Recycling of renewable resources is a key link in the comprehensive utilisation of resources, which is of great significance in promoting the development of circular economy and realising green, low-carbon and high-quality development. However, for a long time, the lack of "invoices at source" has led to a heavy tax burden for recycling enterprises, which restricts the sustainable and healthy development of the renewable resources industry. No. 40, hereinafter referred to as "Document No. 40"), stipulating that renewable resources recycling enterprises may choose to apply the simplified tax calculation method to calculate and pay VAT in accordance with the 3% levy rate, which to a certain extent alleviated the problem of high VAT burden of renewable resources recycling enterprises, but the problem of pre-tax deduction vouchers has not been solved, and the tax dilemma and tax-related risks of the recycling enterprises still exist. However, the problem of pre-tax deduction vouchers has not been solved, and the tax predicament and tax-related risks of recycling enterprises still exist. This year, the deputies to the National People's Congress of the two sessions of the National People's Congress put forward four proposals to solve the problem of "source invoicing" in the recycling industry, and more importantly, the State Council issued the "Action Programme for Promoting Large-scale Equipment Renewal and Consumer Goods Replacement with New Goods" (No. 7 of the State Council [2024], hereinafter referred to as "No. 7 More importantly, the State Council issued the Action Programme for Promoting Large-scale Equipment Renewal and Consumer Goods Replacement (Guo Fa [2024] No. 7, hereinafter referred to as "Document No. 7"), which proposes to "promote the practice of 'reverse invoicing' by resource recycling enterprises to sellers of end-of-life products to natural persons," in order to improve the supporting measures for the collection and management of income tax. Can the above proposal solve the problem of "invoicing at source" in the recycling industry? The text is to be discussed.

I. No.40 did not solve the problem of "invoice at source", and the tax difficulties and tax-related risks of renewable resources industry still exist.

(i) renewable resources recycling enterprise income tax deduction vouchers have not been resolved

In December 2021, the Ministry of Finance and the State Administration of Taxation (SAT) issued Circular No. 40, which stipulates that general VAT taxpayers engaged in recycling of renewable resources may choose to apply the simplified taxation method to calculate and pay VAT at the 3% levy rate for the sale of the renewable resources they have acquired. This means that, regardless of the price of renewable resources recycling enterprises to sell their purchased renewable resources, can be calculated in accordance with the 3% tax rate to pay VAT, compared with the inability to obtain input invoices and the full tax burden is greatly reduced, it can be said that, to a certain extent, No. 40 to alleviate the recycling enterprises due to the lack of VAT input deduction resulting in a heavier tax burden. However, Circular 40 did not solve the problem of pre-tax deduction of income tax for recycling enterprises. Meanwhile, after the implementation of Circular 40, tax authorities around the world have changed their previous attitudes and have called a halt to the practice of exchanging homemade vouchers for purchase invoices. And in practice, the proportion of recycling enterprises acquiring recycled resources from waste-producing enterprises or retail hands to obtain invoices is very low. In addition, Article 9 of the Measures for the Administration of Enterprise Income Tax Pre-tax Deduction Vouchers restricts the amount of collection vouchers and internal vouchers that can be used as pre-tax deduction vouchers for recycling enterprises acquiring renewable resources from retailers, i.e., the amount of the acquisition does not exceed the starting point stipulated in the relevant policies on value-added tax; in other words, if the amount of the recycling enterprise acquiring renewable resources from retailers exceeds the stipulated amount, its acquisition expenditure still needs to be treated as invoices as pre-tax deduction vouchers. In other words, if a recycling enterprise acquires recycled resources from a retailer for an amount exceeding the prescribed amount, its acquisition expenditure still needs to be deducted by invoices as a pre-tax deduction voucher, but this is out of line with the reality that the acquisition of recycled resources is large in quantity and high in amount, especially for the varieties of scrap iron and steel with high unit price, where the amount of the sale by a single retailer is in the range of millions or tens of millions per year. As a result, recycling enterprises are faced with the dilemma of not being able to obtain pre-tax deduction vouchers, and their corporate income tax liability remains high.

(ii) Tax-related risks of renewable resources recycling enterprises still exist

As a matter of fact, according to Article 8 of the Enterprise Income Tax Law, "Reasonable expenditures actually incurred by an enterprise in connection with the acquisition of income, including costs, expenses, taxes, losses and other expenditures, shall be allowed to be deducted in the calculation of taxable income", and in the author's opinion, the acquisition expenditures of the recycling enterprises are real, reasonable and have relevant materials to be proved, and are eligible for deduction under the Enterprise Income Tax Law. In the author's opinion, if the acquisition expenditure of the recycling enterprise is real, reasonable and has relevant materials to prove that it is in line with the relevant provisions of the Enterprise Income Tax Law, even if it is impossible to obtain the invoice, the reasonableness of the pre-tax deduction should not be denied. However, in practice, some tax authorities take the invoice as the only proof of pre-tax deduction, do not recognise the practice of enterprises to record the cost deduction with homemade vouchers, and make tax-related treatments to the recycling enterprises, and there are a lot of cases that require the recycling enterprises to make up for the payment of EIT and the late payment fee in a limited period of time.

II. can the four programmes proposed by the National People's Congress solve the problem of "invoicing at source"?

Solving the tax problems of recycling enterprises and exploring effective ways to help the development of the industry have always been the direction of the renewable resources industry. In the two sessions of this year, some deputies put forward four options to solve the problem of "source invoices" in the industry. One is to refer to the network freight platform for the goods transport industry small-scale taxpayers invoicing ideas, to take the recycling enterprise pilot policy for renewable resources recycling small-scale taxpayers invoicing; second, renewable resources recycling small-scale taxpayers can be in the third party platform in its own name to issue invoices; third is to allow a certain amount of recycling enterprises can be homemade vouchers deduction, such as a single-family vender monthly sales in the amount of limit below (e.g., below 100,000); and fourthly, the enterprise income tax is levied according to a unified taxable income rate of approved levy.

In fact, the prerequisite for network freight transport platforms to issue invoices for small-scale taxpayers in the goods transport industry is that individual drivers have applied for temporary tax registration, but the problem is that the subjective willingness of individual drivers to apply for tax registration is relatively low, and objectively, even if the platforms apply for the drivers they require the original drivers' ID cards, which is difficult due to the large number of individual drivers, and the freight fees paid by transport enterprises to individual drivers are still facing the problem of not being able to get the The problem of compliance vouchers. The renewable resources industry has a high degree of similarity with the logistics and transport industry, and the objects traded at the source of both are mostly individuals/individuals, so it can be foreseen that the renewable resources industry may face the same problem if it adopts the mode of invoicing by pilot enterprises. Similarly, the second option of invoicing on third-party platforms, which requires the registration of the retailer as a small-scale taxpayer as a prerequisite, also faces the difficulty of not being able to register. For the third type of option, there is still a limitation on the amount of homemade vouchers, which, as mentioned earlier, is inconsistent with the reality of acquisitions by recycling enterprises and does not solve the problem of pre-tax cost deduction for recycling enterprises. For the fourth type of approved levy programme, at present, the tax authorities in many places have requested to approve the collection of recycling enterprise income tax at a taxable income rate of 8%, that is, after the approval of the enterprise will actually bear a tax burden of 2%, which is probable to be higher than the actual tax burden of the enterprise, resulting in the cost of the tax burden is not reduced, but increased. It can be seen that it is not easy to solve the problem of "invoicing at source" in the renewable resources industry.

At the national level, government departments have also actively responded to taxpayers' voices, cracking the pre-tax deduction voucher problem of the renewable resources industry, issued the No. 7 document, put forward to improve the tax support policy, promote the resource recycling enterprises to the natural person end-of-life product sellers "reverse invoicing" practice, with the renewable resources recycling enterprises with the simplified collection of value-added tax policy, study to improve the income tax collection and management support, and study to improve the income tax collection and management support. Research on improving income tax collection and management support, and optimising tax collection and management standards and methods. It can be seen that the purpose of promoting the practice of "reverse invoicing" is to supplement Document No. 40, so can the practice solve the problem of "source invoicing" in the renewable resources industry?

III. "reverse invoicing" can solve the "source invoice" problem?

(i) What is "reverse invoicing"?

In fact, "reverse invoicing" is not a new thing, "Invoice Management Measures" Article 18 provides that: "the sale of goods, the provision of services, as well as engaged in other business activities of units and individuals, external business operations to collect money, the payee should be issued to the payer invoices; special circumstances, the payer to the payee invoices. Under special circumstances, the payer to the payee to issue invoices", which "by the payer to the payee to issue invoices" that is, "reverse invoicing".

(ii) Practice area of "reverse invoicing

In practice, "reverse invoicing" involved in the typical industries and areas mainly include:

1. the acquisition of self-produced agricultural products from agricultural producers. Although China's tax law stipulates that farmers selling agricultural products can apply to the tax authorities for invoicing and do not need to pay VAT, in reality, farmers are similar to retailers in the renewable resources industry in that they lack the awareness of compliance and are unwilling to cooperate with the tax authorities to issue invoices on their behalf. Based on the consideration of this issue, China's tax policy stipulates that taxpayers can issue their own invoices for the purchase of agricultural products when they purchase agricultural products produced by farmers. The purchaser can select the tax classification code through the VAT invoice management system according to the actual situation, and then select the purchase invoice interface in the invoice filling, and fill in the information of the seller as well as the remarks column according to the requirements of the name of the farmer, ID card number, address and telephone number, bank account and account number, etc. The system automatically prints the invoice in the left corner of the invoice. The system automatically prints the word "Acquisition" in the upper left corner of the invoice, and the tax rate is labelled "Tax-free".

2. Recorded car sales enterprises purchase used cars from natural persons. According to the Motor Vehicle Registration Regulations, proof of the origin of the invoice of the second-hand car transaction is one of the necessary conditions for the registration of the transfer of the car. However, in practice, as natural persons selling used cars are unable to issue sales invoices to the purchasers and the procedure of issuing invoices on behalf of the purchasers is cumbersome, the Ministry of Commerce, together with the State Administration of Taxation (SAT) and other departments, issued the Notice of the Ministry of Commerce and Other 17 Departments on Revitalising the Circulation of Automobiles and Expanding Automobile Consumption on Measures to Enhance the Consumption of Automobiles (Commerce and Consumption Fa [ 2022] No. 92), which specifies the requirements for the registration of automobile transfers. No. 92 of 2022), which explicitly allows automobile sales enterprises, as buyers and payers, to issue unified invoices for the sale of second-hand vehicles to natural person car owners and to handle transfer registration procedures based on such invoices.

3. The State Grid Corporation purchases power products from distributed photovoltaic power generation project power generation users. In practice, the sales of distributed power generation residual power products of the power generation households to residential households, non-enterprise units, the state considered that if the power generation households one by one to the tax authorities invoicing is more complicated, but also not conducive to the promotion of distributed photovoltaic power generation projects, accordingly issued the "State Administration of Taxation on the State Grid Company to buy distributed photovoltaic power generation project power products invoicing and other related issues of the announcement" ( State Administration of Taxation Announcement No. 32 of 2014), which stipulates that enterprises belonging to the State Grid Company can issue ordinary invoices to power generating households, and at the same time register detailed information such as the name of the power generating households, their address, contact information, settlement time, settlement amount, and so on, in order to be prepared for the tax authorities to check and verify.

It can be seen that the above application areas of "reverse invoicing" have commonality: the seller is mostly a natural person, etc., and cannot issue invoices for external sales of products, so it needs to apply for invoices from the tax authorities, but the reality is that the invoicing procedure is more complicated, and the seller is not willing to co-operate with the acquiring enterprises to obtain invoices, which results in the acquiring enterprises being unable to obtain invoices in the acquisition process. Can not obtain the invoice, and "reverse invoicing" can effectively solve the problem of not obtaining the invoice.

(iii) whether the reverse invoice is equivalent to the acquisition of waste materials vouchers, waste materials acquisition invoices?

As mentioned before, the recycling enterprises face the problem of acquiring renewable resources from retailers can not obtain the invoice. In fact, over a period of time, the renewable resources industry also exists by the recycling enterprises to issue their own vouchers for the acquisition of waste materials, waste materials acquisition invoice practice. Now, the 7th proposed "reverse invoicing", then the reverse invoice is equivalent to the acquisition of waste materials vouchers, waste materials acquisition invoices? First of all, it is necessary to make clear that the acquisition of waste materials acquisition vouchers and waste materials acquisition invoice is actually the same thing. The Ministry of Finance, State Administration of Taxation on the transport costs and waste materials are allowed to deduct input tax issues notice" (Cai Shui [1994] No. 12, is no longer valid) the acquisition of vouchers are approved by the competent tax authorities to use, recycling enterprises can be used as financial vouchers. And then the tax authorities around have been forwarded, such as the Shanghai Municipal Tax Bureau on the forwarding of "the Ministry of Finance, the State Administration of Taxation on the transport costs and waste materials are allowed to deduct input tax issues of the notice" notice (Shanghai tax government a [1994] 68, has lapsed), which provides that "the CaiShui [1994] No. 12," referred to as "the competent tax authorities approved the use of the acquisition vouchers The acquisition vouchers approved for use by the competent tax authorities', as referred to in Cai Shui [1994] No. 12, according to the situation in this city, shall temporarily use the ordinary invoices of VAT general taxpayers in a uniform manner, and indicate the word 'acquisition'. That is to say, at the time of acquisition, ordinary invoice can be issued to the seller, and then the input tax amount can be calculated according to the 10% deduction rate based on the acquisition amount on the ordinary invoice". The Liaoning Provincial Taxation Bureau issued the Circular on the Unified Use of "Acquisition Invoice" by Waste Material Recycling Departments and Agricultural, Forestry, Animal Husbandry and Water Resources Acquisition Departments (Liao Tax Invoice 〔1994〕 No. 10, no longer in force), which stipulates that, "Where the general VAT taxpayers engaging in the operation of waste materials are unable to obtain special VAT invoices for the acquisition of waste materials, they may not obtain special VAT invoices. obtain special VAT invoices, the amount of input tax can be deducted according to the amount of acquisition stated in the Uniform Invoice for Acquisition of Waste Materials in xxx City of Liaoning Province, calculated in accordance with the deduction rate of 10%".In 2004, the State Administration of Taxation issued the Notice on Relevant Issues Concerning Strengthening the Management of Value-added Tax on Waste Materials (Guo Shui Han [2005] No. 544, lapsed) which stipulates that "recycling enterprises should strengthen the management of VAT on waste materials. stipulates that "recycling enterprises shall use the acquisition vouchers for waste materials in strict accordance with the relevant regulations, and may issue their own acquisition vouchers for the acquisition of waste materials from resident individuals (excluding self-employed persons) and non-operating units". Shenzhen State Taxation Bureau forwarded the "State Administration of Taxation on strengthening the value-added tax on waste materials management of the relevant issues of the notice" (Shenzhen State Taxation Letter [2005] No. 208, has been invalidated), requiring recycling enterprises to residents of individuals and non-operational units to acquire waste materials, strictly in accordance with the requirements of the acquisition of their own invoices. Visible, the acquisition of waste materials and the acquisition of waste materials acquisition invoices in the substance of the same nature, are issued by the recycling enterprises to the seller, as a pre-tax deduction vouchers and financial vouchers to use, except that the two in the form of performance there may be differences in the provinces can be on the style of ordinary invoices to make a more specific, detailed provisions.

Secondly, from the "Shanghai Municipal Tax Bureau on the forwarding of <Ministry of Finance, the State Administration of Taxation on the Ministry of Finance, the State Administration of Taxation on the transport costs and waste materials to be allowed to offset input tax amount of the notice> of the notice" (Shanghai Taxation and Government of the first 〔1994〕 No. 68), "on the strengthening of the value-added tax of the waste materials on the management of the relevant issues of the notice" (State Taxation Letter 〔2005〕 No. 544) and the "Shenzhen Municipal Bureau of National Taxation forwarded <State Taxation Bureau on the Circular of the State Administration of Taxation on Relevant Issues Concerning the Strengthening of Value-added Tax Management of Scrap and Used Materials" (Shen Guo Shui Han [2005] No. 208), it can be seen that under certain conditions, the recycling enterprise (the payer) can issue invoices for the purchase of scrap and used materials from the seller (the payee), which is in line with the connotation of "reverse invoicing". Therefore, the comprehensive "reverse invoicing" in agricultural products, used cars and distributed photovoltaic power generation practice, the author believes that the 7th reverse invoice and recycling enterprises to issue invoices for the acquisition of waste materials is not different in nature, only, in the future, when the policy landing, the need to further clarify the "reverse invoicing "The specific conditions of application, what is a natural person seller of end-of-life products? What is the specific definition of end-of-life products? And so on.

(iv) Do reverse invoices have a VAT credit function?

According to whether the reverse invoice can offset input tax, it can be divided into two categories: one category has the function of offsetting input tax, such as the purchase invoice of agricultural products, which is because the agricultural products produced by farmers using agricultural machinery and other means of production, naturally have the property of containing tax, and if the purchasing enterprise is not permitted to offset the input tax, it will result in a certain degree of double taxation; the other category does not have the function of offsetting input tax, and it is mainly used as a voucher of pre-tax deduction and a voucher of financial accounting. The other category does not have the function of deduction of input tax, and is mainly used as pre-tax deduction voucher and financial accounting voucher, such as unified invoice for the sale of used cars. Although it is not clear whether the reverse invoice of Article 7 has the function of VAT deduction, from the expression of the article "cooperate with the policy of simple VAT levy for renewable resources recycling enterprises, and improve the supporting measures for income tax", the author believes that the reverse invoice of Article 7 does not have the function of deduction, and it only serves as the pre-tax deduction voucher for recycling enterprises, which can be used to Solve the problem of "source invoice" in the renewable resources industry.

IV. Remaining arguments

Although the State Council clearly wants to promote the practice of "reverse invoicing", it will take some time for the State Administration of Taxation (SAT) to introduce the corresponding specific policies. In this window period, recycling enterprises still face the risk of tax-related pre-tax deduction of vouchers. In this regard, recycling enterprises should keep all the information on the acquisition of renewable resources from retailers, such as transport orders, storage orders, weighing sheets, acceptance sheets, payment vouchers, etc., and truthfully and accurately record the acquisition, sales, and balance of the situation, and at the same time, the enterprises can combine with their own situation to seek the help of tax practitioners for better and personalised guidance. get better personalised guidance. In addition, if the recycling enterprise is already facing tax treatment or penalties, it should hire a tax lawyer to respond effectively in a timely manner.