Difficulty in obtaining invoices from upstream retailers is a major tax dilemma for renewable resources recycling enterprises, and the Announcement on Improving the VAT Policy on Comprehensive Utilization of Resources (Announcement of the Ministry of Finance and the State Administration of Taxation No. 40 of 2021, hereinafter referred to as "Document No. 40") stipulates that the renewable resources recycling enterprises can choose to apply the simplified taxation method and pay VAT according to the 3% levy rate. Document No. 40 provides that recycling enterprises may choose to apply the simplified tax calculation method to calculate and pay the VAT according to the 3% levy rate, which to a certain extent alleviates the problem of not being able to obtain the special invoices to offset the input tax. Recently, some areas to explore the approved way to collect renewable resources recycling industry enterprise income tax, approved collection as a supplementary means of checking the collection, need to comply with the provisions of the situation can be applied, the recent many places are according to a uniform rate of taxable income approved collection of renewable resources recycling industry enterprise income tax, whether this practice is lawful and reasonable, and whether it can effectively solve the renewable resources recycling enterprise tax dilemma? This article will discuss.

I. Dilemma of pre-tax deduction for enterprises in the renewable resources recycling industry

(I) Document No. 40: Renewable Resources Recycling Enterprises May Pay Value-added Tax on the Basis of Simplified Taxation Methods at a Rate of 3 Percent

China Material Recycling Association on July 3, 2023 released the "China Renewable Resources Recycling Industry Development Report (2023)" shows that in recent years, China's renewable resources industry is expanding rapidly, in the field of non-ferrous metals, in 2022, China's non-ferrous metal industrial enterprises above the scale of the value-added growth of 5.2% over the previous year, and the main renewable non-ferrous metals increased by 5.3% year-on-year. The 20th report clearly states that "accelerate the green transformation of the development mode. Implement a comprehensive conservation strategy, promote the conservation and intensive utilization of all types of resources, and accelerate the construction of a waste recycling system." Under the guidance of macro-level policies, the landing and implementation of Document 40 has to a certain extent alleviated the VAT problem of renewable resources recycling enterprises being unable to obtain invoices from retailers.Document 40 stipulates that VAT general taxpayers engaged in recycling of renewable resources may choose to apply the simplified taxation method to calculate and pay VAT in accordance with the 3% levy rate for the sale of renewable resources acquired by them, which has to a certain extent alleviated the problem of VAT deduction for renewable resources recycling enterprises and has alleviated the problem of VAT deduction for renewable resources recycling enterprises. This provision to a certain extent alleviates the pressure of the lack of VAT deduction certificates of the recycling enterprises. Therefore, if the recycling enterprise is a general taxpayer and has obtained insufficient input invoices, it can choose the simple tax calculation method to pay VAT.

(II) The issue of pre-tax deduction vouchers for enterprise income tax in the renewable resources recycling industry remains unresolved

While Document No. 40 solves the VAT tax burden problem of the renewable resources recycling industry, the problem of pre-tax deduction vouchers for enterprise income tax has not been solved together. In practice, despite the fact that No. 40 has been put into effect, some recycling enterprises still implement the original financial processing methods, i.e., the procurement side of the self-manufactured acquisition vouchers (scalping retailers), self-constructed acquisition ledger, while the tax authorities in some areas no longer recognize the deduction method of enterprises with self-manufactured acquisition vouchers and self-constructed ledger, and require the enterprises to provide the contracts corresponding to the procurement business, payment vouchers, and other external vouchers, and to reissue the vouchers, exchange legal invoices or directly determine that the enterprise has not obtained legal pre-tax vouchers, and shall not make pre-tax deductions, and then require the enterprise to pay back income tax and add late payment fees. Therefore, in the renewable resources recycling business input invoice can not be obtained before the reality of the problem is not properly resolved, renewable resources recycling enterprises face false invoicing, back taxes, late fees and other tax-related risks continue to exist, recently, the State Administration of Taxation notified a renewable resources enterprises false invoicing case also reflects this problem, the amount of money involved is as high as 239 million yuan. For this reason, in order to deal with the income tax problems of renewable resources enterprises, some regional tax authorities have adopted the approved collection method of enterprise income tax, the legality and rationality of which will be further analyzed below.

II. The collection of enterprise income tax on an authorized basis is subject to statutory circumstances

(I) Case: Because of the inability to obtain invoices for compliance costs, a renewable resources recycling enterprise applied for approval of the collection of enterprise income tax and obtained the consent of the tax authorities

Recently, the State Administration of Taxation of Xianning Tax Bureau disclosed a Decision on Administrative Penalty, which showed that a renewable resources recycling company did not obtain invoices for its acquisition business conducted during the period from 2019 to 2021, and used inbound and outbound warehouse receipts as vouchers in lieu of invoices. The company believed that the scrap steel and iron scrap it acquired originated from sporadic vendors who were not qualified to issue invoices, and since it was unable to obtain invoices, it used inbound and outbound warehouse receipts instead of invoices in its accounts. The funds for its acquisition business were paid to the sporadic vendors through the transfer of funds from the public account, and the business was genuine and the sales had been fully subject to value-added tax (VAT). In respect of enterprise income tax, due to the inability to obtain invoices for cost deduction, the company applied for authorized enterprise income tax. As verified by the competent tax authority, the situation reflected by the company was basically true. After checking the equivalent scale enterprises of the same industry and business scope in the same period in the area where the company is located, the highest taxable income rate is 2.4% for other renewable resources company in 2020, and the lowest taxable income rate is -1.5% for other renewable resources company, accordingly, the tax authorities approved the taxable income rate of Company A from 2019 to 2021 to be 2.5%, and the company in total should pay the retroactive enterprise income tax of 81,387.15 Yuan. In response to the company's acquisition of scrap steel and ferrous scrap business from sporadic hawkers at various locations without obtaining invoices but using the entry slip as a voucher instead of invoices, it is a violation of the law to use other vouchers instead of invoices, and a fine of RMB 10,000 was imposed.

(II) Authorized collection is a complementary means to checking and collection, and the application of authorized collection should be in accordance with the legal circumstances

Checking and collecting is the mainstream way of enterprise income tax collection and management, and authorized collection is the supplementary way under special circumstances. The Tax Collection and Management Law and the Measures for Authorized Collection of Enterprise Income Tax (for Trial Implementation) have made clear limitations on the scope of application of the authorized collection, including the following six situations: (1) according to the provisions of the laws and administrative regulations, the books can be set up without books; (2) according to the provisions of the laws and administrative regulations, the books should be set up but not set up; (3) unauthorized destruction of books or refusal to provide tax information; (4) although books are set up, the accounts are chaotic or cost information, income vouchers, expense vouchers are missing. Provisions should be set up but not set up the books of account; (3) unauthorized destruction of books of account or refusal to provide tax information; (4) although set up the books of account, but the accounts are chaotic or cost information, income vouchers, expense vouchers mutilated and incomplete, it is difficult to check the books of account; (5) the occurrence of tax liabilities, not in accordance with the stipulated time limit for the tax declaration, by the tax authorities ordered to declare the tax return by a certain date, and overdue declaration is still not declared; (6) declared the tax calculation basis is obviously low and there is no justifiable reason.

Due to the special nature of the recycling business in the renewable resources industry, it is usually difficult for the renewable resources enterprises to obtain the deduction vouchers in the procurement process in compliance with the requirements of the Administrative Measures for Pre-Enterprise Income Tax Deduction Vouchers, and the practice of replacing the invoices with internal vouchers and warehousing slips as the pre-tax deduction vouchers for the enterprise income tax is commonplace, and it is also one of the key points of the audit by the tax authorities. In order to cope with this problem, some regional tax authorities have adopted the approved collection method, and for the renewable resources recycling enterprises that adopt the simple tax calculation method for VAT, the unified taxable income rate is applied to approve the collection of enterprise income tax. It is controversial as to whether the inability of a renewable resources recycling enterprise to obtain invoices as deduction vouchers belongs to the situation of "setting up books of accounts, but the accounts are chaotic or the cost information, income vouchers and expense vouchers are incomplete and difficult to be checked" in the approved levy, and some of the smaller or newly-established renewable resources recycling enterprises may have chaotic accounts and incomplete cost and expense vouchers. Some of the smaller or newly established recycling enterprises may indeed have chaotic accounts and incomplete cost and expense vouchers, but for some of the larger enterprises with sound accounting system, it is difficult to obtain invoices only because of the inherent pain points of the industry, which does not belong to the approved levy, and the use of approved levy for such enterprises is contrary to the provisions of the "Taxation Levy Management Law" and the "Measures for Administration of Vouchers for Deduction before Enterprise Income Tax".

(III) The determination of the taxable income rate should be based on a practical approach, taking into account a number of factors.

For renewable resources recycling enterprises that do meet the approved circumstances and are "capable of correctly accounting for (verifying) the total amount of income but unable to correctly account for (verifying) the total amount of costs and expenses", the taxable income tax shall be approved in the form of an approved taxable income rate. As for the taxable income rate, the Approved Measures for Enterprise Income Tax Collection (for Trial Implementation) stipulates the range standards for the taxable income rate of each industry, and requires the tax authorities to approve the collection of enterprise income tax in accordance with the principles of fairness, impartiality and openness, and to approve the amount of taxable income or taxable income rate on a household-by-household basis in accordance with the characteristics of the taxpayer's production and operation industry, taking into account the enterprise's geographic location, scale of operation, level of income, level of profit, and other factors. or taxable income rate. If a uniform taxable income rate is adopted across the board in all places, it will be contrary to the requirements of tax equity.

III. Authorized Collection of Enterprise Income Tax Cannot Solve Income Tax Dilemma of Renewable Resources Industry

Whether Document 40 stipulates that renewable resources recycling enterprises can apply the simplified tax method to calculate and pay VAT according to the 3% levy rate, or whether recycling enterprises that choose the simplified tax method to calculate and pay VAT pay enterprise income tax by means of the approved taxable income rate, neither of them touches the root of the problem of false invoicing in the renewable resources industry - the retailers. supplying without tickets. In the context of Document 40, the recycling enterprises choose to apply the 3% levy rate to pay VAT, which alleviates the VAT tax burden problem to a certain extent, but they are unable to obtain the invoices to realize the pre-tax deduction of the EIT; on the other hand, in order to promote the development of the renewable resources industry, some local governments have signed agreements with the local qualified enterprises, or attracted investments and signed agreements with the investment enterprises, on such Enterprises selling renewable resources sales and in its issuance of VAT invoices, payment of VAT, in the form of financial rebates or awards to encourage recycling enterprises to reduce the VAT tax burden pressure on renewable resources recycling enterprises, therefore, No. 40 does not have a greater attraction to the enjoyment of such preferential renewable resources recycling enterprises. In addition, under the general tax calculation mode, recycling enterprises are able to issue 13% VAT special invoices to downstream waste-using enterprises, in which there is a large space for earning invoicing fees and the risk of fraudulent VAT special invoices is prone to erupt.

The legislative intent of the authorized levy system is based on the need for tax collection and management, and in special circumstances such as enterprises not setting up books of accounts or unclear books of accounts that cannot be accurately checked and levied, the tax authorities are given the right to levy taxes on their income at a certain rate of taxable income or amount of income, which is mainly applicable to small-scale enterprises without the ability to set up books of accounts or with incomplete accounting systems. For the renewable resources enterprises that do not have the aforementioned circumstances for applying the authorized levy, the authorized taxable income rate for income tax treats the symptoms but not the root cause, and is unable to crack the tax predicament from the root.

In the context of the existing policy has not effectively responded to the industry's pain points, renewable resources recycling enterprises faced with the question of whether to choose to apply the approved levy, should actively communicate with the tax authorities to understand the specific policy, and at the same time, do a good job of retaining the relevant information for reference, and look for timely interpretation and guidance from professionals.