On February 1, 2019, the criminal case of a waste materials recycling business enterprise, represented by Huashui, for allegedly falsely issuing VAT invoices (with price and tax totaling tens of millions of yuan) was reviewed and concluded by the competent People's Procuratorate. In the end, the public prosecution authorities made and delivered the Decision of Not Prosecuting to the enterprise and four employees (all defendants), and the enterprise and the natural persons involved in the case were exempted from criminal liability. After nearly one year of defense work by Huatax lawyers, the case was concluded with the result of non-prosecution by the prosecutor's office, which was highly recognized by the client, and coincided with the eve of the Chinese New Year, and the people involved in the case were able to be reunited with their family members, which was also a great relief to us. Due to the impact of tax policy and industrial characteristics and other reasons, the waste materials recycling business industry has been the hardest hit by the case of false opening, the tax risk is high. This paper summarizes and analyzes the relevant circumstances and core legal issues of this case, with a view to providing useful reference for the judicial handling of the suspected cases of false opening of relevant enterprises in the future.

I. Brief description of the case

Company A is a waste materials recycling business enterprise registered in a county in a province, founded in 2015, is a subsidiary of Group C. Group C is a group of enterprises held by a state-owned unit in a province and specializing in recycling and utilization of renewable resources.

In 2015, a local manufacturing enterprise in a county, Company B, needed to acquire scrap steel as raw materials for the processing and production of manufacturing equipment parts from a retailer of waste materials recycling operations, but because the retailer could only issue 3% VAT invoices on behalf of Company B from the tax bureau, resulting in insufficient deductions and rising operating costs for Company B. Company B was not able to obtain any VAT invoices from the tax bureau, but it was not able to obtain any VAT invoices from the tax bureau. After the local retailer introduced to Company B, Company A is a waste materials recycling business enterprise, enjoying the local VAT fiscal rebate preferential policies, the actual tax burden rate is low, and Company A can be allowed to issue invoices for it. Later, Company B found Company A and reached the following cooperation mode on the procurement of scrap steel by Company B:

(1) Company B contacted the retailer of the scrap steel on its own and negotiated the purchase price with the retailer;

(2) Company A first purchases the scrap steel from the retailer designated by Company B and then sells the purchased scrap steel to Company B. Company A also purchases the scrap steel from the retailer;

(3) Company A acquires the scrap steel from the retailer in the mode of large-scale collection, i.e., Company A only interfaces with one large-scale account and only acquires the scrap steel from the particular large-scale account, not directly interfacing with many small-scale retailers, and many small-scale retailers interface with the particular large-scale account. company A and company B agree to complete the transaction with company B's business manager, A, as the large-scale account.

(4) Company B will be the purchase price (purchase price + gross profit of Company A) paid to Company A, Company A will be the purchase price of the purchase price of the goods paid to the part of A, A will then pay the amount of money to a number of retailers.

(5) The retailer will deliver the goods directly to the factory of Company B, and Company B will make the weighing and receiving documents, and then pass the documents to Company A for the entry and exit of the warehouse;

(6) Company A issues VAT invoices to Company B in accordance with the amount paid by Company B for the goods.

From July 2015 to August 2016, Company A issued dozens of VAT special invoices to Company B through the above model, with the total price and tax amounting to tens of millions of yuan. In the course of the business, Company A was established with insufficient manpower and slow local business development, and both Company A itself and the Group Companies were negligent in supervising Company A's own business. Due to Company A's negligence in the management of goods in and out of the warehouse, invoices were issued only on the basis of the weighing and receiving documents passed on by Company B. The actual value of scrap steel purchased by Company B from the retailer was insufficient, which resulted in the total tonnage and value of goods invoiced by Company A to be greater than the actual transaction of goods.

In July 2016, during the tax inspection of the national waste materials industry, the Inspection Bureau of a county State Taxation Bureau found that the goods purchase and sale transactions between Company A and Company B were suspected to have "capital reflux" after investigation of Company A, and the actual value of the goods and the number of tons were smaller than the invoice records, and then suspected that Company A and Company B had fraudulently issued VAT invoices and transferred the case to a county public security bureau. The case was transferred to a county public security bureau. in November 2016, a county public security bureau on the case for investigation. in July 2017, a county public security bureau to company A, company B suspected of false invoicing of value-added tax special invoices to a county people's procuratorate to submit the "Prosecution Opinion" and transfer the case file materials. in September 2017, the county people's procuratorate for the first time to return to the supplemental investigation. At that time, the public prosecution authorities found that Company A constituted the crime of false invoicing of VAT special invoices with a very firm and clear attitude, the main reason is that the two links of Company A's purchase and sale of scrap steel are all false and false transactions: (1) Company A receives the payment for the goods from Company B and then withholds part of the invoicing fee to pay the remaining part to the business manager of Company B. Company B's business manager belongs to the flow of funds, which proves that there is no real purchase and sale of goods between Company A and Company B. transaction; (2) Company A did not receive the goods of scrap steel from A and other retailers, proving that there is no real goods purchase and sale transaction between Company A and A and other retailers.

At the end of the first return for supplementary investigation, a county prosecutor's office is required to a county public security bureau for company A does not have the ability to change the defendant to group C, and group C as a unit of the subject of the crime to re-submit the "Prosecution Opinion". As a result, Group C faced the criminal liability of committing the crime of false VAT invoicing, which had a great potential negative impact on the whole group of companies, and the four employees of Company A would face the risk of potential criminal liability of up to ten years' imprisonment.

II. Four core defense opinions of our view in this case

In March 2018, during the process of a county People's Procuratorate changing the subject of the defendant unit and reviewing and prosecuting the case again, Group C Company sought legal assistance from Huatax team. Huatax accepted to provide defense services for Group C Company. In the preliminary communication with the public prosecutor, Huatax found that the public prosecutor changed the defendant from Company A to Company C and determined that Company C and the relevant employees constituted the crime of false opening with a very firm and clear attitude, but it did not understand the tax law, the principle of value-added tax levy, the relevant tax regulations and the industry business model of the waste materials recycling business enterprises well, and failed to find out the facts in favor of the defendant. It was necessary to conduct sufficient defense and communication to clarify the facts of the case as well as the correct understanding and application of the tax law and criminal law. Huatax made comprehensive defense materials after detailed reading of the files, collected and collated specific tax regulations and jurisprudence of similar cases related to this case, and communicated with a certain county procuratorate several times with regard to defense opinions in connection with the difficult facts of the transaction and application of laws in this case, and finally made the procuratorate of a certain county give up the accusation against Group C and Company A.

(I) The transaction mode of waste materials in this case is a typical industry practice and is in line with the relevant provisions of the tax law

In view of the special nature of the recycling business of waste materials, the Approval Reply of the State Administration of Taxation on the Relevant Taxation Issues of the Recycling Business of Waste Materials (Guo Shui Han [2002] No. 893) specifically stipulates that the retailer will transport the acquired waste materials directly to the purchaser, and the waste materials business unit will make purchases and sales respectively for the purpose of financial treatment based on the business actually occurring between the two parties as aforesaid and will transfer the collected payment to the retailer At the same time to the purchaser to issue special VAT invoices or ordinary invoices, due to the waste materials business unit in the issuance of special VAT invoices did collect the same amount of money, and the same number of goods sales, therefore, the waste materials business unit to issue special VAT invoices do not contravene the relevant tax provisions, should not be characterized as false openings. The above provisions actually recognize the tripartite transaction mode of "retailers - waste materials recycling business units - manufacturing enterprises".

For the large-scale waste materials recycling business enterprises, due to the need to dock a large number of retailers, the above model is difficult to operate in practice and high operating costs. Therefore, the State Administration of Taxation's Reply on the VAT Issues Relating to the Scrap Material Recycling Business of China National Renewable Resources Development Corporation (Guo Shui Han [2006] No. 1227) stipulates that China National Renewable Resources Development Corporation acquires a large number of scrap materials and many objects, which makes it difficult to fill in the acquisition vouchers according to the current regulations, and agrees to allow China National Renewable Resources Development Corporation to summarize and issue a certificate for the scrap materials when it acquires the sellers (including self-employers) and the non-operating units. Agreed to allow the company in the acquisition of sellers (including individual operators and non-operational units of waste materials in the acquisition of the summary of the acquisition of vouchers. In addition to filling in the relevant contents in accordance with the regulations, it must fill in the identity card number of the payee of the seller and the non-operating unit when issuing the voucher for the acquisition of waste materials. This provision in fact in the group as an example of recognition of the "many retailers - individual large - waste materials recycling business unit" mode of transaction.

The transaction pattern in this case is "retailer - large (A) - Company A - Company B", and there are Real purchase and sale of scrap steel transactions, can not simply and roughly directly negate the authenticity of the purchase and sale of two parts of the transaction of the A company.

(II) The public prosecutor's office determined that the "return of funds" was a piecemeal and fragmented view of the problem, without objective and comprehensive investigation of the complete financial chain.

Because company A does not sign a direct purchase contract with the many retail customers, but with company B's business manager a purchase contract, so according to the contract should be paid to a. In the whole transaction, A is not simply the identity of the business manager of company B, but the identity of the large, for the retailer is the buyer, for company A is the seller. After the investigation found that A in the collection of the payment of the goods of company A after the real supply of goods in accordance with the retailer will pay the money truthfully to the retailer. So the fragmentary look, the whole transaction of funds from the B company outflow back to the B company's employees on the account, but from the complete transaction chain, the real flow of funds is "B company - A company - B company employees A （Company B - Company A - Employee A of Company B (a large investor) - many retail investors". Therefore, there was no substantial return of funds.

(III) company A due to management negligence led to company B fraud resulting in invoicing and actual transactions are inconsistent, the two sides do not have a common criminal intent, company A should not be company B false invoicing behavior bear legal responsibility

For the public prosecutor's investigation of the case, the number and amount of VAT invoices in the course of business is greater than the actual supply of the retailer, whether it is possible to characterize Company A's false invoicing is still doubtful. According to the evidence of the case and the confessions of the parties, Company A was unaware of the fraudulent behavior of Company B in the late stage of cooperation by falsely increasing the quantity of goods and improving the deduction, and the fraudulent behavior of Company A due to the mismanagement of Company B was subjectively only negligent and not indirectly intentional, regardless of whether it was in the stage of business negotiation or in the process of business development, the main employees of Company A had repeatedly expressed the invoices to Company B. The invoices must have real goods purchased and imported. There must be a real purchase of goods, otherwise the responsibility of Company B, enough to prove that Company A did not form a false open crime with Company B common intention. Since Company A did not actively pursue the subjective psychological state of providing the inflated input tax amount to Company B to offset the national VAT tax, and only objectively appeared the result of "opening more", Company A should not be held criminally responsible for false invoicing, but at the level of tax collection and management, it should be held criminally responsible for false invoicing in accordance with Measures for the Administration of Invoice of the People's Republic of China (Decree of the State Council No. 587). (State Council Decree No. 587) Article 37 of the provisions of the corresponding tax administrative responsibility borne by Company A.

(IV) Company A's invoicing behavior did not cause any tax loss, and should not be punished for the crime of falsely issuing VAT invoices.

Article 8 of the Provisional Regulations on Value-added Tax stipulates that "The amount of value-added tax paid or borne by a taxpayer on the purchase of goods, services, services, intangible assets and immovable property shall be the amount of input tax. The following input tax amounts are allowed to be deducted from the output tax amount: (a) the VAT amount stated on the special VAT invoice obtained from the seller." Therefore, as long as the taxpayers in the various links of commodity circulation truthfully issue VAT special invoices in accordance with the quantity and amount of the transaction and declare and pay the VAT tax on time and in full, the act of issuing VAT special invoices from the selling party to the purchasing party will not result in VAT loss of the State, and the act of the purchasing party to declare and deduct the VAT input tax amount in a normal manner will not result in VAT loss of the State either.

According to the materials in the case file, Company A sold the scrap steel involved in the case purchased by it to Company B, and a real sale of goods took place, and its act of issuing VAT special invoices to Company B was an inevitable requirement for the fulfillment of the VAT payment obligation, and Company A had already paid VAT on the VAT special invoices issued to the outside world on time and in full, and did not have any act of underpayment or non-payment of VAT, and it would not cause the state VAT loss. national VAT loss. And since Company B has purchased the corresponding goods from the retailer in real terms, it has obtained legitimate deduction interests and realized its own deduction interests through the transaction mode of Company A's invoicing. However, Company B's fraudulent over-deduction of tax has caused the loss of national tax, and Company B should bear the corresponding tax responsibility and even criminal responsibility.

III.The significance of this case on the difficult case of false invoicing of waste materials recycling and operating enterprises

Since the Notice on Value-added Tax Policies for Renewable Resources (Cai Shui [2008] No. 157) canceled the policy of exempting the sale of waste materials from value-added tax for waste materials recycling and operating enterprises in 2008, waste materials recycling and operating enterprises have been caught in the predicament of insufficient input deductions, excessive value-added tax burden, and the problem of false invoicing has become more and more serious.Since 2017, the tax authorities have launched a tax special rectification program for the waste material industry, focusing on inspecting 12 provinces and cities in Jiangsu, Zhejiang and other provinces. Tax special rectification, focusing on the audit of Jiangsu, Zhejiang and other 12 provinces and cities. Anhui, Jiangsu, Zhejiang and other places in the purchase and sale transactions of waste materials false opening problems continue to ferment, and the risk of false opening in the waste materials industry has fully exploded.

Scrap material industry, the existence of false opening problems, with its industry operating characteristics, but also closely related to the country's tax policy. In order to solve the current problem of insufficient deduction and false opening, the need for the state to further adjust and improve the relevant tax incentives, and for the recycling enterprises and production enterprises, in the purchase and sale of waste materials business, should be through the improvement of the transaction model, optimize the transaction chain, complete the transaction materials and other content, standardize the business operations to ensure the authenticity of the transaction, to avoid false invoicing.

Meanwhile, according to the opinion and spirit of the latest guidance cases on false invoicing issued by the two high courts, for the cases of false invoicing that have entered the judicial procedure, those that do not have the purpose of cheating state tax and have not caused the loss of state tax do not constitute the crime of false invoicing of value-added tax. The handling opinion of the two high authorities is consistent with the defense position of Huatax in the case of false invoicing, which provides authoritative support for the fact that false invoicing behaviors such as enterprise affiliation and proxy invoicing, which do not have the purpose of cheating taxes, should not be convicted and punished as the crime of false VAT invoicing and points out the direction of the judicial practice in the false invoicing type of criminal cases. Many judicial organs have also begun to recognize that the cases of false invoicing by waste materials recycling enterprises should not be qualified as false invoicing crimes, and therefore have begun to adjust the direction of investigation and the logic of accusation, and even the judicial organs in some places have directly turned such cases into administrative cases for the tax authorities to deal with, so as to ensure the correct application of the criminal law and the unification of the punishment of the crime.

However, it should be noted that in some places, especially Jiangsu, Zhejiang, Hubei and other places, due to the extremely high professionalism of the specific tax law issues involved in such cases and the lack of effective defense, etc., the judicial authorities are still unable to change the wrong concepts, and there are such misconceptions as investigating the behavior but not the purpose, investigating the local transactions but not the whole, and unclear boundaries between administrative violations and criminal offenses, etc., and some of them are also handled as important and important cases, and excessive application of coercive measures is applied during the investigation of the cases. Some of them are also handled as major cases and excessive application of coercive measures in the process of case investigation, which is not only a disastrous blow to the sustained and healthy production and operation of the enterprises involved in the case, but also an unforeseeable social problem derived from the case, and it also breaks through the bottom line of judicial fairness. Therefore, China Tax Lawyer believes that the parties in these cases should actively communicate with the judicial authorities through professional tax lawyers, and push the judicial authorities to actively learn from the correct treatment and practices that have been adopted in other regions, especially the cases disclosed in this article. Return to the original face of the transaction when investigating the case, pay more attention to find out whether there are real goods transactions in the transaction chain, instead of arbitrarily cutting the chain leading to the inability to find out the source of the goods, and grasp the issue of whether the loss of value-added tax in the transaction of purchase and sale of waste materials is or is not from the perspective of the principle of taxation, and change the characterization of the case which has been initiated the judicial procedure from a criminal offense to an administrative offense or innocence, and correct a series of misconceptions of the past on the case of this kind. It is also necessary to correct a series of misunderstandings about this type of cases in the past, so as to accurately protect the national tax money under criminal law and at the same time make the persons involved in the cases bear fair and lawful corresponding responsibilities.