How to recognize the loss of national tax in false invoicing cases is always a controversial topic. Recently, Changsha Municipal Taxation Bureau announced six tax audit cases, and determined that six companies have falsely issued VAT invoices to the outside world, because there is no real production and operation business, and in essence, no VAT taxable behavior occurs, therefore, no corresponding VAT tax obligation arises, and the falsely issued VAT invoices are not subject to VAT. In this paper, we will analyze the root cause of national tax loss in the case of false invoicing.

I. Changsha Tax Bureau: No Taxable Behavior Occurs in False Invoicing, No VAT Payment Required

Recently, the Third Inspection Bureau of Changsha Municipal Taxation Bureau delivered the "Tax Treatment Decision" to six enterprises that have fled and lost contact with the tax authorities, and the treatment decision states that "x number of VAT invoices issued by your unit have no real production and operation business, and there is no taxable behavior of VAT in nature, so it does not generate corresponding VAT tax obligations, and the VAT invoices issued by you will not be subject to VAT". ". As the contents of the 6 Decision on Tax Treatment are similar, only one is listed here.

It can be seen that Changsha Taxation Bureau believes that there is no necessary connection between issuing invoices and paying tax, and the prerequisite for paying tax is "the occurrence of VAT taxable behavior", which is undoubtedly a major breakthrough in the logic of "controlling tax by invoices". We are of the view that the Changsha Taxation Bureau's view is in line with the principle of VAT levying and the provisions of the tax law, and reflects the profound understanding of the Changsha Taxation Bureau on the issue of VAT payment obligation, which is analyzed as follows.

II. In cases of false invoicing, the root cause of the state tax loss is the actual seller's failure to declare tax in accordance with the law

(I) In cases of false invoicing, the non-payment of tax by the invoicing party will not result in the loss of state tax.

According to Article 1 of the Provisional Regulations on Value-added Tax (VAT), "Units and individuals selling goods or processing, repair and fitting services (hereinafter referred to as services), selling services, intangible assets, real estate and importing goods within the territory of the People's Republic of China are taxpayers of value-added tax (VAT), and they shall pay VAT in accordance with these Regulations." It can be seen that the VAT payer is the subject of taxable sales behavior, i.e.: the VAT tax obligation is associated with taxable sales behavior, and taxable sales behavior occurs, which generates the VAT tax obligation; if no taxable sales behavior occurs, it does not generate the corresponding tax obligation.

In practice, many tax authorities, based on the traditional logic of "controlling tax by invoices", believe that tax should be paid if invoices are issued, and this understanding is one-sided. According to the tax law, there is no correlation between the VAT tax obligation and the issuance of invoices. If taxable sales behavior occurs, even if no invoice is issued, tax declaration should be made in accordance with "unbilled income"; if no taxable sales behavior occurs, even if an invoice is issued, there is no legal tax obligation and no need to declare tax. Therefore, in the case of false invoicing, the invoicing party does not pay the tax will not cause national tax loss.

Of course, if there is no taxable sales behavior and the invoice is issued externally, it belongs to "issuing invoices for others that do not conform to the actual business situation", which constitutes false invoicing (i.e., false invoicing in administrative law) as stipulated in the Measures for the Administration of Invoices. From the viewpoint of legislative purpose, the legal interests protected by the Measures for the Administration of Invoices are diversified, including the order of invoice administration and the national tax interests closely related to invoices. Therefore, false invoicing under administrative law also includes false invoicing that infringes on the order of invoice administration and false invoicing that causes loss of state tax revenue. The invoicing without real sales does infringe on the order of invoice management, but it does not necessarily result in the loss of state tax. At least where the invoicing party does not file a tax return, as mentioned earlier, it will not result in the state undercharging tax. As to whether offsetting by the invoiced party will result in a loss of state tax, the interpretation will continue below.

(II) In the case of false invoicing, if the invoiced party does not have real sales or real purchases, input tax deduction will not result in loss of state tax.

China's VAT-related regulations have made detailed provisions on the issues of recognizing income, recognizing output tax and tax obligations, and issuing invoices, etc., but the provisions on the issues of recognizing procurement costs, recognizing input tax and deduction interests, and accepting invoices, etc. are relatively simple and rough. This may be because, from the point of view of VAT credit chain, the output tax of the previous link is the input tax of the next link, and there is no need to repeat the explanation on the issue of credit. However, in terms of the principles of VAT taxation, output tax and input tax, and the recognition of tax liability and the recognition of the right to credit are both interrelated and independent. It is still necessary to clarify the right to input tax credit in the form of legislation.

The legal relationship of taxation is a creditor-debt relationship in public law. When the conditions for the occurrence of tax obligations are met, the taxpayer should recognize the tax debt he owes to the state, and when the conditions for the derogation of tax obligations such as credits and deductions are met, the taxpayer also has the right to recognize the tax claim he enjoys to the state. Tax claims and tax debts have a certain degree of independence. In the field of value-added tax (VAT), the debt of VAT should be recognized when taxable sales occur, and accordingly, the right of VAT deduction should be recognized when purchasing occurs. If the debt is merged in one way and it is considered that only when the tax is paid in the previous section, the next section is entitled to credit, it will unduly aggravate the obligation of the taxpayer. This is because any taxpayer can only decide on its own business and tax payment behavior, and has no right or ability to claim on the tax treatment of its upstream suppliers. If the upstream invoicing party does not declare tax after the sale, the downstream invoiced party should not be required to bear responsibility for it. It is reassuring that the current legislation does not recognize full upstream tax payment as a necessary condition for downstream input credit, i.e., the current law essentially endorses the taxation principle of independence of the right to credit and the obligation to pay tax.

In the case of false invoicing, there are three different types of invoice recipients: one is a shell enterprise with neither real purchases nor real sales, which generates a large amount of output tax as a result of false invoicing, and needs to increase input tax credits and reduce the cost of false invoicing by means of false acceptance of invoices; the other is an enterprise with real purchases and real sales, which, due to the fact that the supplier is a private individual or a small-scaled taxpayer, is unable or unwilling to issue a VAT special invoices and choose to issue input invoices from a third party; thirdly, enterprises without real purchases but with real sales, mainly referring to production or service enterprises with labor as the main cost, choose to purchase invoices from a third party because the value-added of the products mainly comes from non-deductible costs, which results in the output tax far exceeding the input tax. The potential tax loss in each of these three scenarios varies:

1. Neither real procurement, nor real sales of shell enterprises to accept false invoicing. The enterprise does not have taxable sales behavior, and does not need to bear tax obligations for false invoices issued to the outside world. If it has declared to pay value-added tax on the invoices issued falsely, it is a tax debt that should not be fulfilled to the state, and it is a tax unjust gain for the state. At this time, if it accepts the false invoices for input tax deduction, the input tax deduction will not exceed the output tax generated by the false invoices, and it will not result in the loss of state tax. In this case, the downstream invoice recipient should be further examined what kind of situation it belongs to, so as to determine whether there is any eventual loss of state tax.

2. Enterprises with real purchases and real sales are unable or unwilling to accept false invoicing due to the supplier's inability or unwillingness to issue invoices. This situation is very common in the waste materials and other industries, specifically, the enterprise has real procurement, that is, the right to obtain credits, regardless of whether the supplier issued invoices, does not affect the substance of the enterprise's right to credits (but did not obtain invoices, formally does not have the right to credits). Enterprises from the third party invoices, just to obtain the formal rights and interests of deduction, although infringement of the invoice management order, but does not directly infringe on the national tax interests. Because the enterprise has the right of deduction in substance, its deduction of tax will not cause the loss of state tax.

3. Enterprises without real purchasing but with real sales accept false invoicing due to excessive value-added in the production process. Enterprises incur taxable sales behavior and have VAT tax obligations. The value-added products in the production process itself is not a deductible item, and the enterprise does not have the right of deduction. Enterprises accepting false invoicing for input deduction are maliciously derogating from their VAT obligations without the right to deduct. However, in this case, it is still necessary to consider whether the invoicing party has fulfilled its tax obligations in respect of the false invoices. If the invoicing party pays the full amount of tax on the invoice issued, the tax obligation derogated by the invoiced party ultimately originates from the tax obligation that the invoicing party should not have borne, and the overall national tax amount is still not derogated. However, this situation is relatively rare, because the invoicing party pays full tax, if the invoicing rate is lower than or equal to the VAT rate, it will inevitably generate losses, but if the invoicing rate is higher than the VAT rate, the invoiced party does not have to accept the necessity of false invoicing.

(III) In the case of false invoicing, where the invoicing party has not paid the tax and the invoiced party has deducted it, the loss of tax arises from the concealment of income by the selling party

Combined with the above discussion, in addition to no real purchase, but there are real sales of enterprises due to the production of high value-added acceptance of false invoicing, false invoicing cases in the invoicing party and the invoiced party seem to have caused no loss of tax, but the state and indeed less tax, so the state tax loss from where it actually comes from?

First of all, we must clarify where this "intuitive tax loss" comes from. According to the simple logic, the upstream output tax is equal to the downstream input tax, the upstream tax declaration, the downstream credit does not exceed the upstream tax payment, even if there is no real transaction will not cause tax loss. However, it is impossible for the upstream to pay the full amount of tax in the case of false invoicing, otherwise the business model of false invoicing cannot be realized. There are three main possibilities for the invoicing party to be able to issue invoices without paying more taxes: one is that the invoicing party has surplus inputs due to backlog of products and hidden income; the second is that the invoicing party enjoys rebates from local finances or taxes; and the third is that the invoicing party directly escapes and loses contact after issuing invoices. Thus, the intuitive tax loss comes from the fact that the invoicing party does not declare the full amount of tax, while the invoiced party makes the full amount of deduction. However, in the light of the foregoing discussion, this view cannot be sustained because the invoicing party itself has no tax liability.

In our view, the substantial tax loss in the case of false invoicing actually stems from the failure of the real seller to file a tax return in accordance with the law. In the case of a shell enterprise with neither real purchases nor real sales accepting false invoicing, the chain of false invoicing is not terminated at this link, but continues to the next link, because no enterprise will accept false invoicing for the sake of accepting false invoicing. The end of the invoiced enterprise must be a real purchase of the enterprise, which either has a real purchase, there are real sales of enterprises due to the supplier can not or do not want to accept the invoicing of false invoicing; or no real purchase, but there are real sales of enterprises due to the production of value-added is too high to accept false invoicing. As mentioned before, in the second case, the offsetting of the invoiced party does cause tax loss, so I will not repeat it here, but in the first case, there is a need for further discussion.

According to the previous discussion, the VAT tax obligation is related to the taxable sales behavior, since the supplier has occurred the taxable sales behavior, regardless of whether it is an enterprise or an individual, are liable for VAT tax obligation. Individual suppliers do not issue invoices in order to hide income and avoid tax, at this time, the invoicing enterprise develops invoices falsely, which is to fulfill the formal obligation of invoicing on behalf of individual suppliers (but the substantive obligation of tax payment is not transferred to the invoicing party as a result). For the invoiced party, it enjoys the right to offset due to real purchasing from the beginning, so the tax loss does not originate from the offsetting behavior. Overall, the state undercollects tax because the individual supplier conceals the income and does not declare it as VAT payable. It is worth noting that the hidden income without declaration is a typical tax evasion behavior rather than false invoicing behavior, and the individual supplier should be held responsible for tax evasion rather than the false invoicing responsibility of the invoice issuer or recipient enterprise.

III. how to publish effective defense on the loss of national tax in the case of false invoicing

In criminal disputes, although the current law does not stipulate that causing loss of national tax is a constituent element of the crime of false invoicing, but from the judicial practice as well as the viewpoint of the Supreme Court (e.g., the Law Research [2015] No. 58 reply letter), some courts have recognized that constituting the crime of false invoicing is subject to the premise of causing loss of national tax. Therefore, the defense regarding the loss of tax money is still necessary for the defense of constituting the crime. In administrative disputes, although both infringement of the invoice management order and infringement of the state tax interests constitute a false invoicing offense, they are handled differently. The latter is a more serious form of false invoicing, with the possibility of tax evasion, and therefore an effective defense to tax loss is also required in administrative disputes.

(I) Collecting evidence of the authenticity of procurement operations

For the invoicee, the prerequisite for arguing that the false credit does not cause national tax loss is to argue that the invoicee has the right of credit, which comes from the procurement, so the authenticity of the procurement business is the most important issue. Enterprises should comprehensively collect evidence of procurement, including but not limited to: contracts, payment vouchers, vouchers for the transfer of goods rights, warehousing and weighing documents, transportation documents, etc., combined with the testimony of the suppliers and the enterprise's purchasing personnel, to prove that the enterprise has real procurement of goods and services, and is entitled to the right of deduction in accordance with the law. If the input tax contained in the invoice obtained by the enterprise does not exceed the scope of deductible input tax, the input deduction will not result in loss of state tax.

(II) Reasonable Explanation for the Return of Funds

The return of funds is the main clue in the investigation and detection of false invoicing cases, and it is also the core evidence for the determination of false invoicing violation and the accusation of false invoicing crime. The ability to break the money back into the circle, to a certain extent, is the core of the success of the defense. Many parties have voluntarily admitted that although there is indeed a real transaction, the corresponding price has been paid through private accounts on the day of the transaction. Subsequent invoicing, because there must be a counterparty funds flow, so through the way the funds are empty, artificially created the flow of funds, so the public account funds flow is forged for invoicing. But if we use the law to interpret, we will come to a completely different understanding. In civil transactions, invoicing is a common collateral obligation, but this does not mean that invoicing is irrelevant, the parties can completely refuse to fulfill the main contractual obligations - payment of the price - on the grounds of not obtaining an invoice. Therefore, in the preliminary private account settlement, the parties to collect the money essentially belongs to the advance payment of goods, rather than the settlement of goods. And the public account fund flow is the real settlement of the goods. In the subsequent public account fund flow, the receiving party actually collects the payment for the goods, but there is a duplication of collection, so it is necessary for the receiving party to return the funds to the paying party, which is used to offset the prepayment debt relationship formed in the previous period due to the payment of the private account. Through this interpretation, clear the legal significance of the flow of funds, the existence of real transactions on the defense point of view in order to justify.

(III) Professional opinion on the application of tax law and criminal law

For the invoicing party, the focus of the defense should be more concentrated on the application of law. Law enforcement and judicial activity itself is the process of legal application, and legal interpretation is the basic method of legal application. For the invoicing party, the fact that there is no real sale can usually be found out (if it involves the authenticity of the purchasing by the invoiced party, the factual aspect of the defense also needs to be paid attention to), and whether it can make a reasonable and effective interpretation of the VAT-related laws and regulations will determine the final direction of the case. The core viewpoint of the defense of the invoicing party is that the issuance of invoices has nothing to do with the payment of taxes, and the behavior of the invoicing party only infringes on the order of invoice management without directly causing the loss of state taxes. The purchasing situation of the invoiced party should be taken into account to determine whether the invoicing party knew that the invoiced party would make input credit without the right to credit, and then determine whether it had the intention to help the invoiced party to make false credit, so as to reasonably determine the legal responsibility that it should bear.