Introduction

The "Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration" (hereinafter referred to as the "Interpretation of the Two High Courts") (Fashi [2024] No. 4) has undergone nearly five years of research and drafting work since it was jointly initiated by the Supreme People's Court and the Supreme People's Procuratorate in 2019. During this period, opinions were solicited from central units such as the National People's Congress Law Working Committee, the Ministry of Public Security, and the State Administration of Taxation, as well as the national legal inspection system. This has created high expectations among practitioners and scholars for this interpretation.Various sectors are hoping that the new interpretation can effectively guide judicial practice in crimes of falsely issuing invoices, resolve issues such as inconsistent judgments in similar cases, inadequate adaptation of criminal responsibility and punishment, and inadequate rules for entering and exiting crimes that do not meet the changing needs of economic activities. These are long-standing and difficult problems and maladies that urgently need to be addressed.

From the introduction of the interpretation by the Supreme People's Court and the Supreme People's Procuratorate to recent feedback, the clauses related to the crime of falsely issuing special invoices for VAT have particularly attracted attention and are the focus of debate and controversy. There are certain difficulties in understanding and applying the provisions of the interpretation regarding the constituent elements, types of criminal acts, circumstances of exoneration, and the relationship between this crime and other crimes related to falsely issuing special invoices for VAT. In April of this year, the Supreme People's Court and the Supreme People's Procuratorate successively organized official teams to write and publish authoritative articles on the interpretation, intending to interpret the understanding and application of difficult and complex clauses. However, unfortunately, there are many differences and contradictions in the understanding and interpretation of the falsely issued clauses in the articles by the Supreme People's Court and the Supreme People's Procuratorate, which inevitably raises concerns about whether this interpretation can effectively guide judicial practice in the next thirty years. Based on the relevant content of the interpretation and the articles by the Supreme People's Court and the Supreme People's Procuratorate regarding the crime of falsely issuing special invoices for VAT, the author briefly analyzes the debate between behavioral crimes, intentional crimes, and consequential crimes of this crime, explores the understanding logic and views of the Supreme People's Court and the Supreme People's Procuratorate on this issue, and predicts the impact on future judicial practice in charging and defending this crime.

Why is the debate between act crime, intentional crime, and consequential crime so important?

The debate about whether a crime is committed by an act, by intention, or by consequence has a long history. The reason for such a long and significant controversy lies in the fact that the answer to this question has two significant impacts. The first is how to define the scope of the crime, whether it is broad or narrow, numerous or few. If the scope of the crime is defined too broadly, it may encompass certain enterprises or even all enterprises of a certain type of business, potentially causing devastating blows to an industry and having a severe negative impact on the overall economic vitality. On the other hand, if the scope is defined too narrowly, it may result in the responsibility of negligence for not complying with the Criminal Law.

 

The second impact is how to determine the responsibility of investigation and evidence collection by public security organs and the burden of proof for prosecuting crimes by procuratorial organs. If the elements in the constitutive requirements are fewer, the burden of proof for investigation and prosecution of crimes will be lighter. If the constitutive requirements are more complex, the work of investigation and proof for prosecuting crimes will be more difficult. Under the logical system of "act crime," the work of investigation and evidence collection, as well as the prosecution of crimes, is the simplest. With a few statements of "no real goods transaction" coupled with objective evidence provided by tax authorities to prove tax evasion, it is sufficient to charge the perpetrator with this crime. There is no need to consider the perpetrator's subjective intentions or business models, nor is it necessary to consider the principles of taxation based on different tax categories to determine whether the loss of state taxes is due to tax evasion or tax fraud.

 

Therefore, without amending Article 205 of the Criminal Law by the Standing Committee of the National People's Congress, it is indeed difficult for the Supreme People's Court and the Supreme People's Procuratorate to delimit the scope of the crime and modify the burden of proof for investigation and prosecution within the scope of their judicial interpretation authority. Achieving a balance that is acceptable to both market entities and judicial organs while complying with the Criminal Law norms is a challenging task.

The Two High Courts believe what type of crime is the crime of falsely issuing special invoices for value-added tax?

 

The interpretation of the Two High Courts and Article 205 of the Criminal Law suggest that the crime of falsely issuing special invoices for value-added tax is not a purpose crime or a consequential crime. Instead, it appears to be a behavioral crime based on the wording of Article 10, Paragraph 1 of the Two High Courts' interpretation. However, the Supreme Court has repeatedly denied this behavioral interpretation of the crime.

 

According to the Supreme Court, the crime of falsely issuing special invoices for value-added tax involves significant differences in both subjective aspects and objective harmfulness in practice. In drafting the interpretation, the court necessarily narrowed the description of the crime based on the principle of unity between subjectivity and objectivity, considering the historical evolution of the offense. The court also aims to reasonably define the scope of criminal activity based on the principle of compatibility between crime, responsibility, and punishment

 

Despite the Supreme Court's denial of the behavioral interpretation of the crime, it has not explicitly stated whether the crime is a consequential crime or a purpose crime. The court argues that the absence of tax loss due to offsetting cannot be used to conclude that tax loss resulting from offsetting is a necessary element for convicting this crime, thus negating its consequential nature. Similarly, the court maintains that the purpose of tax evasion is not an independent element of the crime, rejecting its classification as a purpose crime.

 

So, what is the nature of this crime according to the Supreme Court? Is there a clear answer? The court expresses that the core function of a value-added tax special invoice is to offset taxes. Only when this core function is used for falsely issued invoices, i.e., tax evasion, can it be considered the crime of falsely issuing special invoices for value-added tax. Essentially, this behavior aims to illegally possess state property, justifying the imposition of severe punishment in line with the principle of compatibility between crime, responsibility, and punishment

. Conversely, mere falsification without utilizing the core function of the invoice should not be classified as this crime.

 

From the court's perspective, the crime involves not only falsely issued invoices but also the dual intent of offsetting taxes and illegally possessing state property. In other words, the crime of falsely issuing invoices = falsely issued invoices + tax evasion, and tax evasion = tax offsetting + the intent to illegally possess state property. In essence, the crime = falsely issued invoices + tax offsetting + the intent to illegally possess state property. This viewpoint aligns with Professor Chen Xingliang's notion of "non-statutory purpose crime." Professor Chen argues that Article 205 of China's Criminal Law does not specify the purpose of evading state taxes, necessitating a purposive narrowing interpretation to limit the scope of the crime to falsely issued invoices with the intent to evade taxes, excluding those without such intent. While this interpretive approach exceeds the literal meaning of the law, it reflects the legislative intent.

 

The Supreme People's Procuratorate, on the other hand, has not delved deeply into the nature of this crime but has clearly stated that it is not a purpose crime or a consequential crime. The procuratorate maintains that Article 205 of the Criminal Law does not require a "purposeful" element for the crime of falsely issuing special invoices for value-added tax, nor does it require the elements of the purpose to evade value-added tax or the loss of value-added tax as prerequisites for conviction.

 

Has there been a significant change in the burden of proof for detecting and prosecuting the crime of falsely issuing invoices for value-added tax?

 

There have been significant changes in the burden of proof for detecting and prosecuting the crime of falsely issuing invoices for value-added tax, according to the interpretation issued by the Two High Courts and the revised viewpoint on the Criminal Act Offense by the Supreme Court. Specifically, while the burden of investigation and evidence collection by law enforcement agencies and the burden of prosecuting the crime by the procuratorate have not changed much in judicial practice, there has been a certain regulatory framework and an added presumptive obligation. When law enforcement agencies and the procuratorate allege that the defendant constituted the crime of falsely issuing invoices, they must prove that the defendant had the act of falsely issuing, the fact of offsetting taxes, and that the defendant's illegal act implied the intention of illegally possessing state assets. Since the "intention of illegally possessing state assets" is not a separate constituent element, law enforcement agencies and the procuratorate do not need to provide separate evidence for the defendant's intention, but can infer it through the defendant's illegal act. However, even with this presumption, the procuratorate still needs to fulfill this charge. If, based on the existing evidence and facts of the case, it cannot be presumed that the defendant had the intention of illegally possessing state assets, there will be a significant defect in the burden of proof for the charge, and the trial result should lean toward favoring the defendant.

 

The author is concerned that due to the unclear attitude of the Supreme Court, which denies both the Criminal Act Offense and the Intentional Crime and Consequential Crime, but does not clearly affirm the non-statutory Intentional Crime or Abstract Dangerous Crime, there is a high probability that the judicial practice of this crime in the future will be as follows:

 

(1) A large number of judicial authorities and adjudication cases will still convict based on the Criminal Act Offense.

 

(2) A minority of judicial authorities and adjudication cases will convict based on the Abstract Dangerous Crime. (For the theory of Abstract Dangerous Crime, please refer to Professor Zhang Mingkai's viewpoint.)

 

(3) Almost no judicial authorities and adjudication cases will convict based on the Intentional Crime and Consequential Crime.

 

The possible judicial practice situation described above will actually lead to a significant reduction in the threshold for convicting this crime, which runs counter to the intention of the Two High Courts to limit the scope of this crime. Before the interpretation by the Two High Courts was issued, due to the debate between the Criminal Act Offense, Intentional Crime, and Consequential Crime, some courts may have required the procuratorate to prove the harmful consequences of tax loss in specific cases. If the procuratorate could only prove the fact of tax offsetting but could not directly prove that the offset tax was lost, it would not convict based on the charge of falsely issuing invoices but instead convict based on other charges such as illegally purchasing invoices, in order to achieve the principle of matching crime, responsibility, and punishment. After the interpretation by the Two High Courts and the article by the Two High Courts were issued, due to their denial of both the Intentional Crime and Consequential Crime, and the ambiguous attitude of the Supreme Court toward the Criminal Act Offense, which indirectly recognizes it, the procuratorate will confidently believe that it has no burden of proof for proving tax loss. The burden of proof for the procuratorate to prosecute the crime has also been reduced, and the threshold for the defendant to be acquitted has correspondingly increased.

 

In addition, this has led to a derivative controversy regarding who should bear the burden of proof for proving tax loss and who should determine the standard for judging tax loss. The procuratorate can easily unload this burden of proof by citing that this crime is a Criminal Act Offense, and the court, as the adjudicating authority, also has no burden of proof. The defendant is unlikely to prove the existence of tax loss, but may actively prove the absence of tax loss. As a result, no participant in the criminal proceedings has the burden of proving tax loss, which leads to the inevitable loss of a unified and effective standard for judging tax loss and causes greater confusion in practice.

 

This chaotic situation has already emerged. Some cases use the amount of tax offset as the amount of tax loss, some cases use the difference between the paid invoice fee and the amount of tax offset as the amount of tax loss, some cases use the amount of financial reimbursement or reward received by the invoice issuer as the amount of tax loss, some cases use the audit or certification report conclusions of accounting firms or tax consultancies as the amount of tax loss, and some cases use explanations or tax documents issued by tax authorities as the amount of tax loss. The author believes that the fundamental reason for this chaos and controversy is that judicial authorities are afraid to take responsibility and omit the standard for judging tax loss.

 

However, every coin has two sides: positive and negative. From the perspective of the defense, for defense lawyers, the significant omission of the lack of standards for determining tax losses is both a challenge and an opportunity. As the defending party, when all parties involved in the litigation are unwilling to assume the burden of proof and cannot provide a judgment standard, it is necessary to proactively summarize and analyze legitimate and reasonable standards for determining tax losses based on the principles of VAT taxation. Lawyers should explain tax laws, principles, patterns, and evidence to judges, and strive to demonstrate the differences between tax losses caused by evasion and those caused by fraud and tax offsets. They should also clarify the internal logical relationships between offset rights, offset taxes, and tax losses, so as to draw important factual conclusions regarding the existence of tax losses.