Editor's Note: Article 204(2) of the Criminal Law stipulates that the crime of tax evasion is to be dealt with when a person fraudulently obtains the tax he or she has paid. There is a big controversy in the field of practice about what is meant by “taxes paid”, which leads to a huge difference in the understanding between the case-handling authorities and the persons involved in the case when calculating the amount of money involved in the case as well as determining the offense in some of the cases and makes it difficult to stop the dispute. Recently, I observed that Ningbo Procuratorate issued a typical case of fraudulent export tax rebate, in which the procuratorate explicitly applied Article 204(2) of the Criminal Law and pointed out that “the tax paid in the case should be deducted from the amount of the crime of fraudulent export tax rebate”. This case has certain practical significance in defining “paid tax”, but undeniably there are still many problems that need to be further clarified. This article will take the case as an entry point to analyze and elaborate the author's viewpoints in depth for the benefit of the readers.

I. Latest Case: VAT Paid by the Invoicing Enterprise Should be Deducted from the Amount of Fraudulent Taxes

(I) Basic Facts: Tax Fraud after False Opening of Rich Vouchers

Recently, Ningbo Municipal People's Procuratorate issued a batch of typical cases, which involved a case of fraudulent export tax refund. As the original description of the case is complicated, the parts of the case are split and briefly described as follows:

Firstly, Factory A accumulated rich votes. Xu is the investor and actual operator of Factory A. During the period from July 2017 to January 2022, Factory A sold lithium tools and other goods to foreigners, and did not issue the corresponding sales invoices because the foreigners did not need VAT invoices.

Secondly, the intermediary introduced false invoicing. After Chen's intermediary introduction, Xu contacted Ningbo Certain International Trade Company Limited (Company B). Subsequently, company B false payment to factory A, factory A through Xu, Chen and other personal accounts will be the money back to company B. Finally, the factory will be rich VAT invoices issued to Company B.

Thirdly, Company B “helped” Factory A to cheat tax. After obtaining the invoices, Company B helped Factory A to declare export tax refund through the above 241 invoices, and obtained a total tax refund of RMB 2,498,400, of which Chen made a profit of at least RMB 160,000 yuan.

Based on the case experience, we judged that Company B, as a trading company with the right to export tax rebate, may have obtained the export tax rebate through the form of “buying and matching” after obtaining the VAT special invoices. The original text said that it “helped” Factory A to declare the export tax refund, which might be that Company B only left the benefit fee of 160,000 yuan and delivered the other export tax refund money to Factory A. Because in other cases, such as acting as an agent for export, it was not necessary for Company A to issue special VAT invoices to Company B.

(Ⅱ) Deduction of Taxes Paid by the Prosecutor's Office for Factory A

So far, the case was a simple case of false invoicing of rich, buy a single with the case, in which Factory A is the party of false invoicing, Company B is the party of declaring tax rebate, the two have reached a common conspiracy to cheat the tax, and should be dealt with as an accomplice in the fraudulent export tax rebate. However, the procuratorial authorities, after ascertaining, that “Factory A declared a total of 1,331,900 yuan of value-added tax and additional tax during the period of false invoicing, so the amount of its fraudulent export tax rebate is at least 1,166,500 yuan.” It became the key to the handling of this case.

In the typical significance section, the procuratorial authorities explained that, “Combined with the provisions of Article 204(2) of the Criminal Law and other provisions, the paid part of the tax in this kind of case should be deducted from the criminal amount of the crime of fraudulent export tax refund.” It is also proposed that the procuratorial authorities should actively communicate with the public security and taxation authorities in order to find out the amount of tax paid, so as to achieve a balance between combating crime and safeguarding the development of enterprises.

(III) Remaining Problems: How to Define “Paid Taxes”?

Combined with practical experience, we found that some enterprises actually operating export business have real purchasing and exporting, but they are suspected of tax fraud due to invoices, foreign exchange, documents and other issues, and face serious criminal liability. However, if the portion of tax already paid by the export enterprise can be deducted from the amount of tax fraud, as in the case, the penalty can be reduced for the person in charge and the enterprise involved, which is favorable for the enterprise to carry out compliance and rectification.

However, from the principle of tax law on export tax rebate, combined with the constituent elements of fraudulent export tax rebate and its essence, this paper believes that there is still a remaining problem in the case that has not been solved: the prosecuting authority in this case found that the “paid tax” refers to the fact that Factory A declared the value-added tax (VAT) and surcharge during the period of fraudulent issuance of the invoices mentioned above, and adopted the viewpoint of actually declaring the amount of tax. The point of view of the amount of tax paid. At present, there is a great controversy in practice on how to define “paid tax” in Article 204(2) of the Criminal Law, which states that a taxpayer, after paying tax, adopts the deception method stipulated in the preceding paragraph to cheat the paid tax. This case, in conjunction with the principles and provisions of the relevant tax law, the views adopted in this case to be analyzed and discussed as follows:

Ⅱ.  Legal Analysis: How “The Tax Paid” Should be Understood?

(I) Analysis: The amount of tax fraud in this case is in essence the “input tax” of Factory A.

According to the Provisional Regulations on Value-added Tax (VAT), the VAT payable is the value-added portion of the taxpayer's output tax minus its input tax. Specifically in this case, Factory A, as the invoicing party, issued the rich invoice to Company B to declare the export tax refund, which inevitably formed an output tax. Factory A used the output tax minus the input tax, and actually paid 1,331,900 yuan of value-added tax and surtax in this segment.

When the perspective is transferred to the foreign trade company Company B, we note that Company B declares the export tax refund by virtue of the VAT invoice issued by Factory A. In the case where the tax refund rate is equal to the VAT rate, the tax refund obtained is usually equal to the output tax of Factory A. Therefore, we can assume that Factory A's output tax is equal to the declared export tax refund, i.e., 2,498,400 yuan. The procuratorate is of the opinion that the amount of tax fraud obtained by Factory A is the declared export tax refund amount (output tax amount of 2,498,400 yuan) minus the actual VAT and surtax paid in this segment (1,331,900 yuan), which is, in terms of amount, equivalent to subtracting Factory A's output tax amount from the VAT it paid in this segment. Therefore, this paper concludes that in this case, the prosecuting authority believes that the tax actually cheated by Factory A is roughly equivalent to Factory A's “input tax” in terms of amount.

(Ⅱ) The unresolved issue: whether the input tax credits of the invoicing enterprise can be deducted?

Based on the above analysis, the following question arises in this paper: according to the system of input tax credit in our country, Factory A is entitled to the input tax credit itself. In other words, if Factory A does not falsely open this part of the invoice to Company B, even if Factory A cannot apply for tax rebate during the period (2017-2022), this part of the retained input tax is still the actual burden of Factory A, through the form of out-of-the-price tax VAT payments, so why can't this part of the Factory be recognized as the “tax paid”? “?

From another aspect, since 2023, China's VAT tax refund system has been gradually established, similar to Factory A's invoicing enterprises, if they have accumulated legitimate retained input tax, they can apply for a tax refund, and at this time, if these invoicing enterprises carry out false invoicing and help cheat the tax, can the tax within the scope of the tax of the invoicing enterprises “retained tax refund”? If these invoicing enterprises commit the act of false invoicing and help tax fraud, is it possible to recognize the tax within the scope of the invoicing enterprises' “tax retention and tax refund” as the “tax paid”?

(III) Breakthrough: the two Supremes’ interpretations stipulate the concept of “unnegative tax”.

When talking about “input tax”, it is not difficult to recall the system design of separating “taxpayers” and “tax-negative persons” of VAT. This system is reflected in the provisions of 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 (Fa Shi [2024] No. 4), for example, Article 7(2) stipulates that: “Declaring an export business which has not been tax-negative or exempted from taxes as a tax-exempted export business is tax fraud,” which is a tax fraud. “is a tax fraud, which emphasizes the principle of VAT deduction by emphasizing “not taxed” instead of not declaring tax.

For foreign trade enterprises, as a tax-negative person, it is impossible for them to pay the VAT on exported goods by themselves, but they can only bear the input tax by way of out-of-the-money tax, and then pay the VAT by the selling enterprises. As a tax-negative person, the only standard for foreign trade enterprises to judge whether the goods are “tax-negative” or not is whether they have paid the full amount of tax-inclusive price to the seller, and borne the full amount of VAT on the goods.

Then, can we make this understanding: when the foreign trade enterprises in the procurement of goods, the full amount of goods to pay the tax price to the seller, it can show that the goods have been negative tax. Thereafter, whether the seller is the existence of false enhancement or tax evasion, has nothing to do with foreign trade enterprises. In this paper, we believe that this understanding is in line with the State Administration of Taxation's Announcement on Issues Relating to Foreign Issuance of VAT Special Invoice by Taxpayers (SAT Announcement No. 39 of 2014), which stipulates that foreign trade enterprises and their sales enterprises should be cut.

Since the foreign trade enterprise can do this risk and liability cutting, based on the provisions of SAT Announcement No. 39 of 2014, the upstream of the foreign trade enterprise, i.e., the selling party and the invoicing party, can also do the liability cutting according to this theory. That is to say, if the invoicing party has paid the full amount of tax-inclusive price to the upstream enterprise and has paid the VAT in this link, it means that “the goods have been tax-negative”, and it does not belong to the provisions of the Two Higher Interpretations of Declaring the Export Businesses which are not tax-negative or tax-exempted as taxed export businesses, and it should not be declared as taxed export business according to the provisions of Fraudulent Businesses. It should not be punished in accordance with the provisions of tax fraud. At this time, if tax fraud occurs, it should be recognized as “cheating the tax paid by oneself”, and the crime of tax evasion should be dealt with in accordance with Article 201 of the Law.

(Ⅳ) Judicial practice needs to re-examine the constituent elements of fraudulent export tax rebate

The core of the export tax rebate system lies in the refund of the value-added tax (VAT) on exported goods in domestic transactions. From the point of view of value-added tax deduction system, foreign trade enterprises to obtain the “export tax rebate”, but the foreign trade enterprises to bear all the value-added tax input refund to foreign trade enterprises. The foreign trade enterprises themselves have legal property rights and interests in this part of the input VAT, so the State has not actually “refunded” more tax to the foreign trade enterprises. This is also the purpose of Article 204(2) of the Criminal Law. However, this provision is seldom utilized in practice, and there are not enough judicial cases to clarify the connotation of the provision, so it is more controversial. For example, it is argued that although the input tax is the VAT on the goods, it has already been transformed into state property, so only the part actually declared and paid by the enterprise can be deducted.

In this paper, we believe that in the real export of goods, the foreign trade enterprise burden of input VAT amount within the scope of the tax fraud, belongs to the evasion of their own tax already paid, constituting tax evasion; only fraudulent tax over the foreign trade enterprise's own VAT tax, only actually caused the loss of national tax, constituting tax fraud. Of course, this viewpoint is still relatively radical. Comparatively speaking, it is easier to understand the argument that the exported goods are already tax-negative and thus do not constitute tax fraud by applying the provisions of Article 7(2) of the Two Higher Explanations.

III. Typological observations: what constitutes “fraudulently obtaining taxes already paid”?

(Ⅰ) Although the VAT invoice is falsely issued, the invoicing enterprise has paid the VAT faithfully.

In the case of real goods, the loss of national tax is not necessarily equal to the tax amount stated in the invoice. For example, in this case, Factory A has already sold the goods to the foreigner and accumulated rich tickets, and then in order to earn the benefit of export tax rebate, it falsely issued invoices to Company B, and at the same time truthfully declared the VAT in the invoicing session in this session. At this time, according to the viewpoint of the procuratorate in this case, the part of VAT paid by Factory A in the false invoicing session truthfully declared can be deducted from the amount of tax fraud.

(Ⅱ) Foreign trade enterprises legally obtained input VAT invoices

According to the viewpoint of (2017) Qiong Criminal Final Judgment No. 60, foreign trade enterprises, despite the existence of overstatement of export prices, inflating the amount of export contracts, obtaining false foreign exchange, and other means of behavior, the core of fraudulent export tax rebates as a result of the crime is still to determine whether the foreign trade enterprises actually defrauded the state tax. In the case that the input VAT invoice is not characterized as false opening, the foreign trade enterprise does not constitute tax fraud.

The Notice of the Ministry of Finance and the State Administration of Taxation on the Policy of Value-added Tax and Consumption Tax on Exported Goods and Services Article 4, “Basis of Taxation for VAT Refund (Exemption)”, clearly stipulates that the basis of taxation for the refund (exemption) of VAT for a foreign trade enterprise that has exported goods after purchasing the goods within the country shall be as follows “The amount stated in the special VAT invoice for purchasing exported goods or the duty-paid price stated in the special VAT payment book for customs import.” In other words, the basis of tax calculation for export tax refund (exemption) is not the transaction price recorded in the foreign trade contract or the amount of foreign exchange obtained by the foreign trade company, but the price specified in the input invoice. If the VAT invoice obtained by the foreign trade enterprise is not characterized as false invoicing, two consequences arise at this point:

First, the foreign trade enterprise has faithfully borne the full amount of VAT on the exported goods, and the legal VAT special invoice is the strongest evidence to prove that the foreign trade enterprise has borne the full amount of VAT on the goods.

Secondly, because the export tax rebate rate of our commodities is equal to or less than the VAT rate of the commodities, the foreign trade enterprises can only “cheat” the tax they have paid in a timely manner, which belongs to tax evasion.

In practice, some foreign trade enterprises in the export of goods, because of foreign exchange settlement, shipping bills of lading problems, resulting in the inability to provide a compliant declaration of tax rebate vouchers, documents for the record, in accordance with the provisions of the tax law, at this time should be treated as domestic sales, shall not be declared tax rebate. Foreign trade enterprises in order to obtain tax refunds, false foreign exchange accounts, forged documents for the record and other means, “fraudulent” export tax rebates. However, at this time, foreign trade enterprises due to input invoices legal compliance, belongs to the “cheating their own paid taxes”, does not constitute tax fraud.

(Ⅲ) Procurement of agricultural products, as proposed goods, is tax paid

According to the People's Court Newspaper, “Whether Counterfeiting the Export of Self-produced Goods for the Purpose of Obtaining Export Tax Refunds Constitutes the Crime of Fraudulently Obtaining Export Tax Refunds”, agricultural products, as a special category of goods, belong to the proposed “taxed goods” (deemed to have been taxed). In other words, the reason why purchase invoices and sales invoices of agricultural products can fulfill the function of “tax exemption in the sales segment and deduction in the purchase segment” is that when farmers produce agricultural products, they, as the end consumers of a large number of commodities, have already borne a huge amount of value-added tax (VAT). At this time, if farmers are allowed to pay VAT once again when selling agricultural products, it will lead to double taxation. The State Administration of Taxation has published a book entitled “Operational Guidelines for Comprehensively Promoting Camp Reform and Increase in Business”, in which it is clearly pointed out that “the production materials such as fuel and agricultural machinery purchased by farmers for the production of agricultural products are paid with VAT, and the price of agricultural products contains a part of VAT, which means that taxpayers purchasing tax-exempted agricultural products are to a certain extent 'burdened' with VAT.”

Accordingly, if the fact that the actor exports agricultural products is true, i.e., there is real procurement, processing and export of agricultural goods, and just because the invoice for the acquisition of agricultural products is not filled out in a standardized manner or the sales invoice for the agricultural products obtained is found to be falsely opened, its act of obtaining an export tax rebate “has not caused the state organs to fall into the wrong understanding and dispose of property ”, and will not cause the loss of national tax, but is a fraudulent acquisition of the tax they have paid, it is not appropriate to recognize as fraudulent acquisition of export tax refund.