A villa sold for 10.8 million yuan, but the transfer price was only 3 million yuan. The court ruling has raised a warning about tax compliance in real estate transactions.
Recently, a property dispute involving a villa valued at over ten million yuan has drawn widespread attention. A villa with an actual transaction price of 10.8 million yuan showed a contract price of just 3 million yuan during the transfer process. The buyer and seller attempted to evade hefty taxes through a "yin-yang contract" scheme, but ultimately failed to escape legal punishment. The court's ruling not only forced the buyer to pay substantial back taxes but also bear corresponding liability for breach of contract. This case has once again thrust the "yin-yang contract" phenomenon in real estate transactions into the spotlight, serving as a stark warning to home buyers and sellers across the country.
"Dual contracts" are not a new phenomenon and are particularly common in the second-hand housing market. The core approach is that the buyer and seller sign two contracts: one is the "yin contract" recording the actual transaction price, which is used for the parties' actual performance; the other is the "yang contract" with a lower price, which is used for declaring taxes to the tax authorities and registering with the real estate registration agency. This seemingly shrewd "tax-saving" maneuver, however, conceals enormous legal risks. From a lawyer's professional perspective, this is by no means a simple issue of civil breach of contract—it also crosses the legal red line of tax collection and administration.
I. Why are "yin-yang contracts" ruled invalid by courts?
In this case, the core basis of the court's decision lies in the fact that the "yang contract" (public contract) was determined to be invalid due to "malicious collusion that harms national interests." According to Article 154 of the Civil Code of the People's Republic of China: "A civil juristic act in which the actor and the counterparty maliciously collude to harm the lawful rights and interests of others is void." In this case, the buyer and seller deliberately reduced the transaction price from 10.8 million yuan to 3 million yuan in order to pay less tax, which directly resulted in the loss of national tax revenue and harmed national interests. Therefore, the legal validity of the "yang contract" used for title transfer registration and tax declaration (i.e., the one for 3 million yuan) was questionable from the very beginning.
It should be clarified that invalidity of a contract does not mean the entire transaction is "zeroed out." Pursuant to Article 157 of the Civil Code: "Where a civil juristic act is void, rescinded, or determined to have no legal effect, the property acquired by the actor as a result of such act shall be returned; where return is impossible or unnecessary, compensation shall be made at an appraised price. The party at fault shall compensate the other party for the losses thus incurred; where both parties are at fault, they shall each bear the corresponding liability."
In judicial practice, courts typically uphold the validity of the "yin contract" (i.e., the real contract for 10.8 million yuan) because it reflects the true intent of both parties. However, the consequence of the "yang contract" being invalid is that both parties must re-process the transfer and tax payment procedures based on the actual price. More seriously, both parties may bear corresponding liability for the additional taxes, late fees, and even fines arising from their wrongful conduct of "malicious collusion." In this case, the buyer not only needs to pay back taxes but may also face administrative penalties from tax authorities—this is undoubtedly a case of "trying to gain a little only to lose a lot."
II. Legal Minefields and Practical Risks of Tax "Avoidance" in Real Estate Transactions
Many people, when conducting real estate transactions, listen to the advice of intermediaries or “experts” and attempt to “reasonably avoid taxes” by understating the contract price, fabricating transaction details, and similar methods. In legal practice, however, such conduct is often characterized as “tax fraud” or “tax evasion,” rather than “tax avoidance.”
First, with respect to administrative liability, according to the provisions of Article 63 of the Law of the People's Republic of China on the Administration of Tax Collection, where a taxpayer forges, alters, conceals, or without authorization destroys account books or vouchers for accounting, or overstates expenses or understates or omits income in the account books, or, after being notified by the tax authorities to file a tax return, refuses to do so or makes a false tax return, and fails to pay or underpays the tax payable, such conduct constitutes tax evasion. Where a taxpayer evades tax, the tax authorities shall pursue and collect the unpaid or underpaid tax and late fees, and shall also impose a fine of not less than 50 percent but not more than five times the amount of the unpaid or underpaid tax.
Secondly, from the perspective of criminal liability, if the amount of tax evaded is substantial and accounts for a high proportion of the tax payable, it may also constitute the "crime of tax evasion" as stipulated in Article 201 of the Criminal Law of the People's Republic of China. Although the Criminal Law provides that if the taxpayer pays the overdue tax and late fees after the tax authorities have lawfully issued a collection notice and has already been subjected to administrative penalties, criminal liability shall not be pursued, this "first-time offender immunity" provision is not an absolute protective umbrella. Once criminal proceedings are initiated, it will have a devastating impact on the reputation of both individuals and enterprises.
In addition, beyond tax risks, "yin-yang contracts" can also give rise to a series of civil disputes. For example, if the buyer asserts rights based on the price in the "yang contract" and demands the seller transfer the property at a price of 3 million, the seller may face substantial losses. Alternatively, when housing prices rise, the seller may renege, argue that the "yang contract" is invalid, and demand the buyer pay the difference based on the true price, thereby triggering litigation. This case is a typical cautionary example, and its judgment serves as a wake-up call to all those who attempt to "manipulate" real estate transactions.
III. Key Compliance Points in Real Estate Transactions from the Perspective of Legal Practice
As a lawyer handling a large number of real estate disputes, I must remind all property buyers and sellers that real estate transactions involve significant interests, and it is essential to adhere to the bottom line of legality and compliance. The following are key compliance points that must be emphasized in practice:
First, discard any wishful thinking. A "yin-yang contract" may seem to save tens of thousands or even hundreds of thousands of yuan in taxes, but once it is investigated and penalized, the total amount of back taxes, late fees, and fines will often far exceed the amount "saved" in the first place. More importantly, the resulting litigation costs, time costs, and reputational damage are simply incalculable.
Second, the contract must clearly state the true price. Both the buyer and seller should truthfully record the transaction price in the contract and calculate taxes based on that price. If there is indeed a violation involving "understating the property price" to obtain more bank loans, once the bank discovers it, it may demand early repayment of the loan, causing the buyer's funding chain to break.
Third, attach importance to the compliance of intermediary agencies. Choosing a legitimate and well-reputed real estate agency is crucial. Some unscrupulous intermediaries, in order to facilitate a deal, will actively instigate both the buyer and seller to sign a "yin-yang contract" (dual contract with underreported price) so as to earn their commission. Once a problem arises, these intermediaries often shirk responsibility, and in the end, it is the buyer and seller who suffer the consequences.
Fourth, consult a professional lawyer. Before conducting a large-scale real estate transaction, hiring a professional lawyer to review the transaction process and contract terms is the most effective means of preventing legal risks. Lawyers can assist in designing lawful tax planning strategies, such as leveraging tax incentive policies, but will never advise or assist clients in engaging in illegal tax evasion.
IV. The Far-Reaching Impact of the Judgment in This Case and Its Legal Implications
The significance of the judgment in this villa "yin-yang contract" case extends far beyond the individual case itself. It sends a clear judicial signal to society as a whole: the law will never protect conduct that seeks improper gains at the expense of national interests. Against the current backdrop of the state strengthening tax collection and administration and regulating order in the real estate market, the judgment in this case carries important demonstrative effect.
For an ordinary family, buying a home may be the largest expenditure in life, and any legal oversight could lead to unbearable consequences. This case serves as a warning that while pursuing minimal transaction costs, legal risks must be given top priority. The so-called "tax-saving" shortcuts often lead straight into the trap of litigation and penalties.
For enterprises, especially when conducting large-scale transactions involving commercial real estate or entire properties, greater emphasis should be placed on compliance review. Corporate tax compliance is not only a legal obligation but also the cornerstone of corporate social responsibility and long-term stable development. A single act of tax evasion may affect an enterprise's credit record and even jeopardize major strategies such as listing and financing.
Guangdong Zhiming Law Firm has深耕 the field of real estate and tax law for many years, handling numerous disputes arising from "dual contracts" (yin-yang contracts). We understand that behind every transaction lies the parties' years of savings and hopes for the future. We recommend that before signing any real estate transaction documents, you consider consulting a professional lawyer to let the law safeguard your wealth. After all, compared to the often hefty "legal fees" amounting to hundreds of thousands, the losses caused by legal risks are often far more severe.
The dust has settled on this case, and what it leaves us with should not merely be fodder for casual conversation, but rather a reverence for rules and the law. In an era where the rule of law is increasingly refined, any attempt to challenge the bottom line of the law with petty cleverness will ultimately come at a heavy price.
