19 November 2011

Pu Zhiqiang: Initial Opinions Regarding the "Fake Tax Case" (Translation)

Some have taken exception to the "knee-jerk" way in which Western media have approached Ai Weiwei's case, feeling that they have uncritically presented this as the heroic struggle of a dissident artist against government repression without inquiring into whether there might be any validity to the tax charges against him.

It is legitimate to ask whether Ai Weiwei or, more accurately, the Fake Cultural Development Company, owes taxes. One might think that this is merely an objective fact, but, actually, it is a determination that should be based upon a proper, fair, and transparent procedure. As lawyer Pu Zhiqiang details in his recent analysis of the case, which I have translated below, there is good reason to challenge the legitimacy of the determination that has been made.

I believe it is also legitimate to raise questions about political motivations behind the prosecution because of the particular way in which the police intervened in this case prior to any investigation by tax authorities (something that Liu Xiaoyuan noted previously), the fact that Ai's disappearance was carried out in the context of dozens of other detentions of activists and lawyers that were unambiguously political in nature, and the way in which the propaganda machinery has been mobilized to smear his reputation and "cast him out" of the ranks of the people.

That's all I'll say for now, because I've expended my allotment of brain cells for today and you still have a lot of reading left to do.
We have been entrusted by Beijing Fake Cultural Development Limited (hereafter “Fake Company” or “Fake”) to provide legal services in that company’s tax matters (hereafter “Fake tax case” or “tax case”). At the request of Fake Company and after making initial acquaintance with the background and associated matters concerning the “tax case” and having ascertained the circumstances of the “disappeared” Ai Weiwei, Wen Tao, Liu Zhenggang, Hu Mingfen, and Zhang Jinsong, our analysis and opinions are as follows:

I. The detention of Ai Weiwei et al. appears to have “exceeded authority” and been in violation of the law

On the morning of 3 April 2011, renowned artist Ai Weiwei was taken away by police before completing border-exit formalities at Beijing International Airport. Up until 22 June, when Ai Weiwei was “released on guarantee pending further investigation” and returned home, his family never received any official notification and had no means of knowing the charges alleged, the coercive measures taken, or the place of detention.

At 12 noon on 3 April, the Beijing Public Security Bureau carried out a search of Ai Weiwei’s residence for nearly 12 hours, seizing a total of 127 items, including computers, portable hard drives, video discs, and books. The inventory of items seized was issued in the name of the Chaoyang District Branch of the Beijing Public Security Bureau. No search was made of the finance office of Fake Company. Ten employees of Ai Weiwei’s studio were taken by police to the Nan’gao Police Station for questioning until the early morning [the next day].

At 2 p.m. on 3 April, Ai Weiwei’s assistant, Wen Tao, was forced into a black Buick by four men wearing plain clothes and taken away. Having lost contact with him, his relatives went to the Nan’gao Police Station [responsible for] the area where the incident occurred and reported a kidnapping. On the evening of 24 June, Wen Tao was escorted home by Beijing Public Security personnel, who demanded that he not discuss details of his detention publicly or have any contact with Ai Weiwei. During Wen Tao’s disappearance, his family did not receive any paperwork. Wen Tao to this day does not know for what offense he was secretly detained for 83 days.

At approximately 11:30 p.m. on 6 April, the Beijing Local Taxation Bureau and the [Beijing] Public Security Bureau went to Beijing Huxin Financial and Accounting Services Limited, which had been entrusted to keep the accounts of Fake Company, and seized original vouchers, accounting vouchers, accounting documents, tax vouchers, balance sheets, and profit/loss statements and other accounting documents of Fake Company dating from 2000 until February 2011. One hour later, at 12:47 a.m., Xinhua News Agency issued a report in English, stating: “Ai Weiwei is being investigated according to law on suspicion of economic crimes.”

On 7 April, the Beijing Public Security Bureau Economic Crime Investigation Unit brought Fake Company accountant Hu Mingfen, who had been visiting relatives in Lanzhou, back to Beijing, at which point Hu lost contact with family. Up until 13 June, when Hu was “released on guarantee pending further investigation,” [Hu’s] family never received any official paperwork [regarding her whereabouts]. The conditions of Hu Mingfen’s “release on guarantee” was that she leave Beijing and have no further contact with anyone at Fake Company or publicly discuss the circumstances of the case.

On 7 April, Ministry of Foreign Affairs spokesman Hong Lei told a press briefing: “Ai Weiwei is being investigated according to law by the public security organ on suspicion of economic crimes.

At 3 p.m. on 8 April, the Beijing Local Taxation Bureau and Beijing public security agents went to the accounts office of Fake Company and seized all financial and accounting documents, contracts, and chops from 2005 to 2010, at which point for the first time Fake Company was issued a Tax Inspection Notice and Inquiry Notice and the company’s legal representative Lu Qing was requested to go to the Beijing Local Taxation Bureau on 12 April for questioning.

At 7 p.m. on 9 April, Fake Company shareholder and financial manager Liu Zhenggang (male, age 49) was forcibly dragged away from his residential community in Haidian District by four men in plain clothes and taken to an unknown location. His wife later went to the Dazhongsi Police Station in Haidian District to report a kidnapping. From that point until the time on 11 June when [Liu] was “released on guarantee pending further investigation,” his relatives did not know his whereabouts and received no official paperwork. Liu Zhenggang was “released on guarantee” on condition that he leave Beijing and have no further contact with anyone at Fake Company or publicly discuss the circumstances of the case.

At 1 a.m. on 10 April, Ai Weiwei’s driver Zhang Jinsong (male, age 43) lost contact after leaving his friends. His relatives went to the Nan’gao Police Station in Chaoyang District to report him missing. Up until 23 June, when he was “released on guarantee pending further investigation,” [Zhang’s] relatives did not know his whereabouts and never received any official paperwork.

At 9:30 a.m on 12 April, after the company had been searched numerous times and four employees “disappeared” one after another, the No. 2 Audit Office of the Beijing Local Taxation Bureau carried out its first questioning of Fake Company legal representative Lu Qing.

On 15 May, Lu Qing was taken to the Chaoyang District [Branch] Public Security Bureau to see Ai Weiwei, who had been brought there from his secret place of detention. Ai Weiwei had been required not to reveal anything about his detention or questioning, and Lu Qing was told that Ai was only “suspected of economic crimes.”

On the evening of 22 June, Ai Weiwei was “released on guarantee pending further investigation.” That evening, Xinhuanet issued a short news item saying: “The public security organ carried out an investigation of Ai Weiwei in accordance with the law on suspicion of economic crimes and discovered that Beijing Fake Cultural Development Limited, which is actually controlled by him, carried out criminal acts such as evasion of a large amount of tax and intentional destruction of accounting documents. In light of Ai Weiwei’s good attitude in admitting his crimes and the fact that he suffers from chronic illness, combined with his multiple expressions of willingness to pay the taxes owed, Ai Weiwei has been released on guarantee pending further investigation in accordance with the law.”

Ai Weiwei notes that during the 81 days that he was secretly detained, the focus of questioning was on “suspected inciting subversion of state power.” After Ai Weiwei was “released on guarantee,” police issued no legal document and Ai Weiwei to this date is not clear about the charge under which he has been “released on bail pending further investigation.”

On 27 June, the No. 2 Audit Office of the Beijing Local Taxation Bureau [issued a] Notice of Administrative Penalty for Taxation, saying that Fake Company had evaded taxes and needed to a tax penalty of 12.21 million yuan. The office clearly stated that “the target of punishment is Fake Company, not Ai Weiwei.”

The company’s business license and tax registration form make clear that Beijing Fake Company was established as a limited liability company on 29 November 2000 with registered capial of 100,000 yuan, of which 80,000 had been put up by Lu Qing and 20,000 by Liu Zhenggang; that the company’s legal representative was Lu Qing and that Liu Zhenggang was the person responsible for financial matters and taxation matters; and that there were four employees. Its scope of operations was: organizing cultural and artistic exchanges, organizing exhibits, corporate image planning, graphic design, film and television planning, photographic services, arts and crafts design, furniture design, home design, and home decoration and design. From its establishment in 2000 until the present, Fake Company had continuously entrusted Beijing Huxin Financial and Accounting Services Limited to handle its accounts and file its tax returns.

Ai Weiwei was merely a designer for Fake Company and not a manager, accountant, or cashier responsible for financial matters; thus, he is not a “person of primary responsibility or other directly responsible person” as defined in [Article 31 of the] Criminal Law, and there is no concept of so-called “person in actual control” in tax cases. The Tax Management Law does not provide for holding anyone other than the taxpayer (which in this case is Fake Company) responsible, so there is clearly no factual or legal basis for the Ministry of Foreign Affairs or the Xinhua News Agency to say that “Ai Weiwei is suspected of economic crimes” or that “Fake Company, which is actually controlled by Ai Weiwei, evaded a large amount of tax. This is [an instance of] the law enforcement agency using the Ministry of Foreign Affairs and Xinhua News Agency to release fabricated information to frame a party.

According to the law, the public security organ does not have legal authority to handle administrative matters concerning taxation; only when Fake [Company] resists enforcement of an administrative punishment over taxation and the taxation authorities transfer the tax case to the public security organ may public security file a case for investigation and pursue criminal responsibility of the relevant responsible person. Therefore, there was no legal basis for the public security organ to step in before taxation authorities had begun investigating the “Fake tax case” and secretly detain Ai Weiwei and four others and search Fake [Company’s] accounts and seize items on 6 April and 8 April. [By doing so,] they exceeded their authority and violated the law in their handling of the case.

II. Beijing taxation authorities’ handling of the “Fake tax case” involves multiple procedural violations and unclear factual determinations, and its administrative act lacks legality and should be revoked in accordance with the law

On 29 June, Fake Company submitted a written request for a hearing. Fake [Company] reminded the taxation authorities numerous times that its accounts should be “returned in full” as soon as possible in order to ensure Fake’s ability to exercise its right of defense, but the taxation authorities replied verbally that “the books are with public security.” Twice, Fake expressed written opposition to the local taxation bureau about [the decision] not to hold a public hearing. The local taxation bureau replied verbally that because the case concerned the “commercial secrets” of a third party, a public hearing could not be held.

On 14 July, the No. 2 Audit Office held a secret “hearing.” Besides Fake’s legal representative and appointed counsel, no others were allowed to observe the proceedings, during which the local taxation authorities were unable to produce any request by a third party to protect its secrets. Clearly, this closed hearing was in violation of the law. During the hearing, the taxation authorities were unable to produce any original documents that had been seized by public security, making it impossible for Fake’s counsel to express an opinion about the authenticity and integrity of the photocopied documents.

Fake contends that it cannot accept a decision make by the tax authorities based on faulty procedure and inconclusive evidence and, moreover, that it is impossible for it to take responsibility when financial records may have been destroyed or altered during this period [of investigation]. On 19 July, the taxation authorities notified Fake to go to the Shibalidian Police Station in Chaoyang District to review the original account books, but because public security organs are not legally authorized to “handle tax matters” and a police station is not an appropriate place to store financial records, we recommended that Fake Company refuse these arrangements to “review the files.” A the same time, we again demanded that the taxation authorities return the accounts in full and select another date to hold an open and legal hearing.

On 1 November, the No. 2 Audit Office finally issued a Decision on the Handling of Taxes and a Decision on Administrative Penalty for Taxation, ordering Fake to pay within 15 days a total of more than 15.22 million yuan in taxes, late fees, and fines, of which more than 8.45 million yuan was taxes plus late fees and 6.77 million yuan was the fine.

We maintain that the aforementioned decisions were based on factual findings that are not clear and serious procedural violations and that the [tax] authorities were clearly cleaning up for the public security organ’s “Ai Weiwei case.” In order to protect Fake Company’s legal rights, we recommend requesting that an administrative review be held in accordance with legal procedure and that a decision about whether to file an administrative lawsuit be held in reserve, pending the conclusion of the administrative hearing.

III. Analysis of Fake’s way to protect its rights in accordance with the law

According to Article 88 of the Tax Collection and Administration Law of the PRC, Fake can only request an administrative review if it first pays back the more than 8.45 million yuan in taxes and late fees or puts up a commensurate guarantee. Given that Fake does not acknowledge the legalist of the [tax authorities’ decisions regarding taxation and penalties] we do not recommend that Fake “pay back the taxes” and instead should pay a tax guarantee in order to have the right to pursue review and litigation without resulting in outside misunderstanding and misinterpretation.

To help Fake “buy itself a way” to protect its rights, Ai Weiwei’s mother Ms Gao Ying and his younger brother Ai Dan decided to mortgage Ai Qing’s former residence in exchange for Fake’s right to have an administrative hearing. Beginning on 2 November, we entered discussions with the taxation authorities about the procedures for mortgaging [the property], but the Property Rights Exchange Center notified us that only an individual or a financial institution, not an administrative organ like the taxation authorities, could serve as the mortgagee. This meant that oversights in the policies between government agencies would result in Fake being unable in fact to mortgage Ai Qing’s former residence as a taxation guarantee.

On 9 November, the taxation authorities issued a Tax Affairs Notice ([file number] 2d Aud. Tax Not. [2011] No. 7), demanding that Fake “select one of the three methods of guarantee, mortgage, or pledge” in accordance with the Provisional Measures for Tax Payment through Guarantee.

People from throughout society came to aid and support Ai Weiwei’s tax dilemma and, in only 10 days between 4 and 13 November, nearly 30,000 people remitted more than 8.69 million yuan in loans. This demonstrates that the public supports Ai Weiwei personally and supports his “guarantee” that Fake Company will use judicial channels to protect its rights, and Fake has won the opportunity to defend itself and seek a just resolution to the problem. Fake decided to pledge its bank book as a pledge to guarantee its payment of taxes. Even though the law clearly provides for this, the local taxation bureau notified us that bank regulations prohibit an administrative organ like the local taxation bureau from acting as the lawful recipient of a pledge, so it would be impossible to put up the bank book as a pledge.

Since the deadline imposed by the taxation bureau was drawing near, on 16 November Fake Company was forced to agree to the local taxation bureau’s method of transferring cash into a tax guarantee funds account. Having completed the relevant procedures, [Fake] has obtained the right, in accordance with the law, to request an administrative review within 60 days.

Fake Company will select a date to request an administrative review. We will take good care of this opportunity to protect [the company’s] rights, one that came at an incredibly high cost, put forth all effort in the review and any possible litigation, and report the progress of the administrative review to the public in a timely and detailed manner.


Pu Zhiqiang
Counsel in the Fake Tax Case

18 November 2011

1 comment:

  1. very curious that the state lets people go after some time. wonder what the thinking is.

    ReplyDelete