The recent cases of suspected false invoicing by individuals have been occurring frequently, throwing the potential tax risks behind this behavior into the public eye. Through the combing and analysis of the cases, it can be found that the natural person invoicing cases show the characteristics of industrialization: firstly, more than half of the cases disclosed so far are construction enterprises, mainly because of the serious shortage of input invoices, and the construction enterprises try to use their employees or fiscal platforms to issue invoices on behalf of the construction enterprises; secondly, the flexible labor enterprises have triggered the tax audit due to the large number of individuals involved in the invoicing; moreover, the industries of medicine and freight transport choose to issue invoices through individuals due to the existence of problems such as the difficulty of obtaining input invoices. In addition, pharmaceuticals, freight transportation and other industries choose to issue invoices on behalf of individuals due to the difficulty of obtaining input invoices and other problems.
Previously, Hwuason systematically elaborated the concept of personal invoicing and related risk points through the article "Case Study: Analyzing Five Major Tax Risks of Personal Invoicing". In this article, we try to start from the industry where personal invoicing cases occur frequently, talk about the root causes of the cases, and analyze the risks of personal invoicing in combination with cases.

I. Individuals on behalf of the tax regulation trends

(I) Strengthening of tax regulation of personal billing behavior

The Opinions on Further Deepening the Reform of Tax Collection and Administration issued by the General Office of the CPC Central Committee and the General Office of the State Council on March 4, 2021 stipulates, "Strengthening risk prevention, control and supervision in key areas. For industries, regions and groups of people where tax evasion is a frequent problem, the proportion of 'double random and open' spot checks will be appropriately increased according to tax risks. With regard to tax evasion behaviors such as concealing income, inflating costs, transferring profits, and taking advantage of 'tax depressions,' 'yin and yang contracts,' and related transactions, the construction of preventive systems will be strengthened, and prevention, control, and supervision and inspection will be intensified in accordance with the law." The provision clearly puts forward the key areas, a variety of behavior to strengthen the prevention, control and supervision, personal invoicing involves common false cost and transfer of profits and other issues, the state has been increasing the supervision of this behavior.

(II)Crack down on individual false invoicing behavior

 At the end of March 2022, the State Administration of Taxation ("SAT") issued the Notice on the Launch of the 2022 "I Do Practical Things for Taxpayers and Convenient Tax Spring Action Version 2.0" (Taxation General Nasdaq Service Letter [2022] No. 32), which stipulates that "14. optimize the management of invoicing on behalf of taxpayers. Carry out special management of false invoicing, and crack down on illegal elements using the identity of natural persons and small-scale taxpayers to falsely issue invoices in accordance with the law."

(III) regions to carry out special crackdown on illegal proxy invoicing

On May 13, 2023, the Beijing Municipal Public Security Bureau held a press conference on combating and preventing economic crimes. In August 2022, the Beijing Municipal Public Security Bureau's Economic Investigation General Bureau organized and carried out a special centralized operation to combat "illegal invoicing", and cracked 28 cases of fraudulent VAT invoices in one fell swoop, and arrested 51 suspects, dismantling 7 dens of false invoicing in Beijing and Hebei, with the amount of over 1.4 billion yuan involved. Seven dens of false invoicing in Beijing and Hebei were smashed, with the amount of money involved amounting to more than 1.4 billion yuan; on May 13, 2022, the Information Office of the Government of Weihai City, Shandong Province, held a press conference, proposing: "To carry out special actions against tax-related crimes on a regular basis, focusing on key industries, fields, and groups of people, to implement centralized research and judgement and to launch a cloud crackdown, and to strive to solve a number of major and large-scale cases of false invoicing and fraudulent export refunds, to strongly promote the development of the tax system, and to promote the development of the tax system. fraudulent export tax refund cases, and strongly safeguard national tax security." In January 2022, the Hubei Tax Bureau conducted a special inspection of "false invoicing", and cases of false invoicing broke out in many parks, with a large number of invoicing enterprises and invoiced enterprises being implicated and facing administrative and criminal risks.

(III) Invoiced parties received tax warnings due to the large number of personal invoices issued on their behalf.

Recently, some enterprises have received warnings in the process of enterprise income tax remittance, suggesting that the number of personal invoices received by the enterprises is large or accounts for a high proportion, and requiring the enterprises to clarify the authenticity, legality and relevance of the transactions. It can be seen that under the current tax big data environment, the tax authorities have a very thorough grasp of the tax-related information of enterprises and analyze it more accurately, and the high-risk behavior of personal invoicing is the key concern of the tax authorities, which shows that it is very risky for enterprises to accept the tax invoices issued by non-compliant individuals.

I. Key Industry Individual Opening Cases and Tax-Related Risk Analysis

(I) Construction industry

Industry characteristics:

At present, more than half of the subjects of the tax-related personal invoicing cases disclosed are construction enterprises. Due to the weak tax awareness of upstream material suppliers of construction enterprises, they are unwilling to take the initiative to declare their income to the tax authorities and issue invoices, so it is difficult for construction enterprises to obtain the corresponding invoices, and there is the problem of insufficient input invoices. In addition, some construction enterprises still follow the management mode of the business tax period, taking the actual receipt of project payment as the basis for tax calculation, and the awareness of requiring upstream enterprises to issue VAT invoices is not strong, which leads to the fact that project managers can only find their own way to issue invoices when the project is settled. In practice, the amount of invoices issued by construction enterprises is generally large, which is easy to cause tax warning and serious tax risks.

Practice Case: Construction Enterprises Using Individuals to Issue VAT Invoices Recognized as False Invoicing and Paying Over 40 Million in Back Taxes

An engineering company is mainly engaged in civil engineering construction, from January to May 2019, in the absence of real business, the company instructed three employees to issue ordinary VAT invoices on behalf of the company, with a total of approximately fifteen million dollars in price and tax; from January to July 2020, it again instructed the company's employees to set up six individual households, and, in the absence of real transactions, it requested the six individual households to issue special VAT invoices, with a total of of approximately twenty-three million yuan; and made false expenditures of approximately 110 million yuan and unrecognized revenues of twenty-six million yuan.

In July 2022, the Inspection Bureau of Hangzhou Taxation Bureau issued the Decision on Tax Treatment and Decision on Tax Penalty, which determined that the enterprise's behavior of using individuals to issue invoices on behalf of the enterprise in the absence of any real transaction constituted false invoicing, and demanded the enterprise to pay the back taxes, late fees and fines totaling approximately 45 million yuan, which was an amount that was too large for the enterprise to bear.In April 2023, the Inspection Bureau of Hangzhou Taxation Bureau served a Notice of Taxation Matter Notice", which recognized the enterprise as a major tax violation and loss of trust subject.

Risk Disclosure:

This case is a typical case of a construction enterprise utilizing personal invoices to inflate costs. The enterprise, in order to reduce its tax burden, utilized individual households or other individuals to develop invoices for offsetting without actually conducting business resulting in a loss of state tax. Previously, Hunan Taxation Bureau disclosed a similar case of construction enterprises, involving up to 20 million yuan. In the context of the strong regulation of illegal invoicing by natural persons, the lack of authenticity and relevance of the invoicing behavior, as well as the invoicing of different places and conversion of the nature of income and other behaviors are extremely easy to attract the attention of the tax authorities. In addition, some enterprises believe that there is no tax risk in accepting VAT invoices issued by tax authorities, and therefore do not audit the invoices issued by upstream, but the large number of false invoicing cases in practice also shows that there are still inconsistencies between the invoices issued by individuals from tax authorities and the real business, and enterprises should pay attention to the tax risk of personal invoicing.

(II) Flexible labor platform

Industry characteristics:

Recently, there have been frequent cases of false invoicing on flexible labor platforms, the reason behind which is that labor-using enterprises have difficulties in obtaining invoices after accepting personal services, and they look for invoicing on flexible labor platforms to solve the problem of input deduction, but because of the lack of relevance, the tax authorities are likely to determine that it constitutes false invoicing as a result. There are two usual invoicing modes adopted by the spiritual labor platform: First, the spiritual labor platform directly issues VAT invoices to enterprises in the name of the platform, and then applies for invoices from the competent tax authorities on behalf of flexible laborers or issues invoices for itself by virtue of the qualification of entrusting invoices to be issued on behalf of the competent tax authorities; second, the spiritual labor platform arranges for the temporary registration of tax for the laborers or for the self-employed businessmen, and then applies for the invoices from the tax authorities in the name of the employees for the laboring enterprises directly. Under the above two modes, both Lingong platform and labor-using enterprises may obtain invoices issued on behalf of individuals in the absence of real employment.

Practice Case: Accepting invoices issued on behalf of flexible labor platforms and being characterized as false invoicing by tax audits

A property development company signed a marketing service agreement with Lv Mou, Lin Mou and Chen Mou, and according to the contract, it was required to pay the service fee of approximately 2.4 million yuan to the three persons after the service was completed, as the amount could not be expended through the pre-sale supervision account, and under Chen Mou's recommendation, the company first entered into a Shared Economy Service Agreement with a certain Ying Technology Company's flexible labor platform, and then the three persons signed a service agreement with the platform. After receiving the service fee paid by the property company, the platform issued a special VAT invoice to it, which was paid to the personal accounts of the three Chen Mou after deducting the relevant expenses. The competent tax authorities discovered this and warned them. In May 2022, the First Inspection Bureau of Huizhou Municipal Tax Bureau of the State Administration of Taxation issued an administrative penalty decision, which determined that there were inconsistencies between the property company and the actual transaction behavior, and found that it constituted false invoicing.

Risk Disclosure:

This case is a case in which the labor-using enterprise issued VAT invoices for deduction through the Lingong platform, which was found to be a case of false invoicing by the tax authorities. It can be seen that the above business is relatively hidden, usually handled by individuals in private negotiation, and it is difficult for tax authorities to effectively obtain abnormal transaction information. However, at present, the opening of spiritual labor platforms is under strong supervision, and after the upstream spiritual labor platforms are involved in false invoicing, the tax authorities may carry out comprehensive inspections on them, and the risk of labor-using enterprises being subjected to audits as a result will rise significantly.

(III) Pharmaceuticals, freight transportation and other industries

Industry characteristics:

Pharmaceuticals, freight transportation and some living service industries are also common industries where personal invoicing cases break out. There are two commonalities in these industries: firstly, the main system of individuals who actually provide goods or services in their upstream, and it is difficult for downstream enterprises to obtain VAT invoices; at the same time, such industries where individuals provide goods or services account for a large proportion of the total, and it is not easy for enterprises to obtain a large number of personal invoices on behalf of individuals to arouse suspicions of the tax authorities. Therefore, in order to solve the problems of VAT input deduction and cost deduction, enterprises choose to obtain VAT invoices through personal invoicing or entrust the tax platform to do so. The following is an example of a case in the medical industry, which reveals the tax risk of personal invoicing in this industry.

Practical case: medical company obtains invoices issued by an individual and is recognized by the tax authorities as false invoicing

In 2021, a medical enterprise sales company signed a service agreement with a taxation platform, and the taxation platform contacted three individual industrial and commercial households to issue VAT general invoices to the company, with the invoice name of "medical service*following service", and the total amount of the invoices was about 1 million RMB. After communicating with the individual households, the company realized that the expenses were mainly used for providing technical support services for hospitals. After communicating with the individual, it was understood that the fee was mainly used to provide technical support services for hospitals. The inspection team of the tax authorities selected two hospitals for external investigation, and the two hospitals issued the following statement: "The medical equipment sales company has not provided the hospital with sales of medical equipment and related services." After inspection, it was found that after the company made payments to the individual households, the individual households flowed back through the company's personal accounts, so it was determined that the behavior of the medical enterprise sales company and the individual households constituted false opening.

Risk Disclosure:

The medical enterprise involved in this case contacted the individual to issue invoices through the fiscal and tax platform to make up for the shortfall of inputs, which was found by the tax authorities to constitute false invoicing due to the inconsistency with the real business. Recently, there have been frequent cases of false invoicing on tax platforms, which often involve huge amounts of money and a large number of people, and at the same time implicate a large number of downstream enterprises that are subject to invoicing. Previously, Weihai Taxation Bureau disclosed a case of abetting enterprises and high-income groups by means of "personal invoicing" by unscrupulous intermediaries, involving an amount of up to 200 million yuan, and arrested 22 people of the false invoicing gang. Due to the characteristics of VAT invoices, a unique deduction chain has been formed, and the risk of false invoicing will be transmitted along with the chain. If the invoicing party is found to have the possibility of false invoicing, the invoices obtained by the recipient enterprises shall not be deducted, and there is even the administrative and criminal risk of accepting false invoicing. Meanwhile, according to the Announcement of the State Administration of Taxation on the Management of Abnormal VAT Deduction Vouchers and Other Relevant Matters (Announcement No. 38 of 2019 of the State Administration of Taxation), if the input tax amount of the taxpayer obtaining abnormal vouchers in the current period cumulatively accounts for more than 70% of the input tax amount of all the VAT invoices during the same period, the VAT invoices issued will also be classified as abnormal vouchers, which will result in the downstream enterprises of the invoiced enterprise being prohibited from making normal deduction.

III. Summary

As the national and local crackdown on illegal personal invoicing continues to intensify, together with the continuous upgrading of the tax management system, the tax risk of enterprises obtaining illegal personal invoices is rising significantly. Currently, the disclosed cases of individual invoicing include all subjects including the invoicing party, the invoiced party and the intermediary organization. Previously, individuals as the invoicing party took a chance and thought that they would not be the object of audit by tax authorities, but a large number of individuals in the outbreak of cases were subjected to administrative or even criminal penalties; the industry subjects introduced in this paper mainly act as the invoiced party, and due to the existence of certain specialties in the above industries, there are a large number of cases in which individuals are accepted to invoice on behalf of individuals, which involves a greater risk of false invoicing, and enterprises should therefore be mindful of the authenticity and relevance of information and the need to retain information about individuals. Therefore, enterprises should pay attention to the authenticity and relevance of the invoiced information and retain relevant materials to reduce the risk of false invoicing.