On 15 March 2024, the Supreme People's Court (SPC) and the Supreme People's Procuratorate (SPP) issued the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration (Fa Shi [2024] No. 4). Surprisingly, the two high court judicial interpretations have made a major breakthrough in criminal compliance policy, completely dispelling the concern of whether the court system can and should apply criminal compliance in the field of tax-related crimes, and the importance of criminal compliance will be greatly enhanced. At the same time, the legal effect of applying criminal compliance to tax-related crimes is still in doubt, pending further improvement of the legislation. This paper will analyse the future application of criminal compliance in tax-related crimes in conjunction with the judicial interpretations of the two high courts, and put forward suggestions for the modification and improvement of the criminal compliance system.

According to the first paragraph of Article 21 of the judicial interpretations of the two high courts, "the implementation of crimes against tax collection and management, resulting in the loss of national tax, the perpetrator to pay back the tax, recover the tax loss, and effective compliance and rectification, can be leniently punished; the circumstances of the crime are minor and do not require the imposition of a sentence, can not be prosecuted or exempted from criminal penalties; the circumstances of the case are significantly minor and harm is not significant, and not dealt with as a crime ". Although there is only one short provision, its connotation is extremely rich. In the author's opinion, this provision solves at least three problems: (1) Can criminal compliance be applied to cases of tax-related offences with a sentence of ten years or more? (2) Whether criminal compliance can be applied to tax-related crime cases at the court trial stage, especially at the second trial stage? (3) What is the significance of the rectification of tax-related crime compliance to the sentence? However, at the same time, the two high judicial interpretations did not make further breakthroughs in the legal effects of criminal compliance, which is not conducive to giving full play to the incentive role of criminal compliance, and there are certain regrets.

I. the sentencing of more than ten years of tax-related crime cases can also apply to criminal compliance

(i) In the past: many places believed that criminal compliance could not be applied to cases with sentencing of more than ten years

On 3 June 2021, the Supreme Prosecutor and nine other departments jointly issued the "Guiding Opinions on the Establishment of Third-Party Supervision and Evaluation Mechanisms for Compliance of Companies Involved in Cases (for Trial Implementation)" (hereinafter referred to as the "Criminal Compliance Guiding Opinions"), which for the first time established a criminal compliance policy on a nationwide scale. According to Article 4 of the Criminal Compliance Guidelines, there are three prerequisites for the application of criminal compliance, namely that the enterprises and individuals involved in the case plead guilty to the offence and accept punishment, that they have the conditions for initiating criminal compliance, and that they voluntarily apply criminal compliance, and that there is no link between the severity of the sentence and the possibility of applying criminal compliance.

However, in the implementation process of the courts around the world, more than the conditions for the application of criminal compliance to make further restrictions, some local provincial high courts explicitly pronounced the sentence may be more than ten years of the case does not apply to criminal compliance, compressed the scope of application of the criminal compliance, resulting in misdemeanours can be compliance, serious crimes can not be compliance with the unreasonable phenomenon, detracting from the incentive effect of the criminal compliance system.

(ii) Future: enterprises involved in tax-related criminal cases with sentences of ten years or more can apply criminal compliance

The judicial interpretations of the two high courts stipulate that the applicable object of compliance and rectification is the perpetrator who "commits the crime of endangering the tax collection and management", and do not limit the applicable object to the sentencing range, and the parties involved in tax-related crime cases are given the right to apply for criminal compliance without any difference. Regardless of the amount of tax-related offences, parties meeting the conditions of the criminal compliance guidelines may actively apply for criminal compliance in accordance with the provisions of this article.

II. Criminal compliance can be applied before the judgement of the second instance of tax-related offences

(i) In the past, criminal compliance was mainly applicable to the examination and prosecution of the procuratorate.

According to Article 1 of the Criminal Compliance Guidelines, criminal compliance is only applicable to "the procuratorate's handling of enterprise-related crime cases", i.e., it is only applicable to the stage of review and prosecution by the procuratorate in the criminal proceedings. After the Procuratorate files an indictment with the People's Court, the enterprise will lose the opportunity to apply for criminal compliance rectification.

On 10 October 2023, the Supreme Court issued the Guiding Opinions on Optimising the Rule of Law Environment and Promoting the Development and Growth of the Private Economy, making it clear that "[f]or those private enterprises that can be sentenced to probation or exempted from criminal penalties according to the law, it will work together with procuratorates to do a good job of reforming criminal compliance of the enterprises involved in the cases, make full use of the third-party compliance supervision mechanism, ensure that compliance rectification is implemented in practice, and prevent from source and reduce enterprises from reoffending", providing guidelines for courts to participate in criminal compliance. However, it only stipulates that the court may work with the procuratorate to improve criminal compliance reform, and does not give the court the power to initiate criminal compliance procedures on its own, so it is not possible to draw a firm conclusion as to whether or not the enterprise involved in the case can initiate compliance procedures after entering the court trial without having initiated criminal compliance at the examination and prosecution stage, or whether or not it can initiate compliance procedures after entering the second trial without having initiated criminal compliance at the first trial.

Although the Supreme Court has not given clear instructions, courts around the country have made useful explorations of criminal compliance, with the Gucheng County Court in Hubei Province and the Wuhu Municipal Intermediate Court contributing the first cases in the country in which criminal compliance was applied at the first and second instance stages of court proceedings, respectively. The drawback is that these judicial practice activities are limited to some cases handled by some local courts, and due to the lack of a clear basis for the two high courts, more local courts have taken a wait-and-see attitude towards the possibility of initiating criminal compliance procedures at the trial stage, which to a certain extent limits the efficacy and usefulness of the criminal compliance system.

(ii) Future: National Courts Can Initiate Criminal Compliance at the Trial Stage of Tax-Related Offences in Both First and Second Instances

The judicial interpretations of the two high courts do not limit criminal compliance rectification to the stage of examination and prosecution by the procuratorate, but instead stipulate that the legal effect of effective compliance rectification is to allow for leniency, i.e., as a consideration for the court to impose penalties, which means that the enterprises involved in the case can implement criminal compliance rectification before the court makes a final judgement, and the court should recognise this. The final judgement is of course not limited to the first instance proceedings. If the enterprise concerned has not applied for criminal compliance rectification before the first instance judgement and applies for it after the appeal, the court should of course allow it as long as it meets the conditions for criminal compliance. This provision gives the enterprises involved in the case more opportunities for rectification, and effectively protects the litigation rights of enterprises.

III. Effective criminal compliance rectification becomes a sentencing circumstance that the court must consider

(i) In the past: the court could not consider the results of criminal compliance rectification in sentencing.

According to Article 2 of the Measures for Compliance Construction, Evaluation and Review of Enterprises Involved in Cases (for Trial Implementation), if an enterprise involved in a case has undergone criminal compliance rectification and passed the acceptance, but the procuratorate still decides to file a public prosecution, the procuratorate may make a recommendation for lenient punishment in sentencing. However, the document was formulated by the Supreme Prosecutor's Office in conjunction with a number of other departments, and the Supreme Court did not participate in the formulation of the document, nor did the document stipulate that the court must accept the Procuratorate's recommendation on sentencing; on the contrary, in practice, some courts did not take into account the lack of direct provisions of the criminal law in the sentencing of criminal compliance. Therefore, the previous criminal compliance acceptance is not a sentencing circumstances, only affect the sentencing recommendations of the Procuratorate.

In practice, some local provincial high courts provide for compliance rectification acceptance, the Procuratorate put forward a reprieve or mitigating punishment sentencing recommendations, the court should generally be adopted, to a certain extent, to strengthen the compliance rectification of the rigidity of the mitigating punishment, but only to guide the local judicial practice, is not applicable to the national scope.

(ii) Future: Effective criminal compliance rectification becomes a discretionary sentencing circumstance that must be considered by the court.

The judicial interpretations of the two high courts make it clear that effective compliance rectification can achieve "lenient penalties", institutionalising and standardising effective compliance rectification, meaning that compliance rectification has formally become a discretionary sentencing circumstance. If an enterprise completes compliance rectification at the procuratorate or court stage and passes the acceptance, the court must take it into account in the sentencing process and impose a lenient penalty. It can be said that the leniency of effective compliance rectification has basically gained the same status as the leniency of a guilty plea, and in the future it may also be included in the Criminal Procedure Law along the lines of the development of the system of leniency of a guilty plea, to further elevate its legal status.

IV. Remaining issues: Can a reduction in sentence be achieved through criminal compliance rectification of tax-related offences?

(i) Sentencing reduction after criminal compliance rectification is against the criminal law provisions

According to the Interpretation of the Supreme People's Court on the Application of the Criminal Procedure Law of the People's Republic of China (Law Interpretation [2021] No. 1), the sentencing circumstances include the statutory sentencing circumstances and discretionary sentencing circumstances, and the statutory sentencing circumstances are the circumstances explicitly stipulated in the criminal law, such as self-surrender, meritorious conduct and so on. Discretionary sentencing circumstances are circumstances that are not expressly provided for in the criminal law but reflect the degree of social harm of the offence, such as first-time offenders and occasional offenders. Among them, the legal sentencing circumstances include the circumstances of strict punishment and lenient punishment, and the circumstances of lenient punishment include the circumstances of light punishment, mitigating punishment and exempting punishment.

The mitigating circumstances refer to the circumstances in which the penalty is leniently imposed within a sentencing range, for example, the amount of 1 million yuan of false tax should be sentenced within the sentencing range of three to ten years of imprisonment, and those with mitigating circumstances can be sentenced leniently within this sentencing range, such as sentencing to three or four years of imprisonment. Mitigating circumstances refer to circumstances that can reduce the sentencing range, for example, if the amount of false tax invoicing is 1 million yuan, and there are mitigating circumstances, the sentence can be imposed within the next sentencing range of three to ten years' imprisonment, i.e., less than three years' imprisonment or custodial labour, so as to realise a reduction in the sentencing range, e.g., sentencing to one year's imprisonment.

According to article 63 of the Criminal Law, "If an offender has mitigating circumstances as provided for in this Law, he shall be sentenced to a penalty below the statutory level; if there are several sentencing ranges as provided for in this Law, he shall be sentenced to a penalty within the next sentencing range of the statutory range.

Although an offender does not possess the mitigating circumstances provided for in this Law, he or she may be sentenced to a penalty below the statutory level with the approval of the Supreme People's Court in the light of the special circumstances of the case".

According to this provision, only the statutory mitigating circumstances are capable of realising a reduction in sentence, and discretionary sentencing circumstances usually include only the circumstances of rigorous punishment and mitigating circumstances, but not mitigating circumstances or exempting circumstances, unless the discretionary sentencing circumstances are special and have been approved by the Supreme People's Court, in order to serve as a circumstance for mitigating or exempting the punishment. Article 21 of the two high judicial interpretations will be effective criminal compliance rectification as a discretionary mitigating circumstances to be stipulated, meaning that criminal compliance can only achieve the effect of mitigating punishment, and can not be achieved sentence reduction gear.

(ii) There seem to be cases in practice where criminal compliance rectification has led to a reduction in the sentence.

From the typical criminal case of endangering tax collection and management issued by the two high courts, however, it seems that different conclusions can be obtained. The basic situation of the case is as follows:

In September 2019, a waterproof material company in Shandong (hereinafter referred to as the waterproofing company), in order to offset the tax, in the absence of real goods transactions, had 22 VAT invoices falsely issued for it by Xu Moumou, the actual controller of the company, through a shell company controlled by Gou Moumou with a tax amount of more than 270,000 yuan.Between August and October 2019, Xu Moumou also issued 22 VAT invoices to the company of which he was a senior executive through the shell company controlled by Gou Moumou. Xiamen a waterproof building materials company and other 2 companies to falsely issue 59 VAT invoices with a tax amount of more than 750,000 yuan. All the invoices were used for deduction, and the invoices were transferred out as input tax after the case was found. After the case was transferred for review and prosecution, Xu Moumou expressed his guilty plea and admitted the punishment, and took the initiative to apply for the initiation of the corporate compliance procedure for the waterproofing company, and voluntarily carried out compliance rectification.2022 In November, the procuratorial authorities decided to apply the corporate compliance and third-party supervision and assessment mechanism for the waterproofing company involved in the case.

In October 2023, the Shandong Shouguang Municipal People's Procuratorate decided not to prosecute the waterproofing company with reference to the conclusions of the compliance visit; and prosecuted Xu for the offence of suspected false VAT invoicing and made a lenient and deferred sentencing recommendation for him. The People's Court of Shouguang City, Shandong Province, sentenced the defendant Xu Moumou to two years' fixed-term imprisonment, two years' probation, and a fine of RMB 20,000 for the offence of falsely issuing VAT invoices.

In this case, the party had others falsely issue VAT invoices for two companies under his control and employment, with a combined tax amount of RMB 1.02 million, with a possible sentencing range of three to ten years' imprisonment. The case disclosed that one of the companies completed criminal compliance rectification and did not disclose any other mitigating circumstances, but the client ultimately received a sentencing outcome of two years' imprisonment and two years' probation, which resulted in a reduced sentencing bracket. If the disclosure in the case is complete, it implies that there are cases in judicial practice where sentence reductions have been achieved following effective compliance rectification.

(iii) Reflections and Suggestions on Criminal Compliance Legislation

In the author's view, the role and efficacy of criminal compliance is to carry out comprehensive and thorough rectification of the enterprises involved in the case, to eliminate the possibility of recidivism, and to realise the educational and reformative function of the criminal law. All the statutory sentencing circumstances in the existing Criminal Law can not be achieved on the criminal compliance rectification of the alternation, criminal compliance rectification is a systematic innovation in the new era, only by the judicial interpretation to regulate the value can not be played, should be regulated by the criminal law, there is a need for the general provisions of the Penal Code, for the unit crime specifically provide for criminal compliance rectification of the sentencing circumstances, criminal compliance rectification up to the statutory sentencing circumstances.

Criminal law not only has the significance of punishing the parties concerned and making up for the victims, but also has social significance, and criminal law must consider the impact on society. In the field of enterprise tax-related crimes, the enterprise involved may have undertaken a variety of social functions such as creating tax sources, providing employment and developing the economy, and the enterprise involved has already compensated for the losses caused to the national tax interests by making up for the taxes, late fees and accepting penalties, and there is no need to impose a serious sentence on the parties involved, otherwise it will affect the continued operation of the enterprise involved and lead to the enterprise involved being unable to play a role in the social value and causing more trauma to the local society. Otherwise, it will affect the continued operation of the enterprises involved in the case, resulting in the enterprises being unable to fulfil their social value and causing more trauma to the local society. Therefore, in the field of tax-related crimes, criminal compliance can be fully used as a legal mitigating or exempting circumstance to be clarified by the criminal law.

V. Implications for the Defence of Tax-Related Crimes

The judicial interpretations of the two high courts have cleared the obstacles to the application of criminal compliance by the courts and raised the status of criminal compliance in the court proceedings. In the future, the judicial organs will pay more attention to the application of criminal compliance in tax-related crimes, which will provide a favourable hand for the defence of tax-related crimes in terms of sentencing. For enterprises suspected of endangering tax collection and management type of crimes, which may be sentenced to three to ten years of imprisonment, they can actively apply for criminal compliance rectification and strive for a lower sentence of three years of imprisonment within the sentencing range and the application of probation. For enterprises that may be sentenced to more than ten years of imprisonment, the significance of criminal compliance should not be ignored. If the enterprises involved in the case have statutory mitigating circumstances such as self-surrender and meritorious conduct, they can further strive for criminal compliance and rectification, so as to realise the combined effect of "downgrading of sentencing for statutory circumstances + lighter punishment for criminal compliance and rectification", and to further strive for a probationary sentence. For enterprises that may be sentenced to more than 10 years of imprisonment without any statutory mitigating circumstances, it is recommended that other defence strategies be adopted as a matter of priority.