Determination Of The Nature And Validity Of The Contract For Transferring Construction Land Use Right By Way Of Equity Transfer

It is very common to transfer construction land use right by way of equity transfer in China.As the contract concluded by the parties is the transfer of equity in form and appearance,but in essence it pursues the transfer of construction land use right.How to determine the nature of the contract is the first problem to be solved by the court when disputes arise in the performance of the contract.Chinese law has not stipulated this kind of contract,and courts have different views in judicial practice.Some are identified as equity transfer in form,while others are identified as construction land use right transfer in substance.The judgment standard and determination result of the nature of this kind of contract are not uniform,which will further lead to differences in determination of the validity of the contract.In the cases when the court determine the nature of the contract as the transfer of the right to use construction land,the court holds different views on whether the contract should be invalid by applying the "malicious collusion" clause.The differences in the determination of the nature and validity of the contract lead to different judgments in the same case and different judgments in the class cases of the contract dispute over the transfer of construction land use right by way of equity transfer,which has a significant impact on the realization of the demands of the parties.For the determination of the nature of this kind of contract,whether based on form or substance,the inner meaning of pursuing certain legal effect of the parties should be regarded as the substantive standard.When the three conditions which that the subject confusion between the transferor and the target company,the subject confusion between the shareholder’s equity of the target company and the right to use construction land under the name of the target company,and the assignee’s knowledge of the aforementioned confusion are met,it is sufficient to determine between the parties have the inner meaning of pursuing the transfer of the right to use construction land legal effect,and the contract has dual the inner meaning of pursuing certain legal effect.However,equity transfer is instrumental and accessory,so this kind of contract should be regarded as construction land use right transfer contract according to the substantial purpose of the contract.In view of the above problems,there are two different ways to perfect the law.One is to expand the meaning of false acts clause so that such contracts are regulated by false acts clause,the other is to revise or expand the Interpretation of Disputes on State-owned Land Use Right Contracts and directly define such contracts as construction land use right transfer contracts.It is a safer choice to adopt the second way to improve the contract,to positively consider the land-related factors in the contract,to discover the true expression of intention between the parties,to judge the objective elements of the case,and then to determine the nature of the contract on this basis.In view of the determination of the validity of this kind of contract,this kind of contract intends to avoid taxes and fees,which is an act of Circumvention of the law.However,it does not meet the constitutive requirements of "malicious collusion" clause and should not be invalid according to Article 154 of civil Code.It is necessary to restrict the application of "malicious collusion" clause,and the scope of concepts such as "others" and "legitimate rights and interests" in the clause should be limited.In addition,it is necessary to unify the legal application basis of the validity determination of such contracts.The validity of such contracts shall be determined by the laws which the parties intend to circumvent.The purpose is to circumvent the transfer of construction land use rights of taxes and fees,should be based on tax related laws and regulations to determine.The purpose is to avoid the restrictive conditions of the transfer of construction land use right,it should be determined according to land management laws and regulations.Finally,when there is didn’t have negative evaluation clause of the validity of this kind of contract,we should consider strengthening the regulation of this kind of tax avoidance and evasion.