Many enterprises, especially sole proprietorships and partnerships, require employees to provide invoices of not less than the amount of wages when they are paid, on the one hand out of the need to help employees avoid personal income tax, and on the other hand in order to inflate the cost of the enterprise and increase the pre-tax deduction. Recently, an enterprise was sentenced for accepting false invoices for wages, and the court found that the enterprise constituted the crime of false invoicing and sentenced the main responsible person to 2 years and 6 months of imprisonment. As a matter of fact, invoice-for-salary has become an open secret to avoid payroll tax, which is characterized by the fact that it is not legal and compliant in itself, and bets entirely on the intensity of the tax authorities' audit, hiding serious administrative and criminal risks.

I. The court found that "invoice for salary" constituted the crime of false invoicing, and the person concerned was sentenced to 2 years and 6 months' imprisonment.

(I) Basic facts of the case

Company A mainly engaged in the production, wholesale and retail of crop seeds as well as agricultural scientific research, which was a labor-intensive enterprise and required a large number of migrant workers from research, production to sales. Due to the obvious seasonal and cyclical characteristics of Company A's labor employment, it usually looked for temporary workers from the local area, and after completing the work, Company A would send the wages to the temporary workers, and then look for a labor dispatch company specializing in issuing invoices on behalf of the labor fee to obtain invoices, and the invoicing fee was 4-4.6% of the face value of the invoices, which was already deducted from the wages accordingly.

(II) Court judgment

The X Municipal People's Procuratorate filed a public prosecution in April 2019 on the allegation that Company A and Company A's legal representative, A, were suspected of committing the crime of fraudulent invoicing.The X Municipal People's Court ascertained that, between January 2012 and December 2015, Company A falsely invoiced labor fee invoices totaling 385 in 15 labor dispatch companies, including Company B, without having a real labor dispatch relationship, with a cumulative face amounting to RMB 11,562,873.05, resulting in a loss of RMB 878,778.36 in state taxes.

The X Municipal People's Court held that Company A violated the tax law system by allowing others to falsely issue invoices other than invoices for tax deduction for itself, and that the circumstances were particularly serious, and that Company A constituted the crime of falsely issuing invoices. As the legal representative of Company A and the main person responsible for the false invoicing, A's behavior constituted the crime of false invoicing. Judgment: Company A committed the crime of false invoicing and was sentenced to a fine of 300,000 yuan; Mou A committed the crime of false invoicing and was sentenced to imprisonment for 2 years and 6 months and a fine of 200,000 yuan.

(III) Analysis

The court found that Company A did not have a real labor dispatch relationship, and then found that all the labor fee invoices issued by Company B obtained by it constituted false invoicing, which is a questionable judgment:

1. the factual findings in this case are flawed. In the case of verbal evidence shows that company A in the production and operation of temporary workers did accept the labor provided, but due to the failure to retain the corresponding documents, and in the labor fee invoices issued by company B, did not accept the actual situation of labor, one by one corresponding to company B to provide invoicing information, so it accepts the fact that the fact that the labor has not been clarified. Nevertheless, criminal cases adopt the standard of proof of "beyond reasonable doubt", the judicial authorities should look for strong evidence, such as on-site inspection of Company A's production and operation, combined with Company A's business scope to estimate its labor demand, and then prove whether Company A has the possibility of accepting labor. In this case, the judiciary seems to have cleverly avoided this issue by only determining that there was no real labor dispatch relationship without focusing on whether a labor relationship had actually occurred, formally upholding the basic principles of the criminal standard of proof. However, the existence or non-existence of labor relations will affect the determination of the crime, this evasion ultimately led to the conviction of this case there are certain problems, so the factual findings of this case is flawed.

2. The determination of the crime in this case is questionable. The objective constituent element of the crime of false invoicing is the false invoicing of VAT ordinary invoices and other invoices that do not have the functions of input credit and export tax refund, in other words, VAT ordinary invoices can only be used for pre-tax deduction, so the legal interests protected by this crime may only be the interests of enterprise income tax, but not the interests of value-added tax or tax of other tax types. According to the EIT Law, the conditions for pre-tax deduction are that the costs and expenses are true, legal and related to the production and operation of the enterprise. As previously mentioned, Company A accepted the labor provided by the temporary workers, the salary expenses of the temporary workers themselves constituted the costs and expenses of the company and were able to make pre-tax deduction by payroll and other documents, and whether or not to accept the false invoices did not have any impact on Company A's EIT tax obligations. If the amount of the invoice does not exceed the amount of pre-tax salary actually paid, Company A's acceptance of the false invoice will not directly cause the loss of national tax and does not constitute the crime of false invoicing.

In fact, Company A obtained the false invoices in order to change the nature of the expenditure, i.e., from salary expenditure to labor expense, to cover up the fact of salary payment and to avoid the burden of personal income tax.Company A's behavior is the withholding tax due to the withholding agent, which should be punished in accordance with the provisions of the Law on the Administration of Taxation Collection. Therefore, although there is some room for defense in this case, it still reflects the serious risk of "invoice for salary". Generally speaking, payroll tax planning is an urgent need for high labor cost enterprises. In the following, we will analyze the three major tax risks faced by employee payroll tax planning in light of the two tax pain points of high labor cost enterprises.

II. Two Tax Pain Points of High Labor Cost Enterprises

High labor cost enterprises refer to enterprises that use labor cost as their main operating expenditure, mainly including labor-intensive enterprises and knowledge-intensive enterprises. The former include manufacturing industry, food industry and traditional service industry, while the latter include legal service industry, financial industry and internet industry. The tax pain points of high labor cost enterprises are mainly reflected in VAT and personal income tax.

(I) Insufficient input for VAT

High labor cost enterprises generally have insufficient inputs for VAT, so the main cost of such enterprises is the labor cost of employees, which cannot be offset by invoices. Considering the principle of tax law, this is mainly because the scope of VAT is limited to taxable sales, and the labor provided by employees to their employers does not belong to the "sales of labor services", so the employers cannot get the input of VAT. An in-depth analysis reveals that this problem essentially stems from the attitude of the VAT system towards the employer-employee relationship. From the perspective of civil and commercial law, the employee and the employer are of course two independent legal subjects, but from the perspective of labor law, there is a kind of "personal dependence" between them, which is reflected in the employer's right to decide the employee's behavior within the scope of work, and to bear the vicarious liability for the employee's tortuous behavior, etc. The tax law, as a third perspective, requires the employer to take the VAT credit. Tax law, as a third perspective, needs to integrate the definitions of civil and commercial law and labor law to make a new determination of the employer-employee relationship. Among them, the VAT system is more inclined to consider that the two are not completely independent, and therefore there is no need to separate the employee and give him/her the status of a taxpayer. Under this concept, different VAT treatments for services and labor were derived, as well as a basic system in which the employee is not the subject of taxation, but the self-employed businessman and the independent individual are the subject of VAT.

(II) High burden of personal income tax

In terms of personal income tax, the separation of taxpayers and withholding agents is somewhat "deceptive". Although the taxpayers of personal income tax are employees, the economic burden is still borne by the employers, who are the withholding agents. Nowadays, many job seekers will emphasize the after-tax salary when applying for a job, and in the case of anchoring the after-tax salary standard, the division of tax costs has actually no room for negotiation, and is completely passed on to the employer. For employers, when finalizing salaries, the personal income tax portion must be factored into the operating costs, and labor-intensive enterprises will face a high personal income tax burden. In addition, as the personal income tax adopts an overly progressive tax rate, the marginal tax rate increases as the employee's pay rate rises. the 2018 revision of the Personal Income Tax Law widened the tax brackets corresponding to the middle-income and low-income groups and narrowed the tax brackets of the high-income group, resulting in a climb in the tax rate on the remuneration of the high-income group, and the pressure on payroll tax for enterprises with generally high employee pay rates compared to pre-2018 has been significantly higher.

III. Four types of non-compliant behaviors in payroll tax planning and the three major tax-related risks they face

Due to the two tax pain points of high labor cost enterprises, in practice, many enterprises try their best to reduce the related tax expenses through various ways. Many enterprises have adopted the so-called "planning" methods such as invoice for wages, cash sitting expenses, welfare expenses and split wages, etc. These methods are subject to tax risks.

(I) "Invoice for salary" involves the risk of withholding, tax evasion and false opening.

Invoice for wages can be specifically divided into three kinds, one, that is, the case at the beginning of this article, the enterprise first pay wages with a private account, and then uniformly looking for labor dispatch companies to issue ordinary invoices for labor fees, the invoicing party to collect funds after deducting the invoicing fee, and then flow back to the account controlled by the enterprise. Second, similar to the first scenario, but the invoice obtained by the enterprise uniformly is a special VAT invoice for labor dispatch. Thirdly, the enterprise directly requires employees to issue invoices on behalf of the enterprise for personal consumption, and reimbursement is made by invoices instead of salary payment.

For the first case, as mentioned above, the labor fee invoice obtained by the enterprise is an ordinary invoice, which does not involve VAT deduction. For the third scenario, since the employees are individual consumers, it is impossible to obtain special VAT invoices in daily consumption, so the invoices provided by the employees can only be ordinary invoices, which will not result in VAT loss. Therefore, in the above two cases of invoices for wages, the tax loss mainly occurs in the income tax, which can be divided into employees' evasion of personal income tax and enterprise or enterprise investors' evasion of income tax.

On the one hand, the employees did not bear the personal income tax, and the enterprise constitutes the tax to be withheld and not withheld, and needs to bear the corresponding administrative responsibility. According to Article 69 of the Tax Collection and Administration Law, "if the withholding agent should withhold but does not withhold, should collect but does not collect the tax, the tax authorities shall recover the tax from the taxpayer, and the withholding agent shall be subject to a fine of more than fifty percent of the withholding agent's withholding, and more than three times of the tax that should be collected but does not collect". Therefore, invoices for wages, employees have the obligation to pay back taxes, and the enterprise may be fined 0.5 times to three times the amount of the tax, not involving late payment fees.

On the other hand, the enterprise or the investors of the enterprise make more pre-tax deductions. If the enterprise adopts the corporate model, the enterprise will firstly charge the employees' salary as cost, but the amount of charge will be controlled below the tax exemption amount, i.e., there is no need to withhold the employees' personal income tax. Secondly, after obtaining the false invoices, it will also charge the expenditures recorded on the invoices as operating costs, increasing the pre-tax deduction of enterprise income tax. If the enterprise adopts the mode of sole proprietorship or partnership, the actual operation is the same, but therefore the second type of enterprise applies the rules of tax penetration, the part of the false invoices charged for the final use of the pre-tax deduction of the enterprise investor, partner. If the investor or partner is an individual, it will be a pre-tax deduction for personal income tax, and if the investor or partner is an enterprise, it will be a pre-tax deduction for enterprise income tax. Such cases need to be distinguished:

(1) For an individual employee, who has borne less personal income tax due to splitting of wages and invoice reimbursement for expensing of wages, it is a case where the enterprise withholding agent should have withheld but not withheld the tax. The employee is obliged to pay back the tax, and the enterprise may be fined from 0.5 times to 3 times the amount of the tax, and no late payment fee is involved.

(2) For an enterprise or an investor in an enterprise, of all the costs actually expensed (including salaries expensed on a tax-exempt basis and costs expensed by obtaining fraudulent invoices), the portion equal to the employee's pre-tax salary is the true cost of the enterprise, which should have been deducted pre-tax and does not constitute an underpayment of tax. The part that exceeds the pre-tax salary of the employees is the false cost, which constitutes the tax evasion of inflated cost, and according to Article 63 of the Tax Collection and Management Law, "A taxpayer ...... who overstates the expenditures on the books of account ...... does not pay or underpays the tax payable is tax evasion. If a taxpayer steals tax, the tax authorities shall recover the tax and late payment fees that he or she has not paid or has underpaid, and impose a fine of not less than fifty percent and not more than five times the amount of tax that he or she has not paid or has underpaid; and if the taxpayer has committed a crime, he or she shall be held criminally liable in accordance with the law." Therefore, enterprises or enterprise investors facing dedication of tax evasion or constituting the crime of tax evasion, in terms of administrative liability, are obliged to pay back taxes, add late payment fees, and may be fined from 0.5 times to 5 times, in addition to facing the criminal liability of tax evasion or false invoicing.

For the second scenario, since VAT invoices can be synchronized for input deduction and the labor provided by the enterprise accepting the employees cannot be used for input deduction per se, there is the problem of accepting false invoices causing the loss of VAT to the state, in addition to the problem of undeducted deduction and tax evasion. According to Article 37 of the Measures for the Administration of Invoices, "Where a false invoice is issued in violation of the provisions of Paragraph 2 of Article 22 of these Measures, the illegal income shall be confiscated by the tax authorities; where the amount of false invoicing is less than 10,000 yuan, a fine of less than 50,000 yuan may be imposed; where the amount of false invoicing is more than 10,000 yuan, a fine of 50,000 yuan shall be imposed on a total of more than 500,000 yuan; and where the violation constitutes a crime, the person concerned shall be held criminally liable according to the law. ". Therefore, in this case, the enterprise or enterprise investor, in addition to the administrative responsibility for the aforementioned withholding and tax evasion, will also be fined for accepting the false invoicing, and if the circumstances are serious, the enterprise or enterprise investor may be held criminally liable for the crime of falsely issuing VAT special invoices.

(II) Cash sitting on expenses involves the risk of non-deduction and tax evasion.

Cash sitting expenses, i.e., enterprises set up a private "small treasury" and settle wages by way of private-to-private payment. Because of the private "small treasury" necessarily corresponds to the "two sets of accounts", some of the financial risk control management more compliant companies usually do not use this approach. For small-scale companies, as well as individual businesses, sole proprietorships, partnerships and other non-corporate enterprises, this phenomenon is particularly serious.

Cash sitting on the expense first constitutes the withholding of personal income tax, in addition, because of the private "small treasury" is not accounted for, resulting in the enterprise declaration of taxable income is lower than the actual situation, constituting the concealment of income. According to Article 63 of the Tax Collection and Management Law, "If a taxpayer does not list or under-list income in the books of account, and does not pay or under-pays the tax due, it is stealing tax. tax payable is tax evasion. Tax evasion of taxpayers, by the tax authorities to recover their non-payment or underpayment of taxes, late payment fees, and impose non-payment or underpayment of taxes of more than fifty percent of five times the fine; constitutes a crime, according to the law to investigate criminal responsibility." Therefore, in addition to the administrative responsibility of withholding the personal income tax, cash sitting is also a form of tax evasion, and the enterprise is required to pay back taxes and late fees, and may be fined from 0.5 to 5 times the underpaid tax. If the enterprise refuses to cooperate with the administrative processing and punishment, it constitutes a crime, and will also be investigated for the criminal responsibility of tax evasion.

(III) Welfare expense accounting involves the risk of withholding, tax evasion and false billing.

Employee welfare expenses are broadly categorized into three types, one of which is the welfare expenses of the nature of living subsidies, pensions and relief payments, which are not subject to personal tax under the Individual Income Tax Law. The second is the collective enjoyment, indivisible, unable to quantify to each individual employee employee welfare expenses, such as the enterprise within the staff canteen, pantry, staff bathroom and other expenditures, according to the official caliber of the State Administration of Taxation, this kind of employee welfare expenses also do not need to withhold and pay personal tax. Thirdly, welfare expenses that can be quantified to individuals, whether in cash or in kind, should be included in the employee's salary withholding tax.

Some enterprises will choose the second type of welfare expenses to do the trick in payroll tax planning, i.e., nominally declaring the unquantifiable welfare expenses and obtaining false invoices and so on as the expenditure vouchers, and actually paying the part of the payment to the individual employees. This situation is similar to the invoice for wages, except that the invoice is changed from the invoice for personal consumption of employees to the invoice for corporate welfare expenses. The same involves the risk of withholding, tax evasion and false invoicing.

(IV) Split salary involves the risk of withholding, tax evasion and false invoicing

Splitting salary refers to splitting the salary of employees into two parts, one part is controlled below the 5,000 yuan tax exemption for tax declaration, and the other part is paid by providing false invoices or cash sitting on the money. If an enterprise declares a large number of employee salaries below 5,000 RMB, it is vulnerable to the attention of the tax authorities. Depending on how the "excess salary" is paid, the enterprise may face the risk of withholding, tax evasion and false invoicing.