The recent tax-related announcements from two listed companies, both involving substantial back-payments, have presented a thought-provoking question to the market: why is one company subject to a five-year review while another faces a look-back period exceeding ten years?
On June 23, Heilongjiang Agriculture Company Limited (600598) announced it needs to pay back approximately 1.41 billion yuan in corporate income tax and late payment surcharges for the period from 2021 to 2025. Previously, Yihai Kerry Arawana Holdings Co.,Ltd. (300999) disclosed that a subsidiary was required to rectify a value-added tax (VAT) issue dating back to July 2012, impacting net profit by about 472 million yuan.
Understanding the Discrepancy
These two cases are illustrative. Both involve tax back-payments, but the differing look-back periods are not a matter of arbitrary treatment by tax authorities. The disparity stems from the fundamental nature of the tax issues and the applicable legal rules.
Case Analysis: Heilongjiang Agriculture
Heilongjiang Agriculture Company Limited's issue was a misinterpretation of tax policy. The company believed that land rental income from "non-employee family farms" was exempt from corporate income tax. The tax authority has now clarified that this understanding was incorrect and the income is taxable.
In tax law, this is categorized as an underpayment resulting from "errors by the tax authority or miscalculations." Provided the company did not engage in intentional tax evasion or fraud, the statute of limitations for recovery applies.
The standard rule is a maximum recovery period of 3 to 5 years, extendable to 5 years for significant amounts (over 100,000 yuan). Given the massive sum involved (over 1 billion yuan), the tax authority applied the maximum 5-year period (2021-2025). The announcement also specified that "no administrative tax penalties are involved," indicating the nature is not severe, thus the unlimited recovery period for tax evasion does not apply.
Case Analysis: Yihai Kerry Arawana Subsidiary
The issue for Yihai Kerry Arawana Holdings Co.,Ltd.'s subsidiary (Dongguan Fuzhiyuan) is more complex. It wasn't a simple policy disagreement but rather the tax authority's determination that the subsidiary incorrectly claimed input VAT credits for items related to the production of tax-exempt products like rapeseed meal.
The core issue is "inaccurate calculation." The tax authority's "Tax Treatment Decision" identified an "inaccurate calculation of non-deductible input VAT for... tax-exempt products." This falls under a taxpayer's calculation error.
The reason the review extends to 2012 is that this calculation error is deemed to have commenced in July 2012 and persisted continuously. During the tax inspection, this ongoing error was identified, allowing the authority to trace it back to its origin. The decade-long span does not break the 5-year recovery rule; instead, it addresses a continuous error over its entire duration.
A key detail: if this action were classified as "tax evasion" (e.g., falsifying records, fraudulent reporting), the recovery period would be unlimited. The announcement did not mention such a classification or penalties, suggesting it remains at the "calculation error" level, albeit one with a long history.
Summary of the Core Difference
Heilongjiang Agriculture Company Limited: A static policy misinterpretation applied consistently over five years (2021-2025). The tax authority's ruling applied the maximum 5-year recovery period.
Yihai Kerry Arawana Holdings Co.,Ltd. subsidiary: A persistent calculation methodology error spanning over a decade. The tax authority, upon discovery, needed to correct the error from its inception, leading to a trace-back to 2012.
Impact on Heilongjiang Agriculture
Heilongjiang Agriculture Company Limited recently announced that due to a tax policy application issue, it must pay back 1.41 billion yuan in taxes and surcharges. This substantial amount will be recorded in the 2026 income statement, indicating the company will likely report a significant loss this year.
The company previously reported certain income as tax-exempt, a position now rejected by the tax authority, requiring back-payment for 2021-2025.
The total is 1.41 billion yuan, comprising 1.024 billion yuan in principal (tax) and 386 million yuan in interest (late fees). A positive note is that no fines were imposed, indicating the act was not considered malicious tax evasion.
This 1.41 billion yuan expense will directly reduce 2026 profits. Compared to the company's 2025 net profit of approximately 1.1 billion yuan, this event will likely cause a shift from profit to a substantial loss in 2026. The announcement warned investors of the associated risk.
The company clarified that, under accounting standards, this does not constitute a "prior period error," so past financial statements will not be restated. All financial impact will be borne in 2026. This maintains historical data stability but results in a sudden large deficit in the current year's performance.
Impact on Yihai Kerry Arawana
A subsidiary of Yihai Kerry Arawana Holdings Co.,Ltd. is in a tax dispute with local authorities and lost the first round of litigation. While the company believes it is correct and is appealing, accounting's "prudence principle" requires it to deduct this potential liability from current-year profits. This deduction reduced the company's 2025 net profit by approximately 472 million yuan.
The dispute involves subsidiary Dongguan Fuzhiyuan and the tax authority over the deductibility of certain input VAT credits related to tax-exempt products. The tax authority issued a decision in November 2023 requiring back-payment.
The subsidiary appealed, but a first-instance court ruling in June 2025 supported the tax authority. The subsidiary has filed a second appeal, with the final outcome pending.
Applying the prudence principle, the company recorded the potential back-payment of taxes, surcharges, and late fees as an estimated liability in its 2025 financial statements, reducing reported net profit by 4.72 billion yuan. This is an accounting provision, not an actual payment. If the company wins the appeal, this amount could be reversed.
The company's stance is clear: it disagrees with the ruling, has sought external expert opinions supporting its position, and intends to exhaust all legal avenues to defend its rights.
For investors, this represents a provisional accounting charge impacting the 2025 profit figure. Excluding this and another litigation provision, the company's 2025 net profit attributable to shareholders actually increased by 55.31%, indicating robust underlying business performance. The final outcome of the tax case remains a key factor to watch.
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