In 2022, China's tax policy "reduction" is the leading word, which provides strong support for reducing the burden of market players, revitalizing enterprise cash flow and boosting the speed of economic development. The new combination of tax support policies from multiple perspectives, all-round care of key industries and people: large-scale tax rebate policy to ease the pressure of the shortage of funds for real enterprises; transportation, science and technology, courier and other industries to reduce the burden of specific industries; the introduction of a new special deduction for personal tax and personal pension tax policy to care for the birth of a child, old age, and other key issues... ...In order to ensure that tax policies are put into practice, tax supervision in 2022 has been further strengthened with the help of multi-departmental collaboration and tax big data, rectifying the network entertainment industry, strengthening investment supervision, and cracking down on fraudulent tax credits and tax refunds, etc., which effectively deterred the unscrupulous elements. This article takes stock of the tax-related cases and data of the State Administration of Taxation and local tax authorities in 2022 to get a glimpse of the sources and causes of tax risks in 2022, so as to provide suggestions for enterprises to strengthen tax compliance in 2023.

I.2022 National Tax-Related Administrative Issues Roundup

(I) Personal Tax Issues in the Entertainment Industry at the Tip of the Storm

In 2022, the State Administration of Taxation (SAT) exposed and publicized a total of five individual income tax evasion cases in the field of entertainment and webcasting, all of which aroused widespread concern. Among them, the case of Wu's tax evasion disclosed by the General Administration on November 25, the Beijing Municipal Taxation Department recovered a total of 600 million yuan in taxes, late payment fees and fines, the highest amount. The other four cases were the tax evasion case of webcaster Ping Mou (screen name: Donkey Sister Ping Rong) investigated and dealt with by the Guangzhou Municipal Taxation Department; the tax evasion case of Deng Mou investigated and dealt with by the Fourth Inspection Bureau of the Shanghai Municipal Taxation Bureau; the tax evasion case of webcaster Sun Mou (screen name: Dishi) investigated and dealt with by the Second Inspection Bureau of the Beijing Municipal Taxation Bureau; and the tax evasion case of webcaster Xu Mou investigated and dealt with by the Fuzhou Municipal Taxation Bureau in Jiangxi Province.

Since the beginning of this year, the General Administration of Taxation, in conjunction with the Internet and other departments, has carried out remediation of the network entertainment industry, focusing not only on the issue of tax evasion by celebrities and webcasters, but also investigating and punishing tax-related intermediaries.

(II) Land value-added tax disputes in real estate projects 

The real estate industry has always been an area of frequent tax-related disputes due to its high leverage, huge water flow and complex accounting.2022 On July 14, 2022, the Beijing Municipal Taxation Department announced the delivery of a "Land Value-added Tax Clearance Audit Opinion", which determined that, among the "demolition and relocation costs of the building project" of the real estate development enterprise, there were RMB620,893,801.85 of "unactually incurred accrued expenses", which were not allowed to be included in the amount of deductions. As a result, "the tax payable for the liquidation of the project amounted to RMB1,084,055,335.41", requiring a retroactive payment of RMB1,006,054,688.41, amounting to more than one billion yuan.

(III) Dispute over the removal of the Holding Platform and the non-transactional transfer of the Shares

On September 8, 2022, the Kaifeng Municipal Tax Bureau of Henan Province issued the "Notice of Tax Inspection" and the "Notice of Tax Matters" to the five natural persons by way of notice delivery. The "two books" determined that Henan Gold Coast Enterprise Management Co., Ltd. had transferred non-traded stocks to five natural persons, and the natural persons had underpaid personal income tax by approximately RMB 80.49 million, and the tax department carried out tax audits on them. This case shall be the first disclosed case of tax-related disputes arising from non-trading transfer.

(IV) Refusal to fulfill individual income tax remittance

On March 7, 2022, the Shenzhen Municipal Tax Bureau served Li, a natural person, with a Notice of Tax Administrative Penalty Matters by way of public announcement, which determined that Li, a natural person, refused to complete the 2020 individual income tax remittance upon notification of filing, resulting in an underpayment of individual income tax for 2020 of RMB33,796.31, which constituted tax evasion, and was subject to a penalty of fifty percent of the underpaid tax of 16898.16 Yuan. This case should be the first case in which a natural person was penalized for refusing to perform the remittance.

(V) Medical Beauty Industry Concealing Income through Personal Accounts

On July 22, Hangzhou Municipal Tax Bureau issued a tax administrative penalty decision of Hangzhou Tax Quizi Penalty (2022) No. 44 to Hangzhou Gu Ming Culture and Art Planning Co. From January 2017 to November 2021, the company's branch Hangzhou Gu Ming Culture and Art Planning Co. Thousand and Medical Beauty Clinic, which provides services for customers in the medical beauty program, utilized nine personal bank accounts to collect service payments and concealed income, totaling RMB 47,553,070,337.07 of concealed service income, which was not accounted for in the financial accounts, and did not separately account for VAT taxable and tax-exempt items in the said income. The HCM City Taxation Department characterized the case as tax evasion, recovered 147,121,191.17 yuan of enterprise income tax and imposed a fine of 8,827,2714.70 yuan.

In addition to the above tax-related administrative cases involving huge amounts of money or occurring for the first time, the State Administration of Taxation (SAT) publicizes typical cases every year, and tax authorities around the world have also announced major tax-related illegal cases in 2022. This article collects and summarizes the tax-related risks in 2022 and analyzes them as a whole.

II.Data Spotlight on Major Tax-Related Violation Cases in 2022

(I) Typical Tax Cases Publicized by the State Administration of Taxation in 2022

Since January 2022, the State Administration of Taxation (SAT) has publicized a total of 637 typical tax cases from all over China. Among them, the largest number of cases is fraudulent tax credit refund cases in terms of the nature of the cases, reflecting the decision of the tax authorities to escort the large-scale tax credit refund policy.

Of the 637 typical tax cases, as many as 518 were cases of fraudulent tax rebates. This is followed by 8 cases of fraudulent export tax rebates, 7 cases of tax officials violating the law, 7 cases of tax-related intermediaries violating the law, 6 cases of false VAT invoices, 5 cases of tax evasion, 5 cases of natural persons violating the law, and 1 case of petrochemical enterprises evading consumption tax.

(1) The highest risk of fraudulent tax credit refund

Under the pressure of large-scale tax rebates, the tax authorities have increased the auditing, supervision and auditing of applications for tax rebates. It needs to be clear that fraudulent tax rebate is not an independent tax-related illegal behavior, the enterprise is through the hidden income tax evasion means leading to inflated input, or through the means of false invoicing false enhancement in order to achieve the purpose of fraudulent tax rebate. As enterprises suspected of fraudulent tax credit refund will continue to investigate their tax problems in the past three years and trace upstream and downstream along the invoice chain, the probability of tax-related risks breaking out is high.

(2) Increased risk of natural persons and tax-related intermediaries

Natural persons mainly refuse to fulfill the remittance and conceal their income, which constitutes tax evasion and carries a certain risk, but it is not very high, and they need to pay the tax in time to solve the risk. At present, tax supervision focuses on cracking down on tax-related intermediaries' illegal tax planning, false invoicing, assisting in tax evasion and false propaganda, etc., and the risk of tax-related intermediaries is higher.

(3) Risks of false invoicing and fraudulent export tax rebates still exist

False VAT invoicing and fraudulent export tax rebates have been tax-related offenses that have been jointly combated by six departments. In 2022, the two violations are more likely to be implicated in the outbreak of upstream and downstream suspected fraudulent tax rebates.

(II) Significant Tax-Related Illegal Cases of Tax Authorities in 2022

(1) Nature of cases

In 2022, the tax authorities of 36 provinces, autonomous regions, municipalities directly under the central government, and municipalities separately listed in the plan made public a total of 18,543 cases of major tax-related violations. Among them, due to the existence of a case with multiple natures (e.g., a case belonging to both false VAT invoices and fleeing (lost)), the total number of each case type is slightly higher. Among them, the largest number of cases of fraudulent issuance of VAT special invoices or other invoices used for fraudulently obtaining export tax refunds or tax deductions was 11,737; cases of fleeing from the country (out of contact) followed, with 2,854 cases; cases of fraudulently issuing ordinary invoices, with 2,736 cases; cases of evading payment of taxes, with 1,019 cases; cases of fraudulently obtaining export tax refunds, with 284 cases; and cases of evading recovery of tax arrears, with 2 cases. Therefore, false invoicing of VAT is still the most important factor of tax-related violations.

(2) Geographical Distribution

In terms of regional distribution, more cases were publicized in developed regions such as Shenzhen, Shanghai, Guangdong, Tianjin and Zhejiang, with Guangdong region (including Shenzhen) having the largest number of cases, as many as 4,314. The number of outbreaks of tax-related risks mainly depends on two elements, the first is the level of local economic development, and the second is the level of local tax supervision. Shandong and Hebei have not publicized any major tax-related illegal cases in 2022, and the number of cases in Yunnan, Jilin, Qinghai, Heilongjiang, Gansu and Tibet provinces is small.

(3) Areas where cases of false VAT invoices occurred

Shanghai has the highest number of cases of false VAT invoices, with 1,790 cases; followed by Tianjin with 1,721 cases; and Jiangsu with 965 cases. With the highest number of false VAT invoicing cases, enterprises should be alert to the risk of invoice non-compliance.

(4) Regions where fraudulent export tax refund cases occurred

2022 Cases of fraudulent export tax refunds are mainly concentrated in sea and land ports, namely Guangdong (including Shenzhen), Xiamen and Xinjiang.

III. Main causes of tax-related risks in 2022

(I) Improper application of tax incentives

In order to encourage economic development and reduce the burden on enterprises, the state has implemented a combination of tax policies for several years in a row, and a large-scale tax retention and refund policy has been implemented in 2022 to return real money to enterprises and help them develop. In this context, there are certainly some unscrupulous people who want to cheat tax concessions, but there are also some enterprises that do not have the purpose of tax fraud, but only due to their own non-compliance with the tax-related business, resulting in the outbreak of risks in the process of applying tax incentives. In the process of tax retention and refund, the tax authorities will also pay special attention to whether the enterprises have inflated input items, so as to find out whether the enterprises accept false opening or conceal income. Some enterprises are implicated by other enterprises.

(II) Invoices Convey Tax-Related Risks Resulting in Enterprises Being Implicated

We note that the vast majority of cases are false invoicing cases or related to invoices. Due to the conduction effect of the invoice chain, the outbreak of tax-related risks of enterprises will be transmitted to upstream and downstream enterprises. Upstream enterprises may be investigated for false invoicing, and downstream enterprises may be denied input credit for accepting false invoices.

(III) Increasing regulation of personal income tax

With respect to individual income tax, excluding specific industries such as online entertainment, the main cases are natural persons not fulfilling their obligations to make annual remittances in accordance with the law, and hiding income and not declaring it. Currently, tax authorities are strengthening individual tax supervision of natural persons conducting major asset transactions such as real estate transfers and equity transfers. With the correlation of banking, tax, and industrial and commercial information, the risk of individuals hiding their income is getting higher and higher.

(IV) Tax big data helps tax supervision

Since 2022, it is known through news reports that tax authorities have relied on tax big data analysis to investigate and handle tax cases with increasing frequency. With the full launch of the "all-electric invoice", tax supervision will be further strengthened, which has put forward new requirements for enterprises and individuals to improve their tax compliance level.

(V) Specific industries are prone to tax-related risks

Specific industries mainly refer to: 1) oil retailing, catering, medical and beauty industries facing end-consumers; 2) real estate, foreign trade and other industries with complicated tax-related matters; 3) renewable resources, pharmaceutical and petrochemical industries with problematic modes of their own, and so on. Enterprises in specific industries should pay attention to the types of tax-related illegal risks in their own industries and avoid them in a targeted manner.

IV.Suggestions and Prospects for Corporate Tax Compliance in 2023

(I) Economic Development "Stabilization", Fraudulent Tax Risks Remain the Center of Gravity

On December 16, 2022, the Central Economic Work Conference put forward: "next year, we should adhere to the word steady, steady progress, and continue to implement a positive fiscal policy and prudent monetary policy", the fiscal policy should be strengthened to improve the efficiency, but did not directly deploy the tax policy. 2022 large-scale tax rebate policy has made great contributions to the benefit of enterprises, Promoting economic development and other issues made a great contribution, with the recovery of the economy and the institutionalization of the tax credit refund policy in 2023, the tax policy and system may continue to remain stable, enterprises should still focus on raising awareness of compliance with higher-risk violations such as fraudulent issuance of VAT invoices and fraudulent export tax refunds.

(II) The draft VAT law is under consideration and enterprises should pay attention to the legislative developments

On December 27, 2022, the draft VAT Law was submitted to the 38th meeting of the Standing Committee of the 13th National People's Congress for initial consideration. Compared with the previous Provisional Regulations on Value-added Tax, the draft VAT Law has no change in the overall system and tax burden, but a number of modifications have been made, such as the failure to provide for a 5% levy rate, the deletion of deemed sales, and the availability of input tax credit for lending services, etc., which may affect the application of the specific tax laws for enterprises and give rise to some tax-related risks. Enterprises should pay attention to the legislative trends and follow up the relevant knowledge reserves in a timely manner.

(III) Focus on invoice compliance as the economy recovers and transaction volume increases

As the economy recovers in 2023, the transaction amount and volume of enterprises will increase. If enterprises obtain non-compliant invoices, they will face unfavorable consequences such as input transfers, income tax adjustments, and suspension of export tax refunds, etc. Therefore, enterprises should focus on the management of invoices and the selection of suppliers to avoid tax-related risks.