Case of Tax Treatment Concerning Recovery of Land-use Right

　　I. Applicant

　　A Company

　　II. Description of Matter

　　A Company owns an allocated land parcel, from which basically no cost was incurred. Recently, A Company reached a consensus on cooperation about the utilization of the above land parcel with a district government. In view of the possible taxes like value-added tax and land appreciation tax from land purchase and reserve, it applied to the tax authorities for an advance tax ruling.

　　III. Ruling

　　Based on the information and statements provided by A Company, the tax authorities are of the view that if A Company obtains the official document about the district government's recovery of the land-use right before a tax liability arises, the tax matter can be subject to the preferential policy that "landowners grant land-use rights and land users return land-use rights to landowners" as set out in Item 37 under "the following items are exempt from VAT" in Article 1 of Appendix 3 - Regulations on the Transitional Policy in Relation to the Business Tax to Value-added Tax - in the Notice of the Ministry of Finance and the State Administration of Taxation on Fully Expanding the Pilot Program of Replacing Business Tax with Value-Added Tax (Cai Shui [2016] No. 36), and the preferential policy that "land appreciation tax shall be exempt under the circumstance that real estate taken over and repossessed according to laws due to the construction requirements of the State".

　　IV. Basis for Ruling

　　1. Provisional Regulations of the People's Republic of China on Land Appreciation Tax (State Council Decree No. 138);

　　2. Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Land Appreciation Tax (Cai Fa Zi [1995] No. 6);

　　3. Notice of the Ministry of Finance and the State Administration of Taxation on Fully Expanding the Pilot Program of Replacing Business Tax with Value-Added Tax (Cai Shui [2016] No. 36).

　　V. Date of Ruling

　　March 2024

　　The ruling is binding on the tax authorities in respect of the application filed by the applicant.