Editor's Note: Under the tax administration mode of "controlling tax by invoice", VAT special invoice is of great significance to the market transaction subjects: for the payer, the invoice is the legal certificate for VAT input deduction and the pre-tax deduction certificate for enterprise income tax; for the payee, the invoice is one of the bases for declaring income and calculating output tax amount. For the recipient, issuing invoices is one of the bases for declaring income and calculating sales tax, and the behavior of not issuing invoices in time and in full undermines the national invoice management order, and has the risk of hiding income and tax evasion. This article analyzes the four common risks of not issuing invoices according to the specified time limit in practice in the form of cases for readers' reference.

I.What is the right time for invoicing?

Timely and full issuance of VAT invoices by the payee is the basis for the normal operation of the VAT deduction chain. Article 21 of the Measures for the Administration of Invoices stipulates that "invoices shall be issued in accordance with the prescribed time limit, order and columns, all of which shall be issued at one time in a truthful manner, and paper invoices shall be stamped with the special seal for invoices". And what is the "prescribed time limit", "Invoice Management Measures Implementation Rules" provides that "fill in the invoices of units and individuals must be in the occurrence of business operations to confirm the business income issued invoices. No invoices are allowed to be issued without the occurrence of business operations", while Article 11 of the Provisions on the Use of Value-added Tax Special Purpose Invoices stipulates that "special purpose invoices shall be issued in accordance with the following requirements: (4) in accordance with the time of occurrence of VAT tax obligations". There are inconsistencies in the foregoing provisions, and it is not clear whether the "confirmation of business income" stipulated in the Implementing Rules of the Measures for the Administration of Invoices adopts tax caliber or accounting caliber, which has led to a lot of disputes in practice. The following five cases will analyze the tax risks of delayed invoicing and early invoicing.

II. Risk 1: The risk of delayed invoicing being recognized as hidden income, paying back taxes and late fees or even qualifying as tax evasion

Case 1: An enterprise was found guilty of tax evasion for delaying invoicing in order to enjoy tax benefits

A Decision on Tax Administrative Penalties of the Inspection Bureau of Shenzhen Taxation Bureau of the State Administration of Taxation 2022 showed that an enterprise delayed the declaration of part of its taxable income from September 2019 to December 2019 to 2020 in order to enjoy the VAT exemption policy during the epidemic period, resulting in an underpayment of VAT taxable income of RMB1,609,333,939.1 yuan. The enterprise's delayed invoicing of part of its taxable income in order to take advantage of the tax exemption resulting in underpayment of VAT and surtax is recognized as tax evasion and subject to a fine of fifty percent of the underpaid tax.

Case 2: Abnormal difference between VAT and enterprise tax declared income triggered an early warning, and an enterprise delayed invoicing and hid VAT income and was pursued to pay more than 10 million in late payment of tax.

An inspection case disclosed by China Tax News showed that a local inspection bureau received a tip-off and conducted a tax inspection of Company A. The inspectors found that Company A had been subjected to a tax inspection for the period from 2019 to 2021, and that Company A had been subjected to a tax inspection. The inspectors found that during the period from 2019 to 2021, the VAT revenue declared by Company A every year was less than the EIT revenue, and the difference between the two taxes amounted to 118 million yuan. Company A is mainly engaged in advertising production, the industry is characterized by mature technology and fierce market competition, therefore, the business cycle is generally shorter, the contract period is within 3 months, under normal circumstances, the possibility of long-term large amount of difference between VAT and EIT revenues is relatively small. From the declaration information, Company A recognized the income of enterprise income tax, but did not recognize the income of VAT for a long time, and the inspectors believed that the enterprise had the suspicion of hiding the income of VAT by issuing VAT invoices late or not. The financial personnel of Company A said that the company did not issue invoice to the buyer because part of the business payment had not been paid, so the company did not declare the VAT income, while the income tax is to recognize the income according to the completion of the progress of the work and carry forward the corresponding costs, so there is a difference between the two. However, the inspectors found that the amount of the company's payables not received, as claimed by the financial staff, was much smaller than its undeclared VAT income. From the situation of enterprise fund transactions, these undeclared VAT income business, not only has received the payment from the other party, and the time is also more than the payment date determined in the contract between the two parties, there is a late or no invoicing hidden VAT income. In the end, the Inspection Bureau made a decision to pay the late fee of 10,352,800 yuan for the recovery of tax.

Under the tax control system of invoicing, the issuance of invoices is one of the bases for declaring income and calculating the amount of output tax, as well as one of the bases for calculating and even applying some of the tax incentives, and the delay in the issuance of invoices by an enterprise may be regarded as concealment of income, and there exists the risk of being pursued for the payment of tax and late payment or even the characterization of tax evasion.

III.Risk 2: Risk of being penalized even after paying taxes on unbilled income

A case disclosed by China Taxation Magazine shows that Company B is a trading company, mainly engaged in coal distribution business. The local inspection bureau found in the double random spot check that Company B signed a coal purchase and sale contract with an electric power company on May 10, 2020, which stipulated that the purchase amount was 10 million yuan and the VAT amount was 1.3 million yuan, with an upfront prepayment of 20% within 7 days after the signing of the contract, and the balance was paid within 10 days after the arrival of the goods. Company B received the advance payment of RMB 2 million on May 17, 2020 and issued the goods on June 1st. However, due to the power company, the parties agreed to issue an invoice in July, and on June 10 Company B received the balance of the payment. Although Company B did not issue the invoice, it declared and paid VAT on the basis of the unbilled income as the tax obligation had already occurred. The Audit Bureau determined that Company B did not issue invoices in accordance with the prescribed time limit and violated the provisions of the Measures of the People's Republic of China for the Administration of Invoices, and imposed a fine of RMB5,000 on Company B.

In this case, Company B had received the advance payment and the balance, and the goods had been issued. According to the provisions of the Provisional Regulations on Value-added Tax (VAT) and the Rules for the Implementation of the Provisional Regulations on Value-added Tax (PROVISIONAL REGULATIONS ON VAT), the enterprise's tax obligation occurred on the day of the receipt of the sales payment, and in the case of advance payment, the time of occurrence of the tax obligation was on the day of the issuance of the goods. Company B did not issue the invoice at the time of tax obligation, which belonged to the failure to issue the invoice in accordance with the prescribed time limit. Therefore, although the tax was paid in accordance with the law, it should be penalized according to the invoice management method. In addition, if an enterprise declares tax on the basis of unbilled income and then subsequently issues invoices, the enterprise must declare VAT on the basis of the invoiced income when declaring VAT for the invoicing period, otherwise it will lead to inconsistency between declared income and invoiced income and abnormal comparison, which will result in the failure of normal declaration for the current period. As for the part that has been declared in accordance with the unbilled income before, the enterprise needs to declare the negative amount in the unbilled income to avoid double taxation.

IV.Risk 3: Risk of failure to invoice in accordance with the required time frame and the buyer suing for unbilled losses

In May 2018, Plaintiff Company C entered into an ordering contract with Defendant Company D, whereby Company C purchased smart bracelets from Company D. The Plaintiff Company C has paid for the smart bracelets. Company C has made payment and Company D has supplied the goods as agreed. As Defendant D Company had delayed issuing the invoice, the Plaintiff sued the Court for compensation for the loss of tax credit due to the Defendant's failure to obtain the invoice. The Court of First and Second Instance held that the existing evidence was sufficient to prove that Company Ding's failure to issue VAT invoice had caused Company C not only to be unable to deduct the corresponding input tax, but also to pay the corresponding urban maintenance and construction tax, education surcharge and local education surcharge, which constituted a breach of contract. Therefore, it is not improper for the plaintiff to request the defendant to compensate for the loss of value-added tax, urban maintenance and construction tax, education surcharge and local education surcharge due to the defendant's failure to issue VAT invoices according to the contract.

The payee did not timely invoice, whether the payer can file a civil lawsuit to claim tax loss in judicial practice is quite controversial, there is a view that the payee should be issued within the time limit of the invoice is its legal obligations, if the payee does not issue invoices, should be ordered by the tax authorities to make corrections and fines can be imposed. That is, the recipient can be reported to the tax authorities to obtain invoices, the recipient fails to issue the corresponding invoices in accordance with the provisions of the time limit does not necessarily lead to the payer to produce economic losses. On the other hand, there are views that support the buyer's demand for the payee to pay for the loss caused by the failure to issue invoices in time, as in the aforementioned cases. As a result, those who have committed taxable acts and failed to issue invoices in a timely manner in accordance with the regulations may face the risk of being pursued by the buyer and being subject to additional fines.

V.Risk 4: Risk of early invoicing being recognized as false invoicing

A tax administrative penalty decision published in a place shows that in November 2019, Company A and Company B signed a project construction agreement with a contract amount of 456,392,600 yuan and a construction period of 550 days. Due to the outbreak of the epidemic in January 2020 and the temporary adjustment of the regional planning for the implementation of the project, the construction project was suspended.In 2021, the project was restarted for implementation, and Company A, due to the shortage of funds that led to operational difficulties, then applied for an advance on the project to Company D. The project was completed in January 2020, and Company B was given the opportunity to apply for an advance on the project. At the request of Company B, an invoice was required to be provided for the advance payment for the project, and Company A issued an invoice of RMB 20.183 million. After the invoice was issued, due to market changes and the change of the main project operator, the project was changed to be implemented by Company C, and the construction scale was reduced to about RMB60 million, Company A then red-flushed the invoice issued, and Company B did not make input deduction for the red-flushed invoice, and the project continued to be constructed by Company C after the change of the project, and the project was completed, accepted and delivered to use in May 2022. According to Article 26 of the Rules for the Implementation of the Measures for the Administration of Invoices, "Units and individuals who fill out invoices must issue invoices when they recognize business income from their business operations. No invoices are allowed to be issued without the occurrence of business operations", the tax bureau considered that the company issued invoices before the tax obligation occurred and imposed a fine on Company C for non-compliance of invoicing.

The main risk of early invoicing is that the invoice issued may not be consistent with the actual production and operation, leading to the suspicion of false invoicing. In the aforementioned case, Enterprise A's subsequent construction work and relevant information could show that it had real business occurrence, and the part of invoiced not performed as agreed was red-flushed, so it was not recognized as false invoicing, but penalized for non-compliance of invoicing. The interpretation of the State Administration of Taxation on the Announcement on Relevant Issues Concerning Taxpayers' External Issuance of Special VAT Invoices points out that the taxpayer shall have the ownership of the goods in the special VAT invoice issued for the external sale of the goods, including the ownership of the goods obtained by direct purchase and the ownership of the goods obtained by the way of "selling and then buying". The so-called "sell first and buy later" method. The so-called "sell first and buy later" means that the taxpayer sells the goods to the next family before and buys the goods from the previous family after....... A normally operating R&D enterprise has signed an R&D contract with the customer, collected R&D expenses and issued special invoice, but the R&D service has not occurred or has not been completed yet. not yet occurred or has not yet been completed. In this case, it is not possible to judge that the R&D enterprise has falsely issued VAT invoices because of the "sale of goods, or provision of VAT taxable services or taxable services to the taxpayer of the invoiced party" as listed in this announcement. Therefore, if enterprises really need to issue invoices in advance in the actual business, they should keep the information of the subsequent business operation to prove that there are real transactions, and if they are unable to fulfill the invoices in whole or in part due to the change of circumstances, they should carry out the red flush treatment in a timely manner to prevent the risk of false invoicing.

It can be found from the cases cited above that, in addition to some intentional late invoicing or non-invoicing to conceal income and violation of the application of tax preferences, quite a number of enterprises have been fined for failing to issue invoices in accordance with the time of incurring tax obligations. Therefore, enterprises should correctly grasp the time of occurrence of VAT obligations and do a good job in the compliance management of invoicing according to Article 45 of the Implementation Measures for the Pilot Measures for the Pilot Measures for Changing Business Tax to Value-added Tax in Annex 1 of the Circular of the Ministry of Finance and the State Administration of Taxation on the Comprehensively Pushing Forward the Pilot Measures for Changing Business Tax to Value-added Tax.