Editor's Note: A recent case involving a medical enterprise, which engaged in issuing false invoices and deducted a tax amount as high as 2.9 million yuan, resulting in the actual controller receiving a suspended sentence through compliance rectification, has attracted attention. This indicates that the conditions for criminal compliance rectification in cases of false invoicing, through the separation of cases between the entity and its responsible person, may not be constrained by the 2.5 million yuan tax amount. With concerted efforts from law enforcement and the judiciary, enterprises are being assisted in reforming themselves. In light of this, this article will start from recent criminal compliance rectification cases, analyze the tax-related criminal compliance policy trends and practices of procuratorates and courts, and provide a brief introduction to the procedures of criminal compliance.

I. Compliance Case: A medical device company issues false invoices and deducts 2.9 million yuan, and the actual controller receives a suspended sentence.

(I) Medical Device Company Issues False Invoices, Deducting 2.9 Million Yuan

Since 2014, a pharmaceutical and medical device sales company accepted value-added tax special invoices falsely issued by a computer sales company in Chengdu, deducting taxes amounting to over 2.9 million yuan. In 2020, the actual controllers of both companies were investigated and prosecuted for the crime of falsely issuing value-added tax special invoices.

(II) Rescuing the Entity Enterprise, the Procuratorate Initiates Criminal Compliance

The Jin Niu District Procuratorate in Chengdu, Sichuan Province, initiated a comprehensive review of the case and, after approval from the higher procuratorate, initiated a compliance reform process for the two companies to save them.

The Jin Niu District Procuratorate, in collaboration with tax authorities and other departments, formed a compliance review team to comprehensively investigate the business operations and financial statements of the involved companies. Professional personnel were invited to visit the companies. During this process, the compliance review team found issues such as loose financial systems and weak compliance awareness within the companies. Therefore, targeted reform suggestions were proposed. Finally, the Jin Niu District Procuratorate organized a public hearing on the results, and the involved companies successfully passed the evaluation.

(III) Court Confirms Compliance Results, Actual Controllers Receive Suspended Sentences

In November 2022, the case was prosecuted, and the court recognized the compliance achievements of the two companies. The court handed down suspended sentences to the actual controllers, facilitating the revitalization of the companies. According to news reports, the medical device company involved reported sales revenue exceeding 8 million yuan in the first half of the current year.

(IV) Summary: Criminal Compliance Should be Actively Applied by Pharmaceutical Companies Facing Criminal Tax Risks

Similarly, in September of this year, a pharmaceutical company in Yunnan was also suspected of falsely issuing value-added tax special invoices and was transferred to the procuratorate for review and arrest. Unlike the previous case, the Yunnan pharmaceutical company was not transferred to the court. After the compliance inspection period expired, the procuratorate organized a public hearing and held a special committee discussion, deciding not to prosecute the involved company and individuals.

In summary, pharmaceutical companies facing criminal tax risks should actively apply for compliance rectification. This can be done to obtain a decision of non-prosecution from the procuratorate or to receive a favorable judgment from the court, such as a reduction, mitigation, or exemption from criminal penalties.

II. Tax-related Criminal Compliance Policies and Practices of Procuratorates and Courts

(I) Overview of Tax-related Criminal Compliance and Relevant Regulations

Criminal compliance in tax-related crimes began in March 2020 when the Supreme People's Procuratorate deployed pilot projects for the first batch of enterprise compliance reform. Using a tabular format to outline the development of criminal compliance, it can be seen that, up to the present, four normative documents have been formed at the national level: the "Guiding Opinions on Establishing a Third-party Supervision and Evaluation Mechanism for Compliance of Enterprises Involved in Cases (Trial)," the "Implementation Rules of the <Guiding Opinions (Trial)>," the "Management Measures for the Appointment of Professionals in the Third-party Supervision and Evaluation Mechanism for Compliance of Enterprises Involved in Cases (Trial)," and the "Methods for the Construction, Evaluation, and Review of Compliance of Enterprises Involved in Cases (Trial)."

These documents provide regulations on the scope, process, and responsibilities of various organizations in criminal compliance, guiding the implementation of criminal compliance.

Next, the article will analyze tax-related criminal compliance practices through the retrieval of publicly available case documents.

(II) Practices of Tax-related Criminal Compliance

Using the databases of Weike Xianxing and Yuandian Zhiku, the article conducted searches with three conditions: "non-prosecution," "compliance," and "tax evasion." After eliminating irrelevant cases and combining the search results from both databases, 47 non-prosecution decisions after compliance rectification were obtained. (Note: This search does not include typical cases published by the Supreme People's Procuratorate and local procuratorates.)

Analyzing from the perspective of the amount involved, there were 35 cases with a tax amount below 500,000 yuan, 7 cases with amounts between 500,000 and 1.5 million yuan, and 5 cases with amounts between 1.5 million and 2.5 million yuan. However, as of now, there are no cases of false invoicing with a tax amount exceeding 2.5 million yuan that have received a non-prosecution decision.

Geographically, Jiangsu Province had the highest proportion, accounting for 48.9%, followed by Zhejiang Province at 12.7%. This is related to Jiangsu Province being the first pilot province for criminal compliance.

In terms of suspected charges, 4 cases were related to the crime of falsely issuing invoices, 1 case involved holding forged invoices, and the remaining 42 cases involved the crime of falsely issuing value-added tax special invoices. Analyzing the sentencing range of false invoicing crimes, according to the "Notice of the Supreme People's Court on Issues Related to the Conviction and Sentencing Standards for False Issuance of Value-added Tax Special Invoices" (Fa [2018] No. 226), the latest sentencing standards for false invoicing crimes are as follows: for a tax amount of 50,000 yuan to less than 500,000 yuan, a sentence of less than three years of imprisonment or detention; for a tax amount of 500,000 yuan to less than 2.5 million yuan, a sentence of three to ten years of imprisonment. Therefore, there were 11 cases where the statutory penalty fell within the second range (three to ten years of imprisonment), but they ultimately received a non-prosecution decision.

(III) Conclusion: Actively Applying Compliance in the Prosecution Stage

Based on the analysis of 47 cases, it is observed that in most instances, both the companies and the ultimate controllers are not prosecuted. Criminal compliance plays a crucial role in resolving tax-related criminal risks during the prosecution stage. It not only benefits the rescue of companies but also aids the ultimate controllers in reforming themselves after being spared from prosecution. This allows them to resume their responsibilities, rectify tax loopholes, and achieve sustainable economic development. Therefore, companies involved in such cases and their relevant individuals should actively communicate with the procuratorial organs, fully understand the procedures and conditions for initiating compliance rectification, and strive for the opportunity of compliance non-prosecution.

If companies and individuals lose the opportunity for compliance non-prosecution during the prosecution stage, does it mean they will face severe sanctions? Next, the author will analyze the changes and developments of criminal compliance in the trial stage to provide an answer.

III. How has the introduction of corporate criminal compliance in the court trial stage evolved?

(I) Observing Policy Trends in the Introduction of Corporate Compliance Rectification in the Trial Stage

Since March of this year, after former Procurator-General Zhang Jun took over the Supreme People's Court, he has emphasized multiple times that the courts should also participate in the reform of companies involved in cases, jointly completing this process with the procuratorial organs. The following are the trends in corporate compliance rectification in the trial stage.

From the above policy dynamics, it can be seen that the Supreme People's Court and local courts across the country are actively participating in the reform of companies involved in cases, and the policy of criminal compliance is expanding into the trial stage.

(II) Practice of Tax-related Crime Compliance Rectification in the Trial Stage

According to the "Research Report on People's Courts Conducting Research on Corporate Compliance Reform" published in the first half of 2023, the courts nationwide handled a total of 508 cases related to corporate compliance, with 495 cases in the first instance and 13 cases in the second instance. At the same time, the proportion of corporate crime cases accounted for 70.15% of the cases already adjudicated.

In terms of compliance rectification for tax-related crimes, in practice, the People's Court reported a case of false issuance of value-added tax special invoices that, during the second instance, was re-judged with compliance rectification, leading to the defendant being exempted from criminal penalties.

In this case, the actual controller of a construction company in Wuhu, Xing, used the method of paying invoice fees to others to issue false value-added tax special invoices to offset input tax without any real transactions with these individuals. In the first instance, the court convicted and sentenced Xing for the crime of false issuance of value-added tax special invoices. Dissatisfied, Xing appealed to the Wuhu Intermediate People's Court while also applying for compliance rectification. Subsequently, the Wuhu Intermediate People's Court conducted on-site investigations, established a specialized team for compliance cases, discussed the causes of the case, and ruled to suspend the trial, initiating a compliance inspection of the company with a deadline of three months. In the end, the company completed the criminal compliance rectification, and Xing was sentenced to exemption from criminal penalties according to the law.

This case in Wuhu City, Anhui Province, during the second instance, applied criminal compliance for the first time, setting a good example. It indicates that companies and relevant individuals can actively advocate for criminal compliance during the examination and prosecution stage, the first-instance trial stage, and the second-instance trial stage, striving for favorable outcomes such as reduction of criminal responsibility, probation, and even exemption from criminal penalties. For example, in the initial compliance case mentioned, even if the amount of tax involved exceeds 2.5 million, favorable results such as probation can still be obtained through compliance rectification, establishing a compliance system, etc.

In addition, the People's Court of Huishan District, Wuxi City, reported a case where the court participated in corporate compliance rectification. The report indicates that the court, together with the procuratorate and third-party supervisors, visited the company, inspected the company's compliance rectification situation on-site, and, combined with the rectification report, considered it during the trial and sentencing process. The court insisted on a balance between "governance" and "punishment," helping companies return to the right track.

(III) Differences and Connections between Criminal Compliance in the Court Trial Stage and Procuratorial Review and Prosecution

All the above indicates that, whether in policy direction or in practice, the courts actively participate in corporate criminal compliance rectification, jointly creating a new chapter of criminal compliance with the procuratorial organs. However, criminal compliance in the court trial stage and the procuratorial review and prosecution stage also have differences. First, the leading entities are different, with the former being the court and the latter being the procuratorate. Second, the procedures differ. Compliance rectification in the trial stage takes a longer time in the first instance (second instance), while the review and prosecution stage has a relatively shorter period. For some larger-scale enterprises, it may be challenging to complete compliance rectification plans. Third, the obtained results are different. For the procuratorate, it can decide not to prosecute independently after conducting compliance. However, for some cases with a large amount of tax involved, even if compliance is conducted, the procuratorate cannot decide not to prosecute. It can only propose sentencing suggestions, and the decision-making power lies with the court. In the trial stage, the court can decide whether to mitigate the punishment or exempt from criminal penalties, with greater discretionary power. It is also necessary to note that a non-prosecution decision alone does not mean no criminal record.

The commonality between the two lies in their consistent purpose, which is to implement the judicial policy of "arrest fewer, detain fewer, and prosecute cautiously," helping companies reform and redeem themselves.

(IV) Conclusion: Compliance Rectification can still be applied for in the Trial Stage

From the above, it can be concluded that companies and individuals involved in cases, even if they fail to obtain non-prosecution for compliance during the procuratorial stage, can still obtain results such as exemption from criminal penalties and probation in the trial stage. This will greatly benefit the physical companies from avoiding bankruptcy, regaining a new life, and promoting the healthy development of private enterprises.

IV. Procedures for Criminal Compliance in Tax-related Crimes

The procedures for criminal compliance in tax-related crimes are common in both the procuratorial and trial stages. The following provides an introduction to the procedures of criminal compliance in tax-related crimes.

(I) Initiation of Compliance Rectification Application by the Involved Company to the Procuratorate or the Court

During the procuratorial stage, there are two ways to initiate compliance rectification. One is for the procuratorial organs to take the initiative to review and initiate directly after seeking the opinions of the involved company. The other is for the involved company to apply to the procuratorial organs, and after examination and approval by the procuratorial organs, initiate compliance rectification. The latter can also be applied to the court trial stage, where the involved company applies to the court, including commitments to compliance rectification and preliminary compliance plans. The author suggests that if the involved company wants to conduct compliance, it should try to apply to the procurator during the procuratorial stage. If the compliance period is long, it can be extended to the trial stage for continuous compliance rectification.

(II) Formation of Third-party Organizations, Joint Inspection by the Procuratorate or Judicial Authorities

Led by the procuratorate or the court, a third-party professional evaluation team is formed to investigate, assess, supervise, and inspect the compliance commitments of the involved company. During the procuratorial stage, the procuratorate invites people's supervisors, tax authorities, third-party supervisory and evaluation organizations, etc., to conduct public hearings on the results of the compliance inspection of the involved company and opinions on case handling. During the trial stage, new evidence is presented in court, including the criminal compliance commitment, the criminal compliance review report, expert opinions on the criminal compliance review report, and regulatory opinions. The collegiate bench conducts on-site cross-examination.

(III) Conclusion of the Inspection Period, Issuing Judicial Measures

After the above series of procedures, the procuratorate makes decisions on the involved company and related responsible individuals, or the court issues a judgment. The joint efforts of the procuratorate and the court promote the criminal compliance rectification of the involved company, not only educating and rescuing a batch of companies but also guiding the standardized development of corporate taxation, fostering a healthy and benign development of a legal business environment.

(IV) Post-inspection Follow-up, Completing the Second Half of Compliance

Both the Supreme Procuratorate and the Supreme Court have emphasized the need to do a good job in the post-inspection supervision of compliance by involved companies, preventing companies from merely having paper compliance, obtaining non-prosecution decisions, or judicial judgments, and then abandoning compliance systems and returning to illegal practices. Therefore, third-party organizations and procuratorial organs in various regions will conduct visits and supervision of companies that have completed compliance. After undergoing compliance rectification, involved companies must persist in continued compliance operations and contribute to society.