Since the pharmaceutical industry anti-corruption work, a number of pharmaceutical listed company real controller because of suspected corruption by the supervisory commission detention, the securities and exchange commission on a number of pharmaceutical enterprises false statement problem to carry out investigation. Under the shock, the A-share pharmaceutical-related sectors led the fall or even stopped, a number of pharmaceutical companies to be listed due to high sales costs and the lack of reasonableness, ipo pressed the pause button or termination button. The stock exchange, the beijing stock exchange also have issued "issuance and listing audit dynamics" requires intermediaries to focus on the verification of sales costs. In view of this, this paper will take the current medical industry anti-corruption work on the capital market from the perspective of the impact, summarize the pharmaceutical enterprises listed on the ipo audit of marketing expenses and tax compliance points and put forward countermeasures to help pharmaceutical enterprises healthy business development.

I. Pharmaceutical anti-corruption continues to deepen, pharmaceutical enterprises investment and financing deeply affected

(I) A number of listed pharmaceutical companies, the real controller of the information disclosure violations by the Securities and Futures Commission filed for investigation

A few days ago, we combed through the relevant announcements of listed pharmaceutical companies on Juchao.com and found that since this year, the actual controllers of a number of listed pharmaceutical companies have been investigated by the Securities and Futures Commission for disclosure violations and laws, including the actual controllers of Renfo Pharmaceuticals and Fu Ren Pharmaceuticals. Among them, on February 7, 2023, Renfo Pharmaceuticals had released the Shanghai Stock Exchange Disciplinary Decision, the SSE on the Ai Luming and the relevant responsible persons to be disciplinary action and public condemnation.

(II) A number of listed pharmaceutical companies announced that the real controller and chairman of the board of directors have been retained

According to the announcement of Seren Biologicals and Weining Health, one of the real controllers of Seren Biologicals, the chairman of the board of directors and legal representative Fan Zhi has been retained by the Supervisory Commission for suspected job-related crimes and has opened a case for investigation; Zhou Wei, the real controllers of Weining Health, was also retained by the Supervisory Commission on July 1st. After searching, I found that in the former GEM Board Issuing and Reviewing Committee member Sun Xiaobo bribery of referee documents show that in Sun Xiaobo as a member of the period, Zhou Wei had given Sun Xiaobo 10,000 euros. However, on August 14th, Weining Health released a notice showing that Zhou Wei has lifted the relevant retention measures, the case is under further investigation.

In summary, under the high pressure of anti-corruption, the financial disclosure requirements of the more stringent listed pharmaceutical enterprises and the actual controller should be timely self-check their own behavior, to avoid the relevant risks from the Securities and Exchange Commission, Supervision and Inspection Commission.

(III) pharmaceutical enterprises stock market is affected, ipo was denied or actively apply for withdrawal

Through in see micro data, snowball, rongda, the stock exchange, the north exchange and other websites to retrieve pharmaceutical enterprises ipo information and summarize the formation of the table, since the beginning of 2023 as of August, incomplete statistics a total of 14 pharmaceutical enterprises terminated ipo. in these enterprises ipo period, the author observed that some of the pharmaceutical enterprises of the sales expense ratio is higher, such as Beijing huahao zhongtian pharmaceutical company sales expense ratio of as high as more than 80%. The above pharmaceutical enterprises were questioned about their sales expense ratio. The above pharmaceutical enterprises in the process of being questioned, also were asked about sales costs.

In addition to high sales costs, invoice compliance is also a key concern of the regulatory layer, some inquiries involve the issuer to carry out market promotion activities issued invoices in detail, for example, in the HengAnFulin Pharmaceuticals IPO process, three rounds of inquiries are mentioned to accept false invoices of promotional fees, which ultimately led to the company in March last year to actively withdraw the application for ipo.

Visible, to be listed pharmaceutical enterprises sales expense ratio is too high, promotion fee, conference fee in the existence of non-compliance, false invoicing and other issues may lead to the preparation of many years of hard work of financing ruined. In addition, according to the author's observation on the Flush website, the recent decline in the pharmaceutical sector stocks is also larger. Therefore, whether for listed pharmaceutical enterprises or to be listed pharmaceutical enterprises, all need to focus on sales expenses, invoices of tax compliance.

(IV) The Exchange issued a point of verification of pharmaceutical promotional expenses

Since May this year, a number of departments in the medical field have issued documents related to pharmaceutical anti-corruption, the use of false invoices to obtain funds for commercial bribery and other violations have also been the attention of the SSE, BSE and SZSE. In the latest issue of "Issue and Listing Audit Dynamics" issued by SSE and Beijng Stock Exchange respectively, the intermediaries are required to focus on verifying the legal compliance of sales promotion activities carried out in different modes, the authenticity of the expenses, the fairness of the related transactions, and whether to take the means of correspondence interviews and other means, referee documents and other public channels to verify that there is no commercial bribery by the issuer.

The Beihai Stock Exchange also shared a case in which a pharmaceutical company withdrew its declaration due to insufficient verification of the pharmaceutical company's promotional fees, which were not supported by evidence such as academic fee application forms and site photos in the due diligence draft. The Shenzhen Stock Exchange, on the other hand, has issued a special regulatory report on commercial bribery in pharmaceutical companies.

Accordingly, I speculate that in the future ipo audit, sales promotion fees will inevitably become the focus of verification. Remind the vast number of intermediaries, in addition to taking the verification method proposed by the exchange for verification, once the sales expense ratio is too high, also need to consider whether the pharmaceutical enterprises have false invoicing tax non-compliance and other behaviors, after all, most of the pharmaceutical enterprises of commercial bribery of the funds from this source.

II. Drug companies ipo is questioned about service providers, promotion fees, false invoicing, ipo process blocked

(I) due to the suspicion of tax evasion, false invoicing and other circumstances, pharmaceutical enterprises withdrew ipo application

1. Heng An Fulin Pharmaceuticals was questioned three times about the acceptance of false invoicing

In the stage of preparation for listing of Heng'an Fulin Pharmaceuticals, due to the "case of false invoicing of Fei Mou, Wu Mou, Zhou Mou, etc." announced by Yilong County People's Court of Sichuan Province, the defendant Fei Mou and others have registered 13 CSO companies to issue false invoices of pharmaceuticals for Heng'an Fulin Pharmaceuticals, Guizhou Yibai, and other pharmaceutical companies, and are being investigated for criminal liability according to the law.

Accordingly, the SZSE's first inquiry asked the issuer to explain the specifics of the case of false invoicing, including the specific circumstances of the case, whether the issuer is facing administrative penalties, whether there is a risk of the real controller, directors and supervisors being held criminally liable, and whether there was any sale of uninvoiced or falsely invoiced cases during the reporting period. In the second round of questioning, the SZSE asked in detail about the acceptance of tax credits for false invoices, including whether the issuer had prior knowledge of the false invoicing and whether there were other tax violations such as false invoicing; in the third round of questioning, in response to the issue that the promoter had been involved in false invoicing, the issuer was asked to explain whether it had internally set up relevant internal control measures for the authenticity of invoices.

On March 28, 2022, Heng An Fulin Pharmaceuticals applied to withdraw its application documents for issuance and listing, and the Shenzhen Stock Exchange decided to terminate its ipo audit.

2. Vono medicine and promotion service providers whether there is false invoicing and other non-authentic promotion transactions

Vono medicine ipo process, the shenzhen stock exchange for the first time inquiries on the promotion of the authenticity of the service transactions, asked the issuer whether there is the criminal law article 205 pointed out the behavior of false invoicing, whether there is the payment of "point fee" and other non-true promotional transactions. At the same time, Vono Pharma was asked to explain whether there was any transfer of benefits in the promotion service fees. Vono Pharma submitted an application for withdrawal of ipo to SZSE on March 23, 2023, and SZSE decided to terminate its ipo audit.

(II) The Exchange is concerned about the authenticity and reasonableness of the promotion expenses, etc.

1. Zhiyuan Pharmaceutical was asked about the reasonableness of the academic promotion expenses.

Academic promotion fee is an important part of the sales cost of pharmaceutical enterprises, some pharmaceutical enterprises in the name of academic conferences in the name of unlawful transfer of benefits, is also one of the stock exchange must ask. In the ipo of Zhiyuan Pharmaceuticals, the Shenzhen stock exchange for the issuer's 300 million academic promotion fee and high proportion of the serial torture, requiring it to explain the reasonableness of the unit price of academic promotion fee, whether there is the behavior of the sales rebate, the reasonableness of the meeting costs rise, the meeting of the number of the issue of the specific circumstances.

It is worth noting that the prospectus shows that during the period from October 2016 to May 2018, Zhiyuan Pharmaceuticals' subsidiary, Langrun Pharmaceutical Technology, had obtained false invoices, and the tax authorities decided to recover its income tax and impose a fine. Currently, on August 7, 2023, the sponsor responded to the exchange's inquiry, and its relevant situation is subject to further observation.

2. Rongsheng twice on the meeting, promotion service fee is still the key

Shanghai Rongsheng Bio-Pharmaceutical Co., Ltd. recently took the initiative to withdraw its IPO application for the KTC Board from the Shanghai Stock Exchange after successfully passing the meeting on December 26, 2022 From the publicly available information, the SSE first time in the on-site questioning, Rongsheng was asked to explain the settlement rules of the promotional service fee, and whether it is directly linked to the performance of promotional services and related customer returns, etc. In the second on-site questioning, it was asked to confirm the specific method of the authenticity of the frequency of the promotional activities of the service provider, among other things. Although Rongsheng biology on these issues for each reply, but this does not seem to dispel regulatory doubts, and ultimately withdrew ipo.

Last year, wild wind pharmaceuticals withdrew ipo application also lies in the promotion of unreasonable costs, the shenzhen stock exchange on the sponsor because of the wild wind pharmaceuticals market promotion fee settlement basis, the actual controller of the funds flow and other matters such as verification is not in place violation of the warning.

3. A product of pharmaceuticals many rounds of questions about the promotion fee

Yipin Pharmaceuticals in the first inquiry, the exchange asked it to explain the main content and amount of promotion service fees, including market research, hospital development, channel maintenance, meeting fees (departmental meetings, business promotion, academic promotion) and other types of promotional activities; in the second inquiry, on this basis for the meeting fees accounted for a high proportion of the problem, asked to explain the match between the participating departments and the company's products, the time of the meeting, In the third round of questioning, the company was asked to explain whether it ensured the accuracy and completeness of the promotional service fees and other issues. At the time of the meeting, the Listing Committee remained concerned about the promotion services, and asked for an explanation of the reasons and reasonableness of the high number of promotion service meetings, the high percentage of promotion service fees, and whether there were commercial bribery, false invoicing, transfer of benefits and other behaviors.

Currently, Yipin Pharmaceuticals has successfully passed the meeting and responded on April 21, 2023 when the Listing Committee considered the implementation of the comments.

(III) Our analysis: high sales expense rate, commercial bribery and tax violations such as false invoicing have strong correlation and have been focused on by regulators.

From the above pharmaceutical enterprises to be ipo inquiries, it is not difficult to see that the regulators focus on the tax compliance, expenditure authenticity and other issues of pharmaceutical enterprises, mainly centered on the compliance of invoice acquisition, the composition of sales expenses, whether there is the conveyance of undue benefits, commercial bribery and other aspects.

According to the author's observation, the commercial bribery and transfer of benefits of pharmaceutical enterprises are highly correlated with tax violations and illegal acts. In practice, the funds for commercial bribery of pharmaceutical enterprises are mainly extracted through false promotion service fees, consulting fees, sponsorship fees, conference fees, and obtaining false VAT invoices. Therefore, the high rate of sales expenses and the high proportion of promotion fees are very likely to have the possibility of commercial bribery and transfer of undue benefits, while triggering some series of chain reactions such as taxation and anti-corruption.

In addition to the pharmaceutical enterprises themselves through tax evasion will be commercial bribery funds out of the "two votes system", some promotional service providers will take the establishment of companies stationed in the enjoyment of the "tax rebate" park way, the use of the park's approved levy and financial return preferential policies, to carry out false invoicing behavior, to help pharmaceutical enterprises. They will carry out false invoicing and help pharmaceutical enterprises to obtain funds for commercial bribery. This is also the reason why the Exchange focuses on questioning the promotion service providers.

III. Strategies to solve the tax risk of pharmaceutical enterprises ipo

(I) If there is a case of accepting false invoices, the reasonableness and good faith of accepting false invoices should be fully justified.

Combined with the legal opinions published by the pharmaceutical enterprises to be ipo, most of them mainly focus on the historical development of the enterprise, related transactions, three meetings, etc., for the existence of commercial bribery and other issues of the pharmaceutical enterprises, the main way of traditional verification is to check the letter of evidence, access to the enterprise, the key person bank water, etc., the lack of verification of sales costs, false invoices and other ways of verification, the review of tax compliance is somewhat lacking. Lacking in the review of tax compliance.

For example, in the three times when Heng An Fulin Pharmaceuticals was questioned about false invoicing, the issuer submitted a Note on Tax-Related Matters issued by the competent tax bureau, which considered that it was "obtaining false general invoices in good faith" and did not have the risk of administrative punishment, but it still paid up the enterprise income tax and late payment fees. However, the issuer did not explain the specific business operation of obtaining the invoice, and the Exchange may consider its argumentation insufficient, and repeatedly inquired about the situation of false invoicing.

In response to such behavior of accepting false invoices in good faith, the author believes that enterprises should strengthen the explanation of the authenticity of business and subjective good faith.

First of all, to prove that there is a real transaction relationship between the two sides, and the invoice issued by the name, quantity, price and other aspects of the consistency of the existence of the name, there is no serious deviation from the name of the purchase and sale of goods, through the invoice auditing system of the enterprise, the acceptance of fraudulent invoices for the comparison of the authentication, there is no problem; Secondly, has been actively cooperating with the inspection of the tax authorities and to provide the relevant materials to prove that the business occurs The authenticity of the invoices obtained in good faith according to the "State Administration of Taxation on the issuance of <Enterprise Income Tax Pre-tax Deduction Vouchers Management Measures> Notice", you can obtain the replacement, replacement invoices, other external vouchers in line with the provisions or as pre-tax deduction vouchers, even if it is not possible to obtain, can be used as a contract and other materials to prove that the deduction of the pre-tax; Finally, to take a step back, the vouchers can not be obtained as a substitute, can be made for enterprise income tax adjustments. Finally, even if it is not possible to obtain a substitute voucher, it is possible to make adjustments to the EIT without the possibility of being subject to administrative penalties or criminal sanctions.

(II) Focus on financial and tax compliance to avoid illegal disclosure or misrepresentation due to tax problems

There are many tax-related risks in the ipo process, which need to draw the attention of the issuer's lawyers. The supreme people's court on the trial of securities market misrepresentation infringement of civil compensation cases of a number of provisions of the civil compensation to strengthen the elements of liability, kangmei pharmaceuticals and other cases of sentencing, independent directors have borne a huge amount of liability, drug companies directors and supervisors with intermediaries should pay attention to the problem of high rate of sales expenses, which is whether there is through the false invoicing, false cost of the cost of tax violations, financial statements are have been prepared in accordance with the applicable basis of preparation of financial statements in all material respects and are fairly presented. Because tax-related issues are based on business, its own and finance, law has a strong correlation, so the integration of "industry, finance, law and tax" need to pay attention to the pharmaceutical enterprises, in the ipo, if you meet the behavior of equity changes whether there is a tax avoidance, related transactions, unfair pricing to avoid the tax burden of tax-related issues, to take with the tax lawyers to communicate with the way is also a good choice. The way is also a good choice, can provide solutions for the listing of pharmaceutical enterprises, not only to get the recognition of the regulatory agencies, successful listing, but also to avoid future tax-related issues due to misrepresentation of huge amounts of liability.

(III) Developing a perfect internal control system and selecting promotion service providers in a compliant manner

Since the reform of the "two-invoice system", traditional distributors have changed to serve pharmaceutical enterprises, and a large number of newly established promotion service companies have emerged. Therefore, pharmaceutical enterprises in the selection of cooperation promotion service providers, need to improve the internal control system on the authenticity of the service provider, business qualifications, affiliation, business capacity, etc. to carry out a full range of assessment, to ensure that the promoter is not a shell company, and at the same time, have the appropriate promotional capacity. For example, the development of "market promotion activities management system", "internal audit system", "anti-commercial bribery management system" and other internal management systems to provide for the selection process of service providers. Secondly, when choosing the promotion service provider, in addition to taking the referee network, tax administrative penalties and other network verification methods, but also can take the field visit, check the business premises, personnel, scale, to determine whether there is a breach of trust, whether the service provider is legally compliant, and once any abnormality occurs, immediately stop its cooperation. Finally, once the service provider is selected, it is necessary to sign the "Anti-Commercial Bribery Commitment" to establish a risk isolation mechanism between the pharmaceutical enterprise and the counterparty, and at the same time, the contract can be agreed upon in the breach of contract liability clauses, if the promoter's commercial bribery leads to the damage of the pharmaceutical enterprise's reputation, affecting the process of listing, it is necessary to bear the civil liability.

(IV) Form a complete chain of evidence of promotion based on real business occurrence

Based on the above cases, it is clear that the Exchange usually centers its inquiries around the occurrence of promotional expenses. In this regard, pharmaceutical enterprises should establish a strict financial and tax management system, for the reimbursement of promotional expenses, invoices, activities, etc. need to be approved, and at the same time to eliminate the cash payment method, the whole process of the transaction control, to prevent the use of private vaults and other ways to seize the funds of the bribe; Secondly, for each meeting that occurs to have the real data to be recorded and will be used as a basis for the enterprise to promote the service fee accounted for, including, but not limited to, promotional Service fee VAT invoice market promotion activities settlement sheet, academic meeting location, number of people, sign-in sheet, take audio-visual recording, photography and other ways to record and leave a file to print, after the meeting of the summary, market research report, hospital development and maintenance of the assessment form, product terminal flow statistics, including the results of market promotion activities and other information; lastly, pay attention to the prospectus of the peer companies, learn about comparable companies, academic meetings, market research expenses, market research expenses, product terminal flow statistics. Academic conferences, market research fees, marketing management fees, pricing methods, fee standards, according to their own situation, adjust and update, to ensure that the promotion fee is compliant and reasonable.

IV. Future outlook: return to the essence of innovation of pharmaceutical enterprises, strengthen the innovative power of research and development

It can be seen from the Exchange's inquiry that pharmaceutical enterprises, due to the inherent stubbornness of the pattern of profit distribution in the field of purchase and sale, which leads to the urgent need for pharmaceutical enterprises to recycle funds through sales, coupled with the fact that the prescription right of doctors determines the use of medication by patients, etc., prompted the pharmaceutical enterprises to adopt the illegal and unlawful tax evasion methods such as false invoices, off-the-books operation, and concealment of revenues, and adopt the "welfare" conference sponsorship, "inflated" transactions, "customized" bidding, "customized" bidding, "customized" R&D, and "customized" bidding. "Welfare-style" conference sponsorship, "inflated" transactions, "customized" bidding, "evasive" equipment placement, "kickbacks" and "tax evasion". Putting, "kickback" drug sales and other forms of commercial bribery to hospitals to pay bribes, on the current situation of high pressure of the pharmaceutical anti-corruption, the investigation to track down, the actual controller of the pharmaceutical enterprises, Dong Gao, hospital director, medical insurance director and other leading cadres, is bound to increase the performance of some of the sales of pharmaceutical enterprises out, urging pharmaceutical enterprises to return to the original intention, enhance the core competitiveness of the pharmaceutical enterprises. Improve the quality of drugs, after all, the research and development cost rate is also ipo focus on one of the key points of the audit, the above Vono medicine also due to the existence of heavy marketing, light research and development of the situation stopped in the Shenzhen Stock Exchange. Pharmaceutical companies should be patient demand, clinical value-oriented to speed up the development of innovative drugs and generic drugs, to solve the "neck" technical problems, to get rid of the dependence on imports of APIs.