Recycling of renewable resources is an important part of comprehensive utilization of resources. Under the policy background of "accelerating the green transformation of development mode" and "fully implementing conservation strategy", the institutional system construction of China's renewable resources industry has been continuously improved. In the field of taxation, various policies are constantly adjusted with the changes of macro-environment and realistic background. In recent years, there have been a number of false cases involving a large scale and a wide range in the renewable resources industry, and the business model of renewable resources recycling enterprises has caused great controversy. This paper will first sort out the tax policy and practical difficulties of renewable resource recycling enterprises, discuss the tax risks under common business models, and focus on the new model changed after the implementation of Circular 40, and analyze the risk points for readers' reference.

I. The tax policy of renewable resources recycling industry and its application dilemma

(I) The evolution of tax policy for renewable resources recycling industry

In the process of purchasing waste materials, most of the waste materials are in the hands of retail investors, and renewable resource recycling enterprises usually cannot obtain invoices when purchasing waste materials from retail investors. In the case of broken invoicing chain, recycling enterprises can only pay taxes in full when selling collected waste materials to waste enterprises. Based on the dilemma of this industry, from 1994 to 2008, renewable resource recycling enterprises enjoyed preferential tax policies at different stages, such as tax collection before return, tax refund immediately after collection, and tax exemption. With the support of the above policies, the number and business volume of renewable resource recycling enterprises have exploded. However, in practice, based on the relaxed policy environment, the phenomena such as self-invoicing by renewable resource recycling enterprises and deduction of input tax by waste enterprises beyond actual transactions are endless, and it is even more useful to build related recycling enterprises with waste enterprises and make use of the fictitious purchases of related enterprises to offset the tax. In addition, some viewpoints believe that the essence of tax preferential policies in renewable resources industry lies in "utilization" rather than "recycling", and recycling enterprises are only a circulation channel, which does not process and reproduce waste materials, so it is also against the original intention of policy making to apply tax preferential policies to them.

Based on the above background, in 2008, the Ministry of Finance and State Taxation Administration of The People's Republic of China issued the Notice on the Value-added Tax Policy of Renewable Resources (Caishui [2008] No.157, hereinafter referred to as "Document No.157"), which cancelled the tax exemption policy and deduction policy of renewable resource recycling enterprises, and the tax burden of renewable resource recycling enterprises surged, and the problem of using waste enterprise invoices was highlighted again. In order to promote the sustainable and healthy development of the industry of comprehensive utilization of resources, on December 30, 2021, the Ministry of Finance and State Taxation Administration of The People's Republic of China issued the Announcement on Improving the Value-added Tax Policy for Comprehensive Utilization of Resources (Announcement No.40 of the Ministry of Finance and the State Administration of Taxation in 2021, hereinafter referred to as "Document No.40"), making it clear that the general VAT taxpayers engaged in recycling renewable resources can choose to apply the simple taxation method to calculate and pay VAT at the rate of 3%, and clearly and strictly regulate the financial return behavior. Circular 40 has alleviated the problem of excessive value-added tax burden of renewable resource recycling enterprises to some extent, but it has not yet made an effective response to the problem of pre-tax deduction certificate of enterprise income tax.

(II) The tax dilemma of renewable resources recycling industry: the first invoice problem

China Renewable Resources Recycling Industry Development Report (2023) issued by China Materials Recycling Association shows that in 2022, the largest variety of waste materials in China was scrap steel, accounting for 64.96%, followed by waste plastics. In fact, most of the scrap iron and steel comes from industrial waste, and the waste material market has been in the seller's market for a long time. For the purpose of off-account sales and tax evasion, waste materials are sold without tickets, and many scattered individual operators undertake the acquisition and resell them.

1. Retail sales of waste materials without tickets.

The source sales of waste production enterprises do not invoice, and waste materials are scattered in the hands of many retail investors. The problem of the first invoice in the renewable resources industry cannot be solved in the retail sector: on the one hand, retail investors have insufficient tax awareness, and tax collection and management of retail investors itself is also very difficult. On the other hand, if they invoice the tax bureau on their behalf, retail investors will face tax problems such as paying personal income tax. Therefore, retail investors usually sell waste materials to recycling enterprises without tickets.

2. Waste enterprises require to obtain invoices.

On the one hand, the Measures for the Administration of Recycling of Renewable Resources stipulates that the business activities of recycling of renewable resources must meet the requirements of industrial and commercial administration registration, and can only be engaged in business activities after being registered in industrial and commercial registration. Therefore, no matter whether the waste materials are in the hands of individual retail investors or large retail investors, they need to be collected into qualified recycling enterprises and supplied to waste enterprises in the name of recycling enterprises; On the other hand, before the promulgation of Circular No.157, waste enterprises could obtain purchase invoices from recycling enterprises to calculate the deduction of value-added tax, while Circular No.157 cancelled the purchase invoice system for waste materials, and waste enterprises required upstream recycling enterprises to issue special invoices for value-added tax for input deduction.

To sum up, recycling enterprises can't get special VAT invoices from retail investors, while downstream waste enterprises ask them to issue invoices, the VAT chain is interrupted, and recycling enterprises are faced with problems such as excessive tax burden, and the profit margin is extremely compressed.

II. The exploration of the mode under the tax dilemma-the long-standing risk of false opening of recycling enterprises

Before the promulgation of Circular No.157, recycling enterprises or affiliated recycling enterprises built by waste enterprises were exempted from value-added tax when selling waste materials, and waste enterprises could use purchase invoices to calculate the input deduction. The trading mode of "retail-recycling enterprises-waste enterprises" not only solved the problem of obtaining invoices for waste enterprises, but also shared the work of preliminary screening and sorting of waste raw materials by waste enterprises, which effectively promoted resource recovery and promoted the development of circular economy.

However, after Circular No.157 abolished the tax exemption policy for recycling enterprises and purchased invoices, the contradiction between retail investors, recycling enterprises and waste-using enterprises became prominent: large steel mills and other waste-using enterprises required recycling enterprises to provide special invoices for value-added tax, otherwise they would not conduct transactions; However, retail investors are reluctant to issue special VAT invoices for recycling enterprises to the tax authorities. Even if they do, the tax rate (collection rate) issued by retail investors is only 3%. In this tax dilemma, most recycling enterprises choose to land in areas with financial return, and build a model of "retail investors-recycling enterprises (enjoying financial return)-recycling enterprises-waste enterprises", so that recycling enterprises can reduce the tax burden of issuing 13% special tickets and paying full taxes to waste enterprises by enjoying financial return.

In recent years, many recycling enterprises have been subject to tax inspection or criminal filing because of the above-mentioned mode, and the case-handling organs have identified the invoices issued by recycling enterprises as false. The main reasons are as follows: on the one hand, waste materials are directly transported to waste enterprises by retail investors, and recycling enterprises do not participate in the transportation of goods, which easily leads to suspicion of no-goods transactions and denies real transactions; On the other hand, in recent years, recycling enterprises that rely on local financial returns have been cleaned up in many places, facing the risk of policy application. In addition, some businesses have the problem of fund advance due to the need of transaction, which is easy to be identified as fund return.

III. After the implementation of Circular 40, the business model of renewable resources recovery changed again.

As mentioned earlier, Circular No.40 stipulates that general VAT taxpayers engaged in recycling renewable resources can choose to apply the simple taxation method to calculate and pay VAT at the rate of 3% when selling the renewable resources they have purchased. Based on this policy, some recycling enterprises or waste-using enterprises have established a new business model by using simple tax policy: retail investors-recycling enterprises 1- recycling enterprises 2- recycling enterprises 3- waste-using enterprises, and enterprises in each link play different roles:

(1) Retail investors: suppliers of waste materials and goods; In order to save transportation costs and improve economic benefits, retail investors are usually responsible for directly transporting waste materials to end-use waste enterprises;

(2) Recycling enterprise 1: docking retail investors and purchasing waste materials from retail investors; Apply the simple tax calculation method in Document No.40, and issue a special VAT invoice with a tax rate of 3% to the downstream recycling enterprise 2;

(3) Recycling enterprise 2: purchasing waste materials from recycling enterprise 1; Such enterprises are usually set up in areas with financial return, and issue special VAT invoices with a tax rate of 13% to downstream recycling enterprises, and use the obtained 3% special tickets and financial return policy to reduce the actual tax burden;3

(4) Recycling enterprise 3: Docking terminal waste enterprises, which are generally established in the same area as waste enterprises. On the one hand, it helps to strengthen business communication between recycling enterprises and waste enterprises, and business personnel can conveniently and directly check the goods in and out of the warehouse at waste enterprises; On the other hand, the recycling enterprise 3 and the downstream waste enterprises are located in the same area, which can avoid being identified as a business with two ends out to some extent and prevent the risk of false opening.

(5) Waste enterprises: the terminal receiver of waste materials buys waste materials from three recycling enterprises.

In terms of invoice issuance, acquisition and tax burden, under this mode, waste enterprises have obtained 13% special invoices for value-added tax, and the tax burden of recycling enterprises has also been controlled-recycling enterprise 1 applies 3% levy rate to pay value-added tax, recycling enterprise 2 enjoys local financial refund while obtaining 3% special invoices, and recycling enterprise 3 obtains 13% special invoices for input deduction. However, there are many tax risks in the above-mentioned transaction mode in practice. On the one hand, the tax authorities will think that the transaction chain is too long, question the necessity of the existence of many recycling enterprises in the middle, and think that the purpose of the existence of intermediate enterprises is only to invoice, and there is no economic rationality. On the other hand, the recycling enterprises in the intermediate link are distributed in many places, and the goods are directly transported from the retail investors to the terminal waste enterprises. This mode of transportation presents the appearance that the recycling enterprises have not actually participated in the transportation of goods, and it is easy for the case handlers to make judgments of "no goods transaction" and "false transaction".

In order to prevent the above-mentioned false risks, in practice, some recycling enterprises try to build a management platform to record the whole process of purchasing and selling waste materials, including logistics and transportation information and fund settlement information, so as to prove the substantial participation of recycling enterprises in the transaction of waste materials. However, in practice, this record mode exists in the case that the recycling enterprise determines the transaction amount and quantity according to the information such as the pound slip and the warehousing and warehousing documents settled by retail investors and waste enterprises, and then determines the goods quantity, fund payment, invoice issuance and other matters in the previous trade link, and then transmits them up in a interlocking manner. This kind of process inversion and supplementary recording of information can easily be identified as changing the billing entity and qualitative false opening.

The author believes that, under the premise of complying with civil and commercial laws, it is economically reasonable for enterprises to build business models based on business needs and make proper use of local government financial support. In the transportation and delivery of goods, although the recycling enterprises did not participate in the actual transportation, there has been a "delivery" in the legal sense. The ownership of the goods is transferred to its downstream enterprises through the recycling enterprises, and the transferee indirectly occupies the goods. The concept delivery methods such as "instruction delivery" and "possession change" cannot deny the authenticity of the purchase and sale of waste materials. The author suggests that recycling enterprises should take business authenticity as the first priority of tax compliance, improve the business negotiation and signing process, clarify the relevant contract terms, and save documents such as entrusted transportation, transfer of goods rights and payment.