of taxpayers’ rights and legal remedies.

01 Different Judicial Views on the Review of Tax Disputes in Tax Administrative Penalty Litigation

Pursuant to the provisions of the Tax Collection and Administration Law, the amount of most tax administrative penalties is determined as a multiple of the tax payable by the party. As the basic administrative act for tax recovery, the facts found in a tax treatment decision directly affect the content of the penalty decision. In practice, due to the high thresholds of tax payment precondition and reconsideration precondition, parties cannot seek remedies for tax treatment decisions and can only pin their hopes on "reversing the case" in penalty litigation. However, courts in different regions have adopted different approaches to handling parties’ objections to tax disputes in tax penalty cases.

1.1 View 1: Excluding the Review of Tax Disputes on the Grounds of Tax Payment and Reconsideration Preconditions

Judgments of tax administrative penalty litigation published on China Judgments Online in recent years show that an increasing number of people’s courts across the country hold this view. Its core logic is: although a party institutes administrative litigation against a tax penalty decision made by a tax authority, and the facts and reasons for tax supplementation found in the tax penalty decision are consistent with those in the corresponding tax treatment decision, if the party raises objections to such tax supplementation decisions and reasons in the penalty litigation, such objections essentially constitute tax disputes rather than penalty disputes. According to Paragraph 1 of Article 88 of the Tax Collection and Administration Law, tax disputes are subject to the statutory reconsideration precondition and shall not be directly subject to judicial review without undergoing reconsideration procedures. If a party fails to apply for reconsideration of a tax treatment decision, the decision shall take effect, and the court shall not review its legality in the administrative penalty litigation, but only focus on the procedures and discretion of the penalty decision. Relevant typical cases are selected as follows:

In (2025) Qiong Xing Shen No. 149 Case, Hainan Provincial Higher People’s Court held after review that: "Tax disputes are subject to the statutory reconsideration precondition and shall not be directly subject to judicial review without reconsideration. According to the facts found in this case, the claimant Cheng’s claims, facts and reasons in this litigation all target tax disputes, namely the facts found in Document Qiong Shui Yi Ji Chu [2023] XX Letter of Tax Treatment Decision. However, Cheng failed to file an administrative reconsideration against the said treatment decision, so the decision has come into force. Cheng’s dissatisfaction with the illegal facts and treatment results found in the XX treatment decision is not within the scope of this case’s trial." Accordingly, the court ruled to dismiss Cheng’s application for retrial.

In (2024) Yu 05 Xing Zhong No. 28 Case, the court of first instance, Wenfeng District People’s Court of Anyang City, Henan Province, held that: "The objections raised by a company in Anyang City to the tax calculation basis are essentially challenges to the tax treatment decision. It shall first file an administrative reconsideration in accordance with the law and then resolve the dispute through administrative litigation, so such objections are not within the scope of this case’s trial." The court of second instance, Anyang Intermediate People’s Court of Henan Province, held the same view and also ruled that the matter was not within the scope of the case’s trial.

In (2023) Qiong 01 Xing Zhong No. 241 Case, the court of first instance, Xiuying District People’s Court of Haikou City, held after trial that: "Tax disputes are subject to the statutory reconsideration precondition and shall not be directly subject to judicial review without reconsideration." "Since the facts found in the No. 13 Penalty Decision are consistent with those found in the No. 127 Treatment Decision, and part of the facts and reasons objected to by the company constitute tax disputes, the legality of the effective No. 127 Treatment Decision cannot be denied without reconsideration. Therefore, this court cannot make a negative evaluation of the facts found in the No. 127 Treatment Decision, and only needs to review whether the penalty scope, basis and procedures of the No. 13 Penalty Decision made by the Inspection Bureau of the Provincial Taxation Bureau are reasonable and lawful." The court of second instance, Haikou Intermediate People’s Court of Hainan Province, also held this view and did not review the tax treatment decision.

1.2 View 2: Directly Admitting the Unreconsidered Tax Treatment Decision as Evidence Without Review

A considerable number of judgments holding this view have also been published on China Judgments Online in recent years. The core logic is: in the administrative litigation procedure for tax administrative penalties, although the tax treatment decision has not been reconsidered, it may be submitted to the court as evidence for the tax penalty decision for review; if the treatment decision has no major and obvious illegal circumstances, its evidentiary effect shall be recognized and taken as the factual basis for the penalty decision. This model does not completely exclude the review of the treatment decision, but the review effect is insignificant and essentially amounts to no review. Typical cases are as follows:

In (2023) Yue 03 Xing Zhong No. 1044 Case, the court of first instance, Yantian District People’s Court of Shenzhen City, held that: "The illegal facts on which the tax penalty decision in this case is based were found by the tax inspection bureau in the tax treatment decision, and a company also admitted in court that it had no objection to the illegal facts found in the tax treatment decision, so such facts may be taken as the basis for the penalty." The court ruled to dismiss the plaintiff’s claims. The court of second instance, Shenzhen Intermediate People’s Court, held that: "The tax treatment decision has no obvious major illegal circumstances and is a valid administrative act, which may be admitted as evidence for the tax penalty. After conducting investigation and hearing procedures, the tax inspection bureau imposed a fine of 50% of the underpaid tax on the company in accordance with Paragraph 1 of Article 63 of the Tax Collection and Administration Law based on the facts found in the tax treatment decision, which complies with legal provisions." Accordingly, the court ruled to dismiss the appeal and uphold the original judgment.

Among the 2025 typical administrative adjudication cases recently released by Jilin Provincial Higher People’s Court, there is a tax-related administrative litigation case. In this case, an enterprise refused to accept the penalty decision and filed a lawsuit with the court. The court held after trial that whether the enterprise deducted tax through falsely issued invoices and whether it should pay supplementary tax were the factual basis for the subsequent administrative penalty. Since the enterprise failed to initiate remedy procedures against the treatment decision but directly sued against the penalty decision, the court should review the treatment decision as evidence.

1.3 View 3: Including Tax Treatment Decisions in the Scope of Comprehensive Review in Penalty Litigation

The core logic of this view is: even if a party fails to apply for reconsideration of the treatment decision, the court may conduct a concurrent review of its legality, and even alter it together if it is indeed erroneous. Typical cases are as follows:

In (2018) Zhe 06 Xing Zhong No. 75 Case, the Inspection Bureau of Shaoxing State Taxation Bureau issued a tax treatment decision and a penalty decision to Shiming Sand and Stone Factory, and the factory only filed an administrative lawsuit against the penalty decision. The court of first instance, Yuecheng District People’s Court of Shaoxing City, held that the treatment decision had taken effect and the illegal facts found therein should be confirmed. The court of second instance, Shaoxing Intermediate People’s Court, held a different view, stating that: "A tax treatment decision and a tax penalty decision are two different administrative acts, and laws and regulations do not stipulate that administrative reconsideration is a necessary procedure for instituting a penalty lawsuit. For administrative penalty acts, a comprehensive review of their legality shall be conducted in accordance with Article 6 of the Administrative Litigation Law." "The illegal facts found in the treatment decision do not fall under the 'facts that the court may directly confirm' as stipulated in Article 68 of the Provisions of the Supreme People’s Court on Evidence in Administrative Litigation, nor the facts 'confirmed by effective legal judgments of people’s courts or awards of arbitration institutions' that 'may be taken as the basis for case determination' as stipulated in Article 70 of the said Provisions." The court of first instance misapplied the law, so the original judgment was revoked and the case was remanded for retrial.

In (2017) Qian 04 Xing Zhong No. 27 Case, the court of second instance, Anshun Intermediate People’s Court of Guizhou Province, held that: "Although the Letter of Tax Treatment Decision (An Guo Shui Ji Chu [2015] No. 16) issued by the appellant, Anshun State Tax Inspection Bureau, is not the subject matter of this case, and the appellee, Jinxing Company, lost the right to judicial remedy for failing to apply for reconsideration within the statutory time limit. However, the said tax treatment decision is the basic and related administrative act of the sued Letter of Tax Administrative Penalty Decision (An Guo Shui Ji Fa [2015] No. 17) in this case, and the amount of underpaid value-added tax and consumption tax of Jinxing Company found in the tax treatment decision also serves as the factual basis for the sued tax penalty decision in this case. Moreover, the tax treatment decision and the tax penalty decision were issued and served on Jinxing Company on the same day by Anshun State Tax Inspection Bureau. Therefore, for the proper handling of the whole case, reducing the parties’ litigation costs and achieving good legal and social effects, the amount of tax evasion of value-added tax and consumption tax of Jinxing Company found in the tax treatment decision shall also be altered in the judgment of this case."

02 Merits and Demerits of the Three Different Judicial Views

The practice of View 1 applies the reconsideration precondition rule rigidly and undermines the parties’ litigation rights. This model seems to strictly comply with the reconsideration precondition stipulated in Article 88 of the Tax Collection and Administration Law, but in essence it is a mechanical application of legal provisions, ignoring the relevance of tax administrative acts and taxpayers’ remedy dilemmas. Refusing to review a treatment decision merely on the ground that it has taken effect will virtually undermine the parties’ substantive litigation rights. In practice, taxpayers are often unable to pay taxes or provide guarantees due to seized assets and frozen accounts, failing to meet the requirement of "tax payment precondition", and thus lose the right to reconsideration and litigation against the treatment decision. At this time, litigation against the penalty decision becomes the only remedy for taxpayers. If the court only reviews the penalty procedures without examining the facts found in the treatment decision, it is equivalent to recognizing that an erroneous treatment decision may directly serve as the basis for penalties, reducing penalty review to formalistic procedures and making it impossible to remedy taxpayers’ substantive rights.

The practice of View 2 circumvents the review of tax disputes in a disguised form. Although this practice is an improvement over the non-review model and recognizes the relevance between treatment decisions and penalty decisions, it still has obvious deficiencies. In administrative litigation, evidence review only targets authenticity, legality and relevance, while the legality review of a tax treatment decision as an administrative act also includes the application of law and procedural legality. This model only reviews the admissibility of the treatment decision as evidence without conducting a comprehensive review of its legality. If the treatment decision has general illegality short of major and obvious illegality, it will still be taken as the basis for penalties, resulting in defects in the legal basis of the penalty decision. Meanwhile, this model provides insufficient protection for the parties’ rights: only major and obviously illegal treatment decisions are rejected, and taxpayers still have to bear penalties based on erroneous treatment decisions for generally illegal ones due to lack of remedies, leading to limited remedy effects.

The comprehensive review model of View 3 conforms to the principles of administrative litigation and fully protects the parties’ litigation rights. This model is consistent with the legislative spirit of the Administrative Litigation Law and can substantively resolve administrative disputes. First, it strictly abides by the principle of "comprehensive review": reviewing the legality of a penalty decision inevitably involves reviewing its factual basis. As the core factual basis, a treatment decision must be comprehensively reviewed to judge whether the penalty decision is based on clear facts and sufficient evidence, and such concurrent review is an inevitable requirement of the comprehensive review principle rather than a breach of the reconsideration precondition. Second, it can substantively resolve disputes and reduce litigation costs: treatment decisions and penalty decisions are made based on the same illegal facts. If only the penalty decision is reviewed, the effective treatment decision will still bind taxpayers even if the penalty is revoked, failing to fundamentally resolve the dispute; concurrent review can correct erroneous treatment decisions together. Third, it conforms to the orientation of right protection: under the double precondition thresholds, taxpayers’ remedy rights are restricted, and comprehensive review provides an indirect remedy for them to make up for the defects of the existing remedy procedures.

03 Specific Reasons for Conducting Comprehensive Review of Tax Disputes in Tax Administrative Penalty Litigation

In tax administrative penalty litigation, the court’s comprehensive review of tax treatment decisions is not a breach of legal provisions, but an inevitable choice based on legal principles, judicial interpretations and practical needs, with sufficient justifications.

3.1 Conforms to the "Comprehensive Review" Principle of Administrative Litigation

Articles 6 and 70 of the Administrative Litigation Law clearly stipulate that people’s courts shall conduct a comprehensive review of the legality of administrative acts when hearing administrative cases, including substantive and procedural contents such as factual determination, sufficiency of evidence, application of law, procedural legality and appropriateness of discretion. The factual basis of a tax penalty decision entirely relies on the tax treatment decision. If the court only reviews the penalty procedures without examining the facts and applicable laws found in the treatment decision, it cannot judge whether the penalty decision is based on "sufficient main evidence" and "correct application of law", which essentially amounts to abandoning the duty of comprehensive review and violating the original legislative intention. Meanwhile, Article 70 of the Provisions of the Supreme People’s Court on Evidence in Administrative Litigation clearly stipulates that only facts confirmed by effective legal judgments or arbitration awards may be taken as the basis for case determination; tax treatment decisions do not fall into this category and shall not be directly recognized as valid.

3.2 Prevents Taxpayers from Losing Substantive Litigation Rights and Conforms to the Concept of Right Protection

The tax payment precondition and reconsideration precondition stipulated in Article 88 of the Tax Collection and Administration Law aim to protect the state’s tax claims, but have in practice become a "threshold" for taxpayers’ remedies. In most tax-related cases, taxpayers are unable to pay taxes or provide guarantees due to large tax amounts and seized assets, failing to initiate remedy procedures for treatment decisions, and can only seek remedies through penalty litigation. If the court refuses to review the treatment decision in penalty litigation and only examines the penalty procedures, taxpayers cannot correct the erroneous treatment decision through judicial channels even if they believe it is wrong, and ultimately have to bear the obligations of paying supplementary tax, late fees and fines, essentially losing substantive litigation rights. This not only violates the right protection function of administrative litigation, but also may connive at tax authorities evading judicial review through treatment decisions.

3.3 Tax Treatment Decisions and Penalty Decisions Are Related Administrative Acts and Shall Be Reviewed Together

Related administrative acts refer to administrative acts made by the same or different administrative organs against the same counterpart, where the subsequent act is based on the prior act. Tax treatment decisions and penalty decisions fall into this category. Although Article 7 of the Provisions of the Supreme People’s Court on the Trial of Administrative License Cases applies to administrative license cases, it establishes the principle of concurrent review of related administrative acts, stating that: "A people’s court shall not recognize any other administrative decision or document that serves as the basis for the sued administrative license act if it falls under any of the following circumstances: (1) obviously lacking factual basis; (2) obviously lacking legal basis; (3) exceeding competence; (4) other major and obvious illegal circumstances." When the underlying administrative act has major and obvious illegality that directly affects the legality of the sued administrative act, the court has the right to conduct concurrent review. The court’s concurrent alteration of the amount of tax evasion found in the tax treatment decision in the aforementioned (2017) Qian 04 Xing Zhong No. 27 Case is a typical application of this principle.

3.4 Conforms to the Spirit of the Supreme People’s Court’s Rule of "Inheritance of Illegality of Administrative Acts"

In the Minutes of the Judges’ Meeting of the Administrative Tribunal of the Supreme People’s Court (First Series), the Administrative Tribunal of the Supreme People’s Court recognizes the rule of "inheritance of illegality of administrative acts", pointing out that: "The theory of presumptive validity of administrative acts is of great value and shall be strictly observed and maintained in the theory and practice of administrative law, and is generally regarded as the biggest barrier to the inheritance of illegality of administrative acts. However, the barrier of illegality means that the illegality of prior administrative acts cannot be corrected, which in turn infringes upon the legitimate rights and interests of administrative counterparts through subsequent administrative acts and undermines the effectiveness of right remedies in administrative litigation. Therefore, from the perspective of citizens’ right remedies and substantive resolution of administrative disputes, it is allowed to break through the theory of presumptive validity of administrative acts under certain conditions." "In such circumstances, if a prior administrative act is illegal and sufficient to deny its probative effect, the subsequent administrative act shall also be confirmed as illegal." "There shall be a certain relevance between the two administrative acts. In addition to the sequential relationship in time, the two administrative acts shall also have statutory relevance. Procedural linkage refers to the legal requirement that one act shall be carried out after another for the same counterpart, with no other relevance in content; prerequisite relationship in elements means that the content covered by the validity of the prior act is one of the constituent elements of the subsequent act, and defects in the prior act constitute grounds for revocation or invalidation of the subsequent act; basis relationship in enforcement means that the prior act provides the basis for the subsequent act, and the subsequent act is the enforcement of the prior act." Tax treatment decisions and tax penalty decisions conform to the "prerequisite relationship in elements": pursuant to Article 63 of the Tax Collection and Administration Law, the tax evasion acts and underpaid tax amounts found in treatment decisions are prerequisite elements of penalty decisions, and erroneous factual determination in treatment decisions will inevitably lead to wrong penalty amounts. Therefore, the illegality of a treatment decision shall be "inherited" to the penalty decision, and the court shall review the treatment decision together when examining the penalty decision to achieve substantive dispute resolution.

04 Conclusion

In recent years, an increasing number of judgments in tax administrative penalty litigation have refused to review tax treatment decisions. This trend seems to strictly comply with the reconsideration precondition, but is actually an undesirable tendency worthy of vigilance. Such practice violates the policy spirit of the Opinions on Further Deepening the Reform of Tax Collection and Administration issued by the General Office of the CPC Central Committee and the General Office of the State Council, which requires "improving the right remedy and tax dispute resolution mechanisms for taxpayers and fee payers, and unblocking channels for effective collection, rapid response and timely feedback of demands", deprives taxpayers of substantive litigation rights in a disguised form, and is not conducive to building an equal, trustworthy and cooperative tax levy-payment relationship. The original intention of the reconsideration precondition is to protect the realization of state tax claims, not to deprive taxpayers of the right to judicial remedies. When the two values conflict, priority shall be given to protecting taxpayers’ legitimate rights and interests, which is not only the legislative orientation of the Administrative Litigation Law, but also an inevitable requirement for substantively resolving administrative disputes. Therefore, in tax administrative penalty litigation, the court’s comprehensive review of tax treatment decisions is a correct practice that complies with legal provisions, conforms to policy spirit and protects taxpayers’ rights.