The joint crackdown mechanism of six departments, namely the State Administration of Taxation, the Ministry of Public Security, the Supreme People's Procuratorate, the General Administration of Customs, the People's Bank of China, and the State Administration of Foreign Exchange, has been playing a great role in investigating and dealing with gang-type, trans-regional, and illegal and criminal acts of false invoicing. Recently, the State Administration of Taxation exposed seven tax-related cases. Among them, a joint tax police operation to investigate and deal with the case of false VAT invoices successfully smashed two criminal dens of false invoicing. In the case, two tax-related intermediaries were sentenced to 3 to 11 years' imprisonment for setting up or helping related shell enterprises to issue VAT invoices with a total of 1.232 billion yuan in value and tax by providing financial book-keeping services and fabricating financial data and information, without any real business taking place. As providers of tax-related professional services, tax-related intermediaries are facing increasingly stringent supervision and tax risk responsibility, and should operate in good faith, practice in accordance with the law and cautiously guard against tax-related risks.

I. Continuous Pressure on Tax Regulation of Tax-Related Intermediaries

(I) Focusing on intermediaries, focusing on investigation and handling of false invoicing and other tax-related illegal behaviors

On April 29, 2021, the Inspection Bureau of the State Administration of Taxation ("SAT") issued an article entitled "The SAT carries out the spirit of the Opinions on Further Deepening the Reform of Tax Levy and Administration, and requires: tax risk-oriented and precise implementation of tax supervision", which listed intermediaries as one of the key industries and fields to be focused on and explicitly investigated and dealt with tax-related illegal acts such as fraudulent invoices and other tax-related illegal acts.  Tax-related intermediaries are prone to problems such as false invoicing or tax evasion in the course of their business development, and are also prone to enter the field of tax supervision.

(II) Six Departments Jointly Crack Down on Fraudulent Tax Issuance, Penalties Strengthened Unprecedentedly

Since 2021, the State Administration of Taxation, the Ministry of Public Security, the Supreme People's Procuratorate, the General Administration of Customs, the People's Bank of China, and the State Administration of Foreign Exchange have established a standing mechanism for combating false and fraudulent tax, and tax-related crimes such as false and fraudulent tax are facing a severe trend of supervision, and enterprises must pay more attention to tax compliance.

On May 11, 2022, the six departments held a meeting to promote the work of jointly combating fraudulent VAT tax rebates, and on May 17, jointly issued the Notice on Cracking Down on Illegal and Criminal Behaviors of Fraudulently Obtaining Tax Credits and Refunds (Tax General Audit and Inspection No. 42 [2022]), which requires focusing on illegal and criminal behaviors such as gang-type, inter-region, and fraudulent invoicing and false enhancement to fraudulent tax rebates and refunds, and increasing the efforts of joint crackdowns in a zero-tolerance manner, and increasing the number of investigations and serious punishments according to the law. Joint crackdown efforts, strict investigation and heavy punishment in accordance with the law. Tax-related intermediaries provide agency bookkeeping, collection and payment of funds and invoicing services. Once an invoiced enterprise is investigated for suspected false invoicing and fraudulent tax credit rebate, not only will the invoiced enterprise be fined, have its credit rating lowered, and have its accounts investigated for three years, but the inspection will also be extended to the upstream and downstream enterprises, and thus the risk will be transmitted to the tax-related intermediaries.

(III) Special activities for remediation of tax-related intermediaries are concentrated, and the standardization requirements have been raised again.

On April 18, 2022, the State Administration of Taxation (SAT), the State Internet Information Office (SIIO), and the State Administration for Market Supervision (SAMS) jointly issued the Notice on Regulating the Behavior of Tax-Related Intermediary Services and Promoting the Healthy Development of the Tax-Related Intermediary Industry (Taxation SIIO Nasi Fa [2022] No. 34), which is aimed at further regulating the behavior of tax-related intermediary services, focusing on solving the issues of tax-related intermediaries illegally providing tax planning services, helping taxpayers to tax evasion, as well as releasing illegal and unlawful information in various self media and internet platforms to solicit business, distorting the interpretation of tax policies, disturbing the normal tax order, etc., to promote the healthy development of the tax-related intermediary industry, to create a fair and rule of law environment for the development of the market entities, to safeguard the interests of national tax and the legitimate rights and interests of taxpayers and contributors, and to maintain the national economic order and tax security. Not only are tax-related intermediaries required to complete self-inspection and rectification in a timely manner, but for the existence of the aforementioned illegal and irregular behaviors, the relevant departments shall, in accordance with their respective responsibilities and division of labor, investigate and deal with the tax-related intermediaries in accordance with the law.

(IV) Tax Big Data Helps Accurate Auditing, and Tax Police Jointly Handle Cases with Accumulated Achievements

On December 13, 2022, China Taxation News reported that Hangzhou tax police jointly cracked a major case of electronic invoice fraud. It was reported that the inspection department of Hangzhou Taxation Bureau seized the new trends and characteristics of invoice crimes, joined hands with the police, and utilized big data to carry out precise inspections, which has identified two local false invoicing gangs and unearthed a large false invoicing network based on an internet platform. After a nationwide cluster campaign, 77 suspects were arrested, involving 128,000 invoices with tens of billions of dollars in price and tax in total, in landed verifications.

Tax big data plays an important role in detecting the risk of fraudulent invoicing and further tracing upstream and downstream along the invoice chain. As tax collection and management goes deeper and deeper towards precise and categorized supervision, the tax risks faced by tax-related intermediaries should not be ignored.

II. Focusing on the recent typical tax cases, and explaining the tax-related liabilities and risks of intermediaries.

(I) Tax Liability of Intermediary Institutions for Colluding with Customers in False Opening

Case 1: Yan Moumou, the legal representative of Company H, and several independent tax-related service personnel colluded with the group of false invoicing, under the cover of tax agency, falsely registered a shell company, irregularly handled real-name authentication, change of registration, receipt of invoices, agent bookkeeping, illegal use of preferential policies for the prevention and control of epidemics and external invoicing, false invoicing of 17,000, the value of the tax amounted to a total of 1.594 billion yuan.

In the case of collusion between the intermediary and the client, the intermediary knows that the client lacks a real transaction basis, and still acts as a proxy for the registration of sole proprietorships, individual businesses and other shell invoicing subjects, providing services such as invoicing, agency bookkeeping, forging and fictitious real transaction materials and external false invoicing, etc., and obtaining approved levies, financial refunds, or illegally applying the tax incentives for high and new-tech enterprises, epidemic prevention and control, etc., and profiting from the invoicing fees. The intermediaries should be alert to the criminal risk of false invoicing.

According to Article 15 of the Measures for Supervision of Tax-Related Professional Services (for Trial Implementation), if the tax-related intermediaries and their tax-related service personnel are penalized in accordance with the relevant provisions of the Law on Administration of Tax Collection and its Implementing Rules for violating the tax laws and administrative regulations, resulting in the client's non-payment or underpayment of tax, the tax authorities may list them as the key supervisory objects, reduce their credit rating or include them in the credit record, and suspend the acceptance of tax-related business (suspended for a certain period of time) that they represent. (the suspension time shall not exceed six months); if the circumstances are more serious, the tax authorities may include it in the tax-related service loss of trust directory, make an announcement and push it to the social credit platform, and at the same time, not accept the tax-related business it represents; if the circumstances are particularly serious, the provincial tax authorities may announce that the "Certificate of Administrative Registration of Taxation Firms" shall be invalidated, and submit it to the market supervisory department for revocation of its business license, and to the National Taxation Association for cancellation of the professional career of the tax accountants. The provincial tax authority may declare the Certificate of Administrative Registration of Taxation Firm invalid, submit to the market supervision department to revoke its business license, submit to the National Taxation Association to cancel the registration of the professional qualification certificate of the tax accountant, recover its professional qualification certificate and announce it to the society, or submit to other competent departments in charge of the industry and industry associations to deal with the other tax-related service organizations and their personnel engaging in the tax-related service.

(II) Tax-related risk of intermediaries being utilized by wrongdoers to facilitate the crime of false invoicing

Case 2: Company B, an internet-based fiscal and tax agency platform, provides services to control customers' tax-control disks and issue invoices externally according to their instructions for the purpose of attracting investment in the local area.In June 2019, Zhang entered into a cooperation with Company B, whereby Company B controlled the invoicing and other matters.Between June and September 2019, Zhang conspired with other people to issue VAT invoices externally in a fraudulent manner, from which he earned a portion of the invoicing fee and the local financial rebates. It was found that Zhang's company issued 279 VAT special invoices with a tax amount of 1.67 million yuan to Company C, and 198 VAT special invoices with a tax amount of 1.15 million yuan to Company D. In September 2019, Company B found that Zhang's company's inputs and sales were seriously inconsistent with the tax amount and withheld the fiscal rebate payable to Zhang. After the case, Zhang was sentenced to ten years' imprisonment for the crime of false VAT invoicing.

In this case, Company B, as an internet fiscal agent platform, used to rely on the fiscal rebate policy of the local government to provide invoicing services to its customers. Although the platform invoiced according to the instructions and information provided by the customers, from the appearance, the invoicing subject and the controller were all platforms, and the platforms were extremely easy to be involved in criminal risks if the customers issued false invoices to the outside world, and it was necessary for the platforms to be vigilant against risks originating from their customers and to avoid being recognized as an accomplice to the crime of false invoicing.

(III) Tax Liability of Intermediary Institutions Violating the Law and Publishing False Tax-Related Information

Case 3: On September 21, 2022, tax-related intermediaries in many places announced that they had published "tax return services", "practical and reasonable tax avoidance methods", "reasonable tax saving tips" and "effective tax saving tips" through internet websites or self-media. Through Internet websites or self-media, intermediaries publish tax-related false propaganda information such as "tax rebate services", "practical and reasonable tax avoidance methods", "secrets of reasonable tax saving" and "effective reduction of the tax burden of enterprises", distorting tax policies and misleading the public.

As the market for traditional fiscal and taxation agency business such as company registration, bookkeeping, tax filing and annual review has been saturated, along with the introduction of financial rebates, tax approvals or other tax incentives by localities for investment promotion and the growth in demand for tax saving by high net-worth people in accordance with the law, tax-related intermediary organizations have also started to open up the field of business of "tax planning" to explore new breakthroughs for growth. They are also exploring new growth breakthroughs. The essence of "tax planning" is to register individual industrial and commercial households or shell enterprises in the parks with relevant policies, so as to facilitate the splitting of income and transformation of the nature of income to achieve the purpose of tax saving, and this kind of operation is very prone to the risk of tax evasion. According to Article 63 of the Tax Collection and Management Law, once the tax authorities determine that tax evasion constitutes tax evasion, not only do they need to make up for the unpaid or underpaid taxes, late fees, but also have to bear a fine of more than 50 percent of the unpaid or underpaid taxes and less than five times the amount of the fine; if it constitutes a crime, it will also be held criminally liable.

With regard to the tax-related intermediary field of providing tax planning services in violation of the law, releasing false propaganda and advertising information and distorting the interpretation of tax policies, the State Administration of Taxation (SAT), the State Internet Information Office (SIIO) and the State Administration for Market Supervision and Administration (SAMSA) will, in accordance with the requirements of the division of responsibilities set out in the document of the General Administration of Taxation and Nasdaq [2022] No. 34, strengthen the coordination and consultation of important issues, and establish a closed-loop monitoring and research mechanism for investigations and judgments, investigations and treatment, and cooperative management. operation mechanism, investigate and deal with suspected relevant issues in accordance with the law, and establish regularized management of tax-related intermediary service behaviors and credit management of illegal and unruly behaviors. Tax-related intermediary organizations should pay attention to the tax-related risks.

(IV) Tax liability for conducting business without obtaining cost invoices in a timely manner

Case 4: In October 2021, six wholly-owned subsidiaries under the name of Company A carried out the business of flexible labor externally, and the cost of the service consideration paid to the natural person or third-party company undertaking the business, due to the failure to obtain the cost invoices in a timely manner during the remittance period, the competent tax authorities considered that the basis for its deduction before EIT was insufficient, and demanded that the cost invoices be reissued or exchanged.

The role of Lingong Platform in its external business mainly lies in providing compliant invoices and isolating the invoice risk of the natural person who actually provides labor services and the third party enterprise. However, when the natural person who actually provides labor services or the third party organization is unable to provide invoices, or the invoices provided are not compliant, at this point in time, Lingong Platform is required to bear the pressure of value-added tax and income tax due to the inability to obtain invoices, or invoices that are not compliant. According to the Measures for the Administration of Vouchers for Pre-tax Deduction of Enterprise Income Tax, in that case, if the enterprise is unable to reissue or exchange invoices or other external vouchers, or provide relevant information that can confirm the authenticity of its expenditures within 60 days from the date of being informed of the insufficiency of the basis for pre-tax deduction, the corresponding expenditures shall not be deducted before tax in the year in which they are incurred. Enterprises are not allowed to make deductions if they have not done so for the time being; if they have already made deductions, they should increase their taxable income and even pay late fees.

In our opinion, in the case that the intermediary agency is utilized by wrongdoers to participate in the crime of false invoicing, the intermediary agency shall not be punished for the crime of false invoicing if it can prove that it has fulfilled its obligation of reasonable formal examination and subjectively does not have the purpose of conspiracy to cheat tax. On the one hand, the intermediary organization providing invoicing service has no statutory and contractual obligation to review the substance of the corresponding business, and the commissioning party of the business shall be responsible for the accuracy, completeness, authenticity and legality of the materials provided. On the other hand, according to Article 205 of the Criminal Law, the crime of false invoicing of VAT is an intentional crime, which requires the perpetrator to "know that the consequences of his act will be detrimental to society". If the intermediary organization only issues invoices according to the instructions of the client and the relevant information provided by the intermediary organization, and if the intermediary organization has fulfilled the obligation of reasonable formal examination of the legitimacy of the corresponding materials, the intermediary organization shall not be regarded as colluding with the client, and the intermediary organization does not have the subjective purpose of obtaining taxes fraudulently and it is in the position of a "criminal tool" in the process of false invoicing by the client, which does not constitute a crime. In the process of false invoicing by the client, it is in the position of "instrument of crime" and does not constitute a crime.

III. Tax compliance and risk response of tax-related intermediaries

(I) Ensure business authenticity and emphasize risk isolation

In order to improve daily tax compliance, tax-related intermediaries should adhere to the authenticity of their business operations and avoid putting themselves and their clients at risk. Specifically, tax-related intermediaries should confirm that the registration of individual industrial and commercial households and sole proprietorship enterprises on behalf of their clients is based on the clients' real will, record the real process and results of the business, keep the contracts, bank transfer vouchers, statements, work records, work results, and other materials capable of proving the authenticity of the business, promptly exclude non-compliance phenomena that may be challenged by the tax authorities, and try to avoid the provision of escrowed tax-control disks, avoid providing tax control disk, invoicing, stamping, mailing invoices and other invoicing-related businesses as far as possible. In order to isolate the risk, tax-related intermediaries should establish and improve the institutionalized, standardized and electronic approval process, and equip with a perfect financial internal control system, so that in case of non-compliance of invoices for a certain business, they can use the preserved approval materials and documents to restore the facts, and avoid the risk of false invoicing and tax evasion caused by the personal behaviors of the personnel of the tax-related service, which will implicate the enterprises.

(II) Responding well to tax audits and actively exercising the right of statement and defense

After receiving the Notice of Proven False Opening and Letter of Concurrence, the tax-related intermediary should properly respond to the tax audit program. For the tax authorities to retrieve the relevant books of the enterprise and interrogate the relevant personnel on the relevant matters, they should actively cooperate with the tax authorities, and while sorting out the business process, submit the corresponding information that can prove the authenticity of the business to the tax authorities, and provide detailed explanations for the possible problems in the process of invoicing and accepting the invoices.

If the tax authorities have already referred the case to the public security authorities, or if the public security authorities have already started the preliminary investigation, the tax-related intermediaries should pay attention to the "case review procedure" and actively exercise the right to make a statement and defense to prove that there is no criminal act or that the circumstances are minor and there is no need to pursue criminal responsibility, so as to avoid the public security authorities from initiating the investigation procedure.

(III) Focusing on the source of risk and promoting compliance and rectification

On the basis of the risk of tax-related intermediaries' false driving and tax evasion that has already broken out, enterprises should still grasp the criminal compliance policy of the enterprises involved in the case, and realize the concretization and operability of the tax-related obligations of tax-related intermediaries under the criminal law and the administrative law through the compliance rectification of the enterprises.

Firstly, the enterprises involved in the case should plead guilty and admit punishment, actively refund and reimburse the tax and illegal income, pay late fees and fines, and make up for the tax loss of the state and the faults of the enterprises in a positive manner.

Secondly, the enterprises involved in the case should suspend the corresponding business, investigate whether the source of risk is customer fraud, employee fraud or the business model itself has risks, and formulate targeted rectification plans accordingly.

Finally, tax-related intermediaries should establish a comprehensive and systematic compliance system, which not only strengthens the review and approval of business authenticity, but also clarifies the authority and responsibility to specific departments and business leaders to ensure that the responsibility is clear and traceable; and also builds a supporting compliance mechanism in accordance with the provisions of the tax law for the whole set of financial and tax links, such as tax declaration, invoice management, financial accounting, and fund collection and payment. In addition, identification and response strategies should be established for tax risks that cannot be controlled by tax-related intermediaries.