The export tax refund (exemption) policy is a common tax policy adopted in international trade. It can not only reduce the tax burden on export enterprises but also promote the development of foreign trade. China has introduced various tax refund (exemption) policies, as well as speeding up the export tax refund business through enhanced multi-department cooperation and other export facilitation measures in various provinces and cities to help export enterprises get out of difficulties and achieve sustainable development. However, some companies have insufficient understanding of the entities and procedures related to export tax refund (exemption), resulting in failed export tax refunds, while some companies have taken advantage of this policy to defraud tax revenue, causing serious losses to the state. Therefore, this article analyzes the situations in which export tax refunds are not granted from a practical perspective and proposes corresponding compliance suggestions to address this issue for readers' reference.

I. The legal provisions and elements of export tax refund (exemption) 

the refund of input VAT and consumption tax for goods that have been taxed in the domestic production and sales process, and the refund of consumption tax in the export process to encourage the export of goods. Export tax exemption applies to goods or services that are exempt from VAT and consumption tax in the domestic distribution process, or that are subject to simplified taxation, applicable tax rates, or where it is difficult to distinguish the input VAT of VAT and consumption tax.

According to the "Notice on Export Tax Refund (Exemption) Policies for Export Goods and Services" issued by the Ministry of Finance and the State Administration of Taxation (Cai Shui [2012] No. 39), export tax refund (exemption) requires satisfaction of the corresponding实体 and procedure elements. Otherwise, it may face the risk of having the tax refund recovered and being subject to taxation as an internal sale.

The substantive elements of export tax refund (exemption) include:

(I) It must be an export enterprise. In the past, companies directly engaged in foreign trade were required to apply for foreign trade operator registration, but this registration has now been cancelled. Therefore, companies that have legally registered for industrial and commercial registration and tax registration can engage in self-export or export through brokerage. Export enterprises include individual industrial and commercial households.

(II) Exported goods or services must be taxable goods or services under VAT and consumption tax. For duty-free goods, simplified taxation, small-scale taxpayers, or goods that are not encouraged for export by the state, preferential tax policies apply.

At the procedural level, export enterprises need to submit an export declaration for the goods to the customs, providing accurate product information, prices, quantities, and other related materials. After the goods have left the country, they need to complete the goods verification and cancellation procedures to prove that the goods have been exported. Export enterprises need to submit a tax refund application to the tax authorities within a prescribed time limit, providing relevant certificates and declaration materials, including goods invoices, customs declarations, and other archived documents. After review and certification, the tax authorities will evaluate the application based on the circumstances of the application and decide whether to grant the export tax refund (exemption); after the refund is granted, the export enterprise must properly keep relevant archived documents.

2.Seven types of situations where export tax refunds are not granted

(I) The export mode of false self-operation, real agency and four self-three invisible

The Second Instance Criminal Judgment of the Fraudulent Claim for Export Tax Refund by Zhejiang Some International Trade Co., Ltd. et al. (No. 2019 Zhejiang 10 Criminal Appeal No. 1012) shows that in the case of fraudulent claim for export tax refund by Zhejiang Some International Trade Co., Ltd. et al., the defendant Zhan and others claimed that they could not handle export tax refund themselves, so they asked the defendant Zhu and Li to act as agents for export. The defendant Zhan and others prepared the goods, contacted the foreign merchants, and went through the customs declaration themselves. The defendant company Shenmao Company provided the declaration letter, empty customs declaration form, and foreign exchange verification form without any substantial participation. The defendant Zhan and others completed the customs declaration procedures in Shenzhen and returned the above documents. The defendant company Shenmao Company falsely claimed that the agency business was self-operated, and signed a false purchase contract with the "supplier" to receive the value-added tax special invoice issued by the other party. They conducted false inventory without seeing the real goods. Finally, the relevant defendants was criminally responsible for the crime of fraudulent claim for export tax refund.

"Fake self-operation and true agency" and "four self-three invisible" are export models suspected of tax fraud. Tax authorities can suspend export tax refunds and recover tax refunds. Serious cases may constitute criminal offenses. "Four self-three invisible" first appeared in the "Notice on Not Granting Export Tax Refund for Export Products Concluded in the Form of 'Four Self-Three Invisible' by Export Enterprises" issued by the State Tax Service and the Ministry of Economic and Trade (State Tax Service Circular No. 156 [1992]), which pointed out that "four self-three invisible" refers to the so-called "export transactions" carried out by import and export enterprises (the nominal exporter) allowing "customers" or intermediaries to bring their own customers, their own goods, their own exchange certificates, and to apply for customs clearance without seeing the exported products, the suppliers of the goods, or the foreign customers.

Afterwards, the State Administration of Taxation defined it as "fake self-operation and true agency". The "Notice on the Policy of Export Tax Refund for Export Goods and Services" issued by the Ministry of Finance and the State Administration of Taxation (Ministry of Finance and State Administration of Taxation No. 39 [2012]) stipulates that if an enterprise exports in the name of self-operation but is essentially an agency export without taking the risk of export, it shall be taxed as domestic sales. The export models of "fake self-operation and true agency" and "four self-three invisible" not only have the risk of administrative violation but also have a high criminal risk.

(II) Incomplete export record documents, contradictions or false declaration

According to the "Tax Administrative Penalty Decision of a Company in Zhuhai" (Zhuhai Tax Service First Inspection [2023] No. 3), the enterprise's export destination is Malaysia, but the bill of lading of the shipping company shows that the export destination is Singapore, and the commodity codes are inconsistent. The tax authorities have identified it as a false record of export, which has been subject to administrative penalties and the recovery of tax refunds.

The record of export is a key clue for tax authorities to investigate and handle enterprises defrauding export tax refunds, and it is also a necessary material for enterprises to handle export tax refund business. Due to problems with the export record of export, such as contradictory and false declarations, there have been many cases where the tax authorities have imposed penalties, recovered tax refunds, and suspended export tax refund rights. All export enterprises should be aware of this.

(III) Doubts exist in the feedback of export letters of production enterprises

According to the "Second Instance Administrative Court Decision of Zhuhai X Import and Export Trading Co., Ltd. and Guangdong Provincial State Tax Service" (Yue Gao Fa [2015] No. 301), in September 2009, during an inspection of the plaintiff Zhuhai X Import and Export Trading Co., Ltd. by the Import and Export Tax Bureau of Zhuhai City, it was found that the plaintiff's export business had discrepancies and was suspected of export tax fraud. After investigation, in 2010, the Import and Export Tax Bureau of Zhuhai City decided to defer the handling of the plaintiff's unrefunded tax of 526,917.01 yuan involving the above 4 enterprises and to withhold other approved tax refunds of 915,377.79 yuan, totaling 1,442,294.80 yuan. Until 2015, this "withheld tax refund" still had not been refunded.

To strengthen the coordination of tax refunds and prevention of export tax fraud, the State Tax Service has developed an export letter investigation system, where tax refund agencies send letters to the tax authorities of production enterprises to request verification of the production enterprises' situation and排查tax refund risks. The "National Tax Agency Export Tax Refund (Exemption) Management Work Specification (Version 2.0)" (Shui Zong Fa [2018] No. 48) clarifies the types of letters and reply letters. If the content of the reply letter falls into one of the three types besides "normal business" namely "investigation not yet complete", "circumstances of non-refund (exemption) exist", or "refund (exemption) suspended", there may be a situation where tax refund cannot be handled. This poses significant financial pressure on foreign trade enterprises with low profits and dependence on tax refunds.

(IV) Goods input invoice is identified as abnormal voucher

According to the "Second Instance Administrative Court Decision of Fujian Province Import and Export Co., Ltd. and Putian City Chengxi District Tax Service Tax Administration (Tax) Case" (Min 03 Xing Zong [2020] No. 146), it was shown that the plaintiff company obtained 150 VAT special invoices issued by Putian Licheng Xin Feng Shoes and Clothing Co., Ltd. during the period from September to October 2015, involving a tax refund of 1,860,328.40 yuan. Later, the above VAT special invoices were listed as abnormal document information, with the invoice problem type showing "belonging to out-of-control", and the plaintiff was notified that the tax refund of 1,860,328.4 yuan was temporarily not allowed and the already refunded amount was recovered.

According to the "Announcement on the Management of Abnormal VAT Deducted and Paid Invoices and Other Related Matters" (State Tax Service Announcement [2019] No. 38), the second paragraph of Article 3 stipulates that if general VAT taxpayers' VAT special invoices are included in the scope of abnormal document information, the following rules should be applied: for those who have not yet applied for export tax refund or have applied but not yet processed export tax refund, except as otherwise provided, they are temporarily not allowed to apply for export tax refund. For taxpayers who apply for export tax exemption and refund by using the VAT exemption and refund method, if they have already applied for export tax refund, the tax authority shall recover the tax refund corresponding to the VAT special invoices included in the scope of abnormal document information in accordance with the current regulations. It can be seen that if a company's input VAT special invoices are identified as abnormal documents, they are not allowed to apply for export tax refund temporarily.

(V) Suspected of falsely issuing invoices for goods

According to the "Re-Examination and Trial Supervision Administrative Judgment of the Tax Administration (Tax) Case of Inner Mongolia Autonomous Region锡林郭勒盟Right Flag Company, Sunit Right Flag Company and State Tax Service of Xilin Gol League" (Highest Court [2017] No. 84), it was shown that in 2005, the company obtained 135 VAT special invoices from certain fur products factories and used the above 135 VAT special invoices to apply for export tax refund of 1,639,755.57 yuan. On March 21, 2007, the Audit Bureau of the State Tax Service of Xilin Gol League made a tax processing decision on the case, identifying the 135 VAT special invoices obtained by the fur company as fake invoices and decided not to process the export tax refund application.

According to the "Announcement of the State Tax Service on Issues Concerning the Management of Export Tax and Consumption Tax of Goods and Services" (State Tax Service Announcement [2013] No. 12), if the competent tax authorities find that the export business of an export enterprise or other unit has any of the following situations, the export business will be suspended from applying for export tax refund (exemption): The supplier of the exported goods has a doubt point that needs to be verified for the authenticity of the supply and tax payment situation. Therefore, if the goods' input invoices are suspected of being fake, they may also face the risk of being suspended from export tax refund and even face administrative penalties.

(VII) Failing to file for export tax refund and submit relevant materials for review within the prescribed time limit.

Company A is a foreign trade enterprise mainly producing furniture and other products for export. In June 2023, during its financial sorting and self-inspection, the company found that it had exported a batch of goods in October 2022, but due to financial handover errors, it had missed the export tax refund declaration. As the time limit for export tax refund declaration had already expired for more than 90 days and had passed the deadline of April 30 this year, the company was required to treat it as domestic sales and pay value-added tax.

The time limit for tax refund refers to the time requirement for enterprises to declare and apply for export tax refund after the export behavior of goods occurs. The "Measures for the Administration of Export Tax Refund for Goods and Services" (State Tax Service Announcement [2012] No. 24) stipulates: "Enterprises should collect relevant documents within the period of each value-added tax return (from the date of export of goods, in accordance with the export goods declaration form for export tax refund) until April 30 of the following year, and apply to the competent tax authorities for export tax refund of goods and consumption tax refund. If the deadline is overdue, enterprises are not allowed to apply for export tax exemption and refund."

(VIII) Goods exports have not been settled in foreign exchange on time.

In order to alleviate the difficulties of enterprises, the State Administration of Taxation issued the "Announcement of the State Tax Service on Further Facilitating the Processing of Export Tax Refund and Promoting the Steady Development of Foreign Trade" (State Tax Service Announcement [2022] No. 9), which withdrew the "Announcement of the State Tax Service on Export Enterprises' Declaration of Export Tax Refund (Exemption) and Provision of Documents for Foreign Exchange" (State Tax Service Announcement [2013] No. 30) in full. The above-mentioned document simplified the processing procedures and materials for export tax refund (exemption), and also introduced the "tolerate-deficiency" handling system to promote the steady development of foreign trade. However, it should be noted that if the final date of full foreign exchange settlement agreed in the export contract is after the deadline for export tax refund (exemption) declaration, and the foreign exchange has not been settled before the agreed date; or if the foreign exchange has not been settled within the prescribed time limit and does not meet the requirements for deemed foreign exchange settlement, it is still not possible to apply for export tax refund (exemption). In these three situations, if foreign exchange settlement is not completed on time, it may be impossible to apply for export tax refund.

3.The follow-up risk of export enterprises being refused export tax rebate

(I) Risk of VAT refund overdue

If an export enterprise has any violations in the process of tax refund declaration, such as false declaration, false invoicing, false reporting, etc., and is found by the tax authorities, it may be determined as not meeting the conditions for export tax refund, resulting in the refund being overdue. During the audit stage of the tax refund, the tax authorities will investigate and review the tax refund declaration of the enterprise. If it is found that the export transaction and data of the enterprise do not meet the requirements, or sufficient supporting materials cannot be provided to support the authenticity and legality of the declaration, the tax authorities may determine that the enterprise does not meet the conditions for tax refund, decide not to grant tax refund and recover the already refunded amount. In addition, due to a large number of tax policies, tax refund policies may change from time to time. The government may adjust the scope of application, tax rates or requirements of the tax refund policies. If the export business of the enterprise no longer meets the requirements of the new policy, or if the enterprise fails to adjust its declaration methods and materials to adapt to the new policy in a timely manner, the tax refund may be overdue.

(II) Risk of administrative punishment for tax

After the above-mentioned tax refund overdue, if the export enterprise's violations violate corresponding laws and regulations, such as export enterprises must comply with relevant policies and regulations in the process of tax refund declaration, such as export product scope, tax refund rate, capital exchange requirements, etc., due to violations of policy regulations such as obtaining export tax refund by fraud, it may face administrative punishment. In addition to increasing property expenditure, for enterprises, the most serious impact is being stopped from export tax refund by tax authorities. If an enterprise is determined as not meeting the conditions for tax refund or having violations, the tax authorities may suspend or revoke the enterprise's export tax refund qualification. This will cause the enterprise to lose its right to enjoy export tax refund policies, thus increasing the cost burden of enterprises and leading to a decrease in competitiveness.

(III) Analysis of Fraudulent Claim for Export Tax Refund

The illegal act of an export enterprise constitutes fraudulent claim for export tax refund, which usually needs to meet the following conditions: first, subjective requirement: export enterprises must have intentional or conscious subjective intention, that is, enterprises know that they do not meet the conditions for tax refund or adopt false means to obtain tax refund. Second, objective requirements: enterprises provide false export business materials in tax refund declaration, such as false declaration of export goods quantity, falsification of export contracts, false export invoices, etc., in order to obtain improper tax refund; or enterprises know that they do not meet the conditions for tax refund, but still intentionally declare tax refund and use various means to bypass examination or supervision to obtain improper tax refund. Third, result requirement: enterprises obtain improper tax refund through false declaration or non-conforming declaration.

It should be noted that for the determination and sentencing of fraudulent claim for export tax refund crime, it is necessary to comprehensively consider other factors according to the specific circumstances of each case, such as the size of tax refund amount, behavioral sustainability, whether there is an organization involved, whether there is significant loss, etc.

(IV) Risk of decline in enterprise tax credit rating and punishment

If being overdue for VAT payment, facing administrative punishment and criminal sanctions only affects a company's financial expenditure, a decline in its credit rating can have a negative impact on its reputation for bidding and other aspects. Not granting export tax refund may be deemed as a manifestation of an enterprise's non-credit behavior, which will affect its credit rating. Credit rating agencies, banks and partners may lower down their credit rating on enterprises. This will have a negative impact on an enterprise's business reputation and financing ability in bidding and so on.

IV. How to strengthen compliance construction and avoid the risk of not granting export tax rebate?

(I) Apply for tax refund promptly. Timely applying for tax refund is an important part of export enterprises' compliance construction, which helps enterprises to obtain tax refunds legally and improve their competitiveness. Enterprises should strengthen internal compliance construction to ensure that they understand the requirements of the tax refund policy and apply for tax refund on time and accurately to avoid risks and adverse consequences caused by violations. Firstly, export enterprises should fully understand the conditions for applying for export tax refund, material requirements, declaration period, etc., so as to accurately grasp the relevant requirements. Secondly, enterprises should collect and retain the documents and records related to the tax refund application in a timely manner, including export contracts, invoices, packing lists, customs declarations, etc., so as to prepare for declaration and audit. Once again, before applying for tax refund, enterprises should carefully check the accuracy and completeness of the application materials to ensure that the application documents meet the requirements and avoid errors and omissions. Finally, enterprises should strictly comply with the time limit specified in the tax refund policy for submitting tax refund applications in a timely manner and allow sufficient time for tax authorities to review and process them.

(II) Ensure the truthfulness and accuracy of export declarations. Ensuring the truthfulness and accuracy of export declarations is an important aspect of export enterprises' compliance management. Enterprises should have a deep understanding of national and regional export management regulations and requirements, especially those related to export declarations, including product classification, value assessment, customs requirements, etc. They should ensure that they comply with these regulations during the declaration process and provide accurate information. At the same time, internal training and education should be regularly conducted to make employees understand the importance of export declarations and compliance requirements, improve their awareness of relevant regulations, emphasize the importance of integrity in business operations, and prevent deliberate violations or errors due to human factors.

(III) Pay attention to changes in export tax refund policies. Enterprises should regularly review relevant government departments or tax authorities' export tax refund policy documents to understand the latest policy changes and adjustments. This can be achieved by subscribing to government notifications, following industry associations' updates, or consulting professional tax advisors.

(IV) Strengthen communication with tax authorities. Strengthening communication with tax authorities is an important part of ensuring the truthfulness and accuracy of export declarations. Establishing positive and friendly relations with tax authorities and maintaining good communication channels is necessary. Enterprises should promptly understand the tax authorities' policies changes and requirements to ensure accurate decision-making in the export declaration process. When dealing with complex or uncertain export declaration matters, they should seek guidance and opinions from tax authorities in a timely manner and communicate with them to obtain professional answers and suggestions to help ensure the truthfulness and accuracy of their declarations. In addition, if enterprises discover abnormal situations in their export declarations such as misreporting, omissions or other violations, they should immediately report them to tax authorities and provide detailed explanations. Reporting abnormalities promptly can help enterprises proactively cooperate with tax authorities in investigations and handling, reducing possible legal risks from being penalized.

(V) Enterprises should strengthen risk management and obtain tax refunds legitimately. Risk management is an important part of obtaining legitimate tax refunds. Firstly, potential risks in the process of export tax refunds should be assessed and identified to analyze possible risk points such as misreporting, false records, contract non-compliance, etc., so as to take timely measures for management and control. Secondly, establish a sound internal control system including operating procedures, authorization and approval processes, data monitoring, etc., to ensure the compliance and accuracy of export tax refund declarations. Thirdly, strengthen contract management to ensure that contract content matches actual export business. Verify the authenticity and legitimacy of contracts to avoid false contracts or inconsistency with actual export business. At the same time, ensure that data used for tax refund declarations such as contracts, invoices, customs declarations are accurate and complete. Timely correct inaccurate data to avoid declaration risks due to data errors. Fourthly, strictly comply with the declaration requirements and time limits specified in the tax refund policy for timely submission of declaration materials to ensure their timeliness and accuracy; avoid refund risks due to overdue declarations.

(VI) Enterprises should pay attention to changes in export tax refund policies and adjust business strategies accordingly. Enterprises should closely monitor changes in export tax refund policies and promptly adjust their business strategies to adapt to the new policy environment. Changes in export tax refund policies may have significant impacts on enterprises' export businesses and business strategies. Therefore, enterprises should closely follow policy changes, adjust business strategies in a timely manner to ensure competitiveness and compliance under the new policy environment. It is recommended that enterprises establish an export tax refund department based on their own development situation and the scale of export tax refund business. Based on new tax refund policies, optimize internal management processes to ensure accuracy and timeliness of declarations; establish an internal cross-department collaboration mechanism to ensure.