Electric power companies may face the dilemma that suppliers are not qualified to issue VAT special invoices in the procurement process, and cannot deduct VAT inputs and EIT costs; in the production and marketing process, "surplus tickets" and sales on behalf of the power company are prone to involve the risk of false invoicing. From the perspective of enterprises, how to identify these risks and take corresponding countermeasures to curb the problem of false invoicing by combining with the requirements of tax compliance has become the focus of enterprises' attention. This paper makes a systematic description of the risks of false invoicing in the electric power industry and puts forward corresponding preventive suggestions.

I. Interpretation of the law by case

(I) Upstream company constitutes the crime of false opening, and downstream power company is characterized by the tax bureau as obtaining false opening

Beijing Municipal Inspection Bureau announced the administrative penalty decision against Beijing Zhongmou Electric Power Equipment Company , and found that during the period from January 2016 to December 2018, it mainly had the following problems: i. adopting tax evasion means, non-payment or underpayment of tax payable of more than 1 million yuan; ii. illegally obtaining more than 30 VAT input invoices, amounting to nearly 3 million yuan, with a tax amount of nearly 0.5 million yuan; and according to the Law of the People's Republic of China on Administration of Tax Collection" and other relevant laws and regulations, it was found that it constituted tax evasion and false VAT invoices, and was sentenced to administrative treatment of recovering more than 1 million yuan of tax and administrative penalty of imposing a fine of more than 500,000 yuan.

The upstream enterprise of Zhongmou Electric Power Equipment Company, which is a trading enterprise of Youmou, was subject to a tax audit in the same year and was found to have committed the crime of false VAT invoicing due to the existence of false VAT invoices for others and the amount of such invoices was huge. Subsequently, the tax authorities investigated the enterprises involved in its false VAT invoices and imposed administrative penalties on the enterprises in this case. 

(II) Power Company Changes Invoice Name to Fraudulently Obtain Tax Benefits, and Tax Authorities Characterize Tax Evasion

A certain An Power Generation Co., Ltd. was registered and established in Hebei Province, engaging in the production and supply of electric power and heat.In February 2018, the Inspection Bureau of a certain municipal tax bureau in Hebei Province ascertained that during the period from 2009 to 2016, the enterprise existed the tax-related illegal act of changing wood chips into cotton firewood to falsely issue invoices for the purchase of agricultural products, improperly obtaining the VAT tax preference of instant tax refund as well as the corresponding tax preferential policies for enterprise income tax. It was found that the enterprise's changing wood chips into cotton firewood from 2009 to 2015 was false invoicing of acquisition of agricultural products, and the enterprise was required to return the instant tax refund and pay back the VAT, and the other false acquisition invoices were not allowed to be used as the vouchers for pre-tax deduction of the enterprise income tax, and that the change of name constituted tax evasion, and the enterprise was required to pay back the tax and late payment fee, and imposed a penalty of 0.5 times of the amount of the tax.

The court held that according to Article 22 of the Measures of the People's Republic of China for the Administration of Invoices, "invoices shall be issued in accordance with the stipulated time limit, order and columns, all of which shall be issued at one time in a truthful manner and stamped with the special seal for invoices. No unit or individual shall engage in the following acts of false invoicing: (a) issuing invoices for others or for themselves that do not correspond to the actual operation of the business;" "does not correspond to the actual operation of the business" includes the name of the product, the unit price and the quantity of the product does not correspond to the actual operation of the business. Ltd. changed the actual acquisition of wood chips to cotton firewood when issuing the acquisition invoice, which belongs to issuing invoices that are inconsistent with the actual operation of the business. The Decision on Tax Penalty is in line with the law, the applicable law is correct and it is upheld.

(III) Summary

Upstream and downstream enterprises in the power industry as well as within the power industry have more links involving false invoicing behavior due to years of industry practice. In the above two cases, the electric power company may be caused by the upstream company constituting the crime of false invoicing, which triggered the tax authorities for the enterprise to accept the invoices of the behavior of the audit, but also may be caused by the enterprise itself in order to realize the tax concessions and change the name of the enterprise constitutes the false invoicing behavior. In practice, the power company may also involve other risks of false invoicing, the author from the power company procurement and production and sales of the two major links to organize and summarize the possible risk points are as follows.

II. Risk of False Opening in Electricity Company Operations

(I) Risks of False Opening in the Purchasing Operations of Electricity Companies

1. False invoicing by upstream enterprises, implicating the power company in the risk of false invoicing

In the above case, the power company was implicated in false invoicing by the upstream enterprises, and the tax bureau determined that the VAT invoices obtained by the power company constituted false invoicing. Thermal power companies, which account for the largest portion of power companies, are suppliers of raw materials to coal companies. For the sake of resource allocation, thermal power and heat and power companies inevitably need to purchase coal resources from small enterprises or distributors that distribute coal, and are usually unable to obtain VAT invoices, and certain coal companies enter into transactions by means of falsely issued VAT invoices. Since February 28, 2020, Inner Mongolia launched a 20-year operation to reverse 20 years of special rectification in the coal sector, followed by a number of other provinces, including Shanxi, Yunnan, Sichuan, Xinjiang, etc., which also launched self-correction in the coal sector. Subsequently, in March 2021, the Central Office and the State Council issued the Opinions on Further Deepening the Reform of Tax Levy and Administration, which explicitly took coal and other industries as a key area of concern, and severely cracked down on illegal and criminal behaviors of fraudulent and evasive tax evasion in the coal and other industries, and the risk of tax-related risks in the coal industry was focused on. The tax-related risks of the coal industry have been focused on. The corresponding tax-related risks of downstream enterprises, especially the risk of false invoicing, have been significantly increased.

Enterprises are reminded that the upstream enterprises constitute false invoicing, and the power company as the invoiced party may have five different treatment results due to different behavioral characterization:

(1) The invoiced party will not be dealt with, while the input tax amount can be deducted;

(2) The party to whom the invoice is issued constitutes a bona fide acquisition of false VAT invoices, and only the input tax is transferred out;

(3) The transferee party obtains the non-compliant invoice, input item is transferred out and late payment fee is added;

(4) As a result of the recipient party's false acceptance of the invoice, in accordance with Article 63 of the Tax Collection and Administration Law and Articles 1 and 4 of the Circular of the State Administration of Taxation on Issues Concerning the Handling of Fraudulently-Opened VAT Invoice Acquired by Taxpayers (Guoshuifa [1997] No. 134), the tax authorities shall characterize the party as having committed tax evasion, and impose a fine of not more than five times of the amount of the evasion, and, if the input tax is greater than the output tax, it will also reduce the amount of If the input tax is greater than the output tax, the amount of input tax retained will be reduced;

(5) The invoiceecee accepts invoices falsely, and according to the provisions of Articles 22 and 37 of the Measures for the Administration of Invoices and the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Decision of the Standing Committee of the National People's Congress on the Punishment of Crimes of False Issuance, Counterfeiting and Illegal Sale of VAT Special Purpose Invoices, the tax authorities may consider that the behavior of the invoiceecee constitutes the act of "letting other people issue invoices for itself which do not conform to the actual business situation The tax authorities may consider that the behavior of the invoiced party constitutes "allowing others to issue invoices for themselves that are inconsistent with the actual operation of business", thus determining that the invoiced party constitutes false invoicing, in which case the invoiced party may be transferred to the public security organs to investigate the criminal liability, and the relevant persons in charge may face the criminal penalties, and the crime of falsely issuing special invoices for value-added tax is a felonious crime, which will have a great impact on the operation and life of the invoiced party.

As "controlling tax by invoice" is still an important way of tax collection and management at the present stage of China, the enterprise has a single pre-tax deduction voucher, and the tax risk of false invoicing crime is high, and it is also a crime that can be constituted by both the invoicing party and the party to be invoiced, therefore, the risk of the electric power company accepting false VAT invoices is not to be underestimated.

2. Electric power companies make up the inputs through false invoicing

As mentioned above, some electric power companies have difficulty in obtaining VAT invoices, however, there is a "ceiling" in the price of electricity, and electric power companies cannot offset input tax and are bound to be unable to bear the high cost. Some power companies have purchased VAT invoices from other enterprises, such as purchasing VAT invoices from other coal companies with general taxpayer qualification, and requesting labor companies to issue VAT invoices for false labor relations.

3. Electricity companies change their names and issue false invoices in order to enjoy tax incentives

In the above case, a power generation company in Hebei improperly obtained national tax incentives by changing the invoice name, and its behavior was found to be false invoicing. For the consideration of environmental protection, the State has introduced a number of tax incentives for clean energy enterprises in the power generation industry and enterprises upgrading traditional industrial industries and equipped with environmentally friendly equipment and technologies, such as the Circular on VAT Policies for Wind Power Generation issued by the Ministry of Finance and the State Administration of Taxation in 2015, which stipulates that, "From July 1, 2015, taxpayers who selling self-produced electric power products produced by using wind power, the policy of 50% instant VAT refund will be implemented." Some electric power companies see the tax incentives "dividend", by changing the name of the invoice and other forms of obtaining the corresponding tax relief, may constitute false invoicing.

(II) the risk of false invoicing in the production and sales business of electric power enterprises

1. The sale of "surplus tickets" by electric power companies constitutes false invoicing.

The downstream of the power sales company is mostly individuals or individual operators, and such consumers have less need for VAT special invoices for deduction. The power sales company can obtain surplus VAT special invoices by agreeing with individuals or directly not issuing VAT special invoices, and then sell them to enterprises that need to be used for deduction. For example, an electronic company in Jieyang City obtained eight VAT invoices falsely issued by an upstream power generation enterprise between September and December 2016, and both the electronic company and its upstream power generation enterprise were found guilty of falsely issuing VAT invoices.

2. "Sales on behalf of electricity" in the electricity sales segment may be recognized as false invoicing.

When a power generation company signs a supply contract with a power sales company, it usually specifies the subjects of both parties and the amount of electricity to be supplied. However, in practice, there are some power generation companies that do not supply enough electricity and need to be supplied with electricity by other power generation companies, and the VAT invoices obtained by the power sales company are usually issued by the original power generation company, and the power generation companies are found to have failed to provide the relevant invoices or certificates to supply electricity to each other in the process of tax inspections. In the course of tax inspection, it was found that the power generation companies were unable to provide relevant invoices or supporting documents for supplying electricity on behalf of each other, and it was determined that the power generation companies had falsely invoiced each other, and it was then determined that the VAT invoices issued by the original power generation companies for the power sales companies were falsely invoiced, and it was determined that the power sales companies had accepted false invoices. The risk of false invoicing in the sale of electricity on behalf of power companies is unique to power companies, and companies in the upstream and downstream of the power industry may be subject to audit by the tax authorities as a result.

III. Response Strategies for Electricity Enterprises Suspected of False Invoicing

(I) Obtaining VAT special invoices of the "dependent party" does not satisfy the constitutive elements of the crime of false invoicing.

The electric power company obtains goods from small and medium-sized coal enterprises or dealers and obtains VAT special invoices from its dependent enterprises, which should be recognized as dependent invoicing and does not constitute false invoicing if it is a real goods transaction. The State Administration of Taxation's "Interpretation of the Announcement of the State Administration of Taxation on the Issues Related to the Issues of Taxpayers Issuing VAT Special Invoices to Foreign Parties" states clearly that "if the dependent party, in the name of the dependent party, obtains VAT special invoices from the invoiced party, then it should be recognized as the invoicing for the dependent behavior, and does not constitute the false invoicing. It is clearly stated that: "If the dependent party sells goods, provides VAT taxable services or taxable services to the taxpayer of the invoicee in the name of the dependent party, the dependent party shall be the taxpayer. The dependent party, as the seller of goods or the provider of taxable labor services or taxable services, issues VAT special invoices to the invoiced party in accordance with the relevant provisions, which are the cases stipulated in this Announcement." In practice, there is a dependency relationship between the parties for the establishment of the dependency relationship and the real situation of the transaction can not be fully proved, the tax authorities will be accused of constituting the crime of false invoicing.

(II) The behavior of "truthful issuance" does not satisfy the constitutive elements of the crime of false invoicing.

Difficulty in obtaining VAT invoices is a common phenomenon in the electric power industry, therefore, electric power companies may have the behavior of finding others to issue invoices on their behalf without the purpose of tax fraud. According to the description of the behavior of the party receiving the invoice in the previous section, the enterprise will also face the risk of constituting the crime of false invoicing if it obtains the VAT invoice issued on behalf of the company as it is. In this regard, the enterprise can defend itself by proving that the transaction is true, there is no purpose of tax fraud, and it has not caused the loss of national tax. 2015, the Research Office of the Supreme People's Court issued the "Reply Letter on How to Determine the Nature of the Behavior of Implementing Business Activities in the Name of a Relevant Company by "Dependent on" the Company and Letting the Relevant Company Fraudulently Invoicing VAT Special Purpose Invoices on Behalf of It" (Legal Research [法研[]). (Law Research [2015] No. 58) and the Opinions on Giving Full Play to Procuratorial Functions to Serve the "Six Stabilizers" and "Six Guarantees" issued by the Supreme People's Procuratorate on July 22, 2020, stipulate that, if there is a real transaction of the act of issuing VAT invoices on behalf of a company and the perpetrator has no intention to cheat taxes and has not caused the national government to take any action against the company. If there is no intent to cheat tax and no loss of national VAT tax, it does not constitute the crime of falsely issuing VAT special invoices.

(III) Response to the Risk of False Issuance of VAT Special Invoice with Inconsistent Names

As mentioned above, the electric power company may have the situation of inconsistency between the real transaction and the invoice name, which then triggers the audit by the tax authorities. According to the "Invoice Management Measures" Article 22: "No unit or individual shall have the following false invoicing behavior: (a) for others, for their own invoices do not correspond to the actual business situation; (b) to let others for their own invoices do not correspond to the actual business situation; (c) the introduction of other people to issue invoices that do not correspond to the actual business situation. " The issuance of invoices with inconsistent names, i.e., inconsistent with the actual operation of the business situation, is a false invoicing behavior according to the above provisions. In accordance with the relevant provisions of the Measures for the Administration of Invoices, both the invoicing enterprise and the invoiced enterprise are exposed to the risk of being recognized by the tax authorities as committing the illegal act of false invoicing and being subjected to administrative penalties, and, at the same time, may be exposed to the risk of being dealt with as a crime of false invoicing. If the enterprise's transaction is genuine, it may be defended on the basis that it does not have the purpose of fraudulently obtaining tax payments.

IV. The Way to Compliance in Daily Operation of Electric Power Enterprises

(I) Improve the prevention beforehand and do a good job of supplier due diligence

Electric power enterprises may involve the risk of false invoicing in the procurement and production and marketing processes, so it is necessary to do a good job of prevention from the source. Before the transaction, the enterprise should raise the awareness of the prevention of false invoicing, pay attention to this problem, and take the necessary risk prevention measures. It is recommended that the invoiced party conduct the necessary understanding of the counterparty before the transaction, such as examining its scope of operation, scale, corporate qualifications and other relevant circumstances, in order to carry out risk assessment. In the course of the transaction, the enterprise should make payment for the goods through the bank account and verify whether the bank account matches the information listed on the invoice. Upon receipt of an invoice, an enterprise should request the invoicing enterprise to provide relevant information and carefully check the invoice-related information. If there is any doubt about the invoice obtained, payment and declaration of deduction of relevant input tax should be suspended. Especially in the face of large purchases of goods or long-term supply units, enterprises should be more prudent.

(II) Improve the invoice system, retain relevant evidence

Power companies should ensure that the invoice must be obtained from the real transaction, and the real transaction business should also ensure that all aspects of the procedures are complete. First, the invoice information should be corresponding; second, the transportation of goods should be traceable; third, the collection unit should be consistent. Another need to improve the provisions of the contract related to the invoice terms:

(1) Clarify the invoicing obligations of the payee and give preference to suppliers who can provide the prescribed invoices;

(2) Clarify the settlement method in the contract, and at the same time, stipulate the time for the payee to provide invoices;

(3) Specify the types of invoices to be provided by the payee;

(4) Clarify the liability that may result from the failure to issue invoices in a timely manner and the issuance of non-compliant invoices.

(III) Establishment of enterprise tax health check and tax-related risk response mechanism

Enterprise tax health check mechanism refers to the mechanism for enterprises to establish and implement a perfect tax compliance management system in their daily business activities, and to regularly conduct self-assessment, self-supervision and self-correction of the tax compliance status. Power companies should establish and improve the tax health check mechanism by setting up a perfect tax management system, conducting regular internal tax compliance self-inspection, establishing a tax compliance self-supervision mechanism, and responding to tax department inspections in a timely manner.

On the other hand, power companies belong to capital-intensive industries, involving more large transactions and complex tax issues. Power companies should establish a perfect tax risk management mechanism and introduce professional tax lawyers to assist in resolving tax disputes and fighting for corporate interests. For the enterprise compliance and tax-related risks for the investigation, the enterprise tax risk points in advance to identify and prevent tax risks.