At 5 am on July 29, Xu Zhiyong, founder of legal aid organization the Open Constitution Initiative, was taken away from his home by the police in Beijing. His colleague Zhuang Lu, who's in charge of accounting for the organization, was also arrested.
The office of the Open Constitution Initiative was raided by the Beijing Civil Affairs Bureau on July 17. Officials claim the Gongmeng (pinyin of Open Constitution Initiative) Law Research Center of the Open Constitution Initiative has been running illegally as a non-governmental and non-profit organization since it is not registered at the bureau. They seized the computers of the research center, confiscating office supplies and research papers such as the Civil Rights Defense Brochure and China Human Rights Development Report 2005.
Officials from the Beijing Municipal Office, State Administration of Taxation and the Beijing Local Taxation Bureau also visited the organization on the same day. They declared the organization had received contributions from Yale University in 2006-08 but failed to file tax accordingly. Therefore the organization was ordered to pay 187,424 yuan in back taxes and fined 1,242,100 yuan ($181,843) – five times the contribution – the highest possible level of financial punishment.
Six days after the raid, the Open Constitution Initiative applied for administrative review. Xu Zhiyong argued the Gongmeng Law Research Center is an internal organization of Open Constitution Initiative and so doesn't need to be registered at the civil affairs bureau.
Lawyers representing Open Constitution Initiative attended hearings held by taxation bureaus and explained to officials that contributions from Yale University were used for specific research and a non-profit purpose. The organization did not provide any service to the university. Therefore the bureaus should not tax the contributions.
What happened to the Open Constitution Initiative has been widely discussed by fellow domestic non-governmental organizations (NGOs) in China.
"It's not unusual for a corporation to have flaws in taxation,"said Lu Jun, chief coordinator of the Beijing Yirenping Center, a non-profit organization devoted to helping patients fight discrimination and protect their own rights.
"Considering it's the first time the Open Constitution Initiative has been found to have such flaws, taxation officials could remind it and request it to pay the insufficient tax, rather than forcing it to the edge of bankruptcy by imposing a harsh fine of more than a million yuan.”