Lawyer Liu Tianyong, Director of Huashui Law Firm, Director of the Finance and Tax Law Professional Committee of the National Lawyers Association, and Expert of the Third Party Supervision and Evaluation Mechanism for Enterprise Compliance of the First Batch of the All China Federation of Industry and Commerce, was invited by the Business School magazine under the supervision of the Chinese Academy of Social Sciences to write a special article on tax compliance titled "Analysis of Urgent Risk Response Measures for Tax Compliance", which was published as a cover article in the 12th issue of the Business School magazine in 2023. The full text is reproduced as follows:

Analysis of Risk Response Measures for Urgent Tax Compliance

——The core of tax compliance is to prevent and respond to corporate tax risks. With the increasing level of supervision by China's tax authorities, the construction process of "tax governance through numbers" is accelerating. Correspondingly, tax administration and criminal risks are increasing, causing huge economic losses and even criminal sanctions to enterprises and entrepreneurs.

Text: Liu Tianyong

Corporate compliance refers to the establishment of a sound internal governance system by enterprises to ensure full compliance with current laws, regulations, and policy provisions, and to prevent, identify, resolve, and respond to potential compliance risks. Tax compliance, as an indispensable part of corporate compliance, has also attracted increasing attention in recent years.

The core of tax compliance is to prevent and respond to corporate tax risks. With the increasing level of supervision by China's tax authorities, the construction process of "tax governance through numbers" is accelerating, and the corresponding tax administration and criminal risks are increasing, causing huge economic losses and even criminal sanctions to enterprises and entrepreneurs. It is urgent for enterprises to establish an efficient and comprehensive tax compliance system.

Under the background of "smart taxation", compliance risk escalation

——With the construction of smart taxation and the implementation of seven departments to combat tax related illegal activities, enterprises and entrepreneurs should attach importance to tax compliance construction and curb tax risks in the cradle.

The direction of tax reform in our country is to "manage taxes with numbers", which means relying on digital and information-based means for precise supervision. The Opinions on Further Deepening Tax Collection and Management Reform (hereinafter referred to as the "Opinions") issued by the General Office of the Communist Party of China and the State Council propose to establish a new tax law enforcement system that is "risk-free and non-interference free, accountable for illegal activities, and has strong intelligent control throughout the entire process" by 2023, realizing the transformation from empirical law enforcement to scientific and precise law enforcement, and achieving the transformation from "invoice based tax management" to "numerical based tax management" classification and precise supervision.

Lawyer Liu Tianyong, Director of Huashui Law Firm, Director of the Finance and Tax Law Professional Committee of the National Lawyers Association, and Expert of the Third Party Supervision and Evaluation Mechanism for Enterprise Compliance of the First Batch of the All China Federation of Industry and Commerce, was invited by the Business School magazine under the supervision of the Chinese Academy of Social Sciences to write a special article on tax compliance titled "Analysis of Urgent Risk Response Measures for Tax Compliance", which was published as a cover article in the 12th issue of the Business School magazine in 2023. The full text is reproduced as follows:

Analysis of Risk Response Measures for Urgent Tax Compliance

——The core of tax compliance is to prevent and respond to corporate tax risks. With the increasing level of supervision by China's tax authorities, the construction process of "tax governance through numbers" is accelerating. Correspondingly, tax administration and criminal risks are increasing, causing huge economic losses and even criminal sanctions to enterprises and entrepreneurs.

Text: Liu Tianyong

Corporate compliance refers to the establishment of a sound internal governance system by enterprises to ensure full compliance with current laws, regulations, and policy provisions, and to prevent, identify, resolve, and respond to potential compliance risks. Tax compliance, as an indispensable part of corporate compliance, has also attracted increasing attention in recent years.

The core of tax compliance is to prevent and respond to corporate tax risks. With the increasing level of supervision by China's tax authorities, the construction process of "tax governance through numbers" is accelerating, and the corresponding tax administration and criminal risks are increasing, causing huge economic losses and even criminal sanctions to enterprises and entrepreneurs. It is urgent for enterprises to establish an efficient and comprehensive tax compliance system.

Under the background of "smart taxation", compliance risk escalation

——With the construction of smart taxation and the implementation of seven departments to combat tax related illegal activities, enterprises and entrepreneurs should attach importance to tax compliance construction and curb tax risks in the cradle.

The direction of tax reform in our country is to "manage taxes with numbers", which means relying on digital and information-based means for precise supervision. The Opinions on Further Deepening Tax Collection and Management Reform (hereinafter referred to as the "Opinions") issued by the General Office of the Communist Party of China and the State Council propose to establish a new tax law enforcement system that is "risk-free and non-interference free, accountable for illegal activities, and has strong intelligent control throughout the entire process" by 2023, realizing the transformation from empirical law enforcement to scientific and precise law enforcement, and achieving the transformation from "invoice based tax management" to "numerical based tax management" classification and precise supervision.

In June 2023, Director Wang Jun of the State Administration of Taxation pointed out that 2023 is a "breakthrough year" for implementing the "Opinions", and the "four beams and eight pillars" of smart taxation have basically formed. We need to continue to work hard in promoting the digital upgrading and intelligent transformation of tax collection and management. It can be imagined that in the future, tax supervision will further achieve the reform goal of "governing tax with numbers", which greatly facilitates tax services for taxpayers and also puts higher compliance requirements on the vast number of taxpayers.

Firstly, tax big data aims to connect information and data from multiple departments such as taxation, banking, industry and information technology, city supervision, and customs, in order to better grasp enterprise business information and identify tax doubts. For example, equity transfer has always been a "disaster area" for concealing income and false declarations. The tax bureau of a certain city has strengthened data exchange with market supervision departments, and through the comparison and verification analysis of tax data and market supervision data, the number of tax applications for natural person equity change in the jurisdiction has increased by 67% year-on-year. For example, "public to private" transfer payments and "fund backflow" are important characteristics of enterprises evading taxes and issuing false invoices. With the deepening cooperation between bank supervision and tax departments, pushing abnormal fund flow information from banks to tax departments has become an important clue for the outbreak of false invoice cases.

Secondly, the comprehensive promotion of "digital electronic invoices" (fully digitized electronic invoices) has not only provided convenience for enterprise operations, but also triggered new tax risks. Digital invoice has the advantages of facilitating enterprises to issue invoices, canceling the maximum invoicing limit for a single invoice, and automatically entering the invoicing party's system. However, it also brings new risks to enterprises, and the behavior of issuing false digital invoices has begun to emerge. For companies that falsely open their accounts, it is clear at a glance where their input invoices come from and where their output invoices flow, making full chain tracing more convenient. As a result, companies that receive invoices may be implicated.

Once again, smart taxation can summarize personalized tax related information of enterprises, draw "taxpayer portraits", and achieve "one household, one file". Through long-term tracking and collection of taxpayer enterprise information, tax big data can summarize the preferences of enterprises, such as their business scope, counterparties, operating regions, average profit margins, etc. If there is a significant change in a certain data characteristic of the enterprise, it will trigger a tax warning, such as significant fluctuations in profit margins, abnormal sales and purchases, sudden data surge, and so on.

Firstly, pay attention to the deficiencies in the internal governance structure of the enterprise, namely whether the senior management of the enterprise has achieved power constraints and whether the enterprise will be used by a few people to engage in tax related crimes. Whether the restrictions on the senior management, shareholders, and actual controllers of the enterprise are in place, and whether the finance, compliance, and risk control departments have independence.

Secondly, pay attention to the loopholes in internal governance of the enterprise. Mainly refers to the loopholes in the operation and management of enterprises, namely whether the enterprise has established effective systems to supervise the authenticity of procurement business, and whether the acquisition and issuance of invoices can achieve "three stream consistency", etc; The financial management loopholes of the enterprise, namely whether the enterprise can prevent the favoritism and fraud behavior of the financial department and financial personnel, and whether it can prevent the risk of financial personnel violating invoicing regulations; The loopholes in corporate compliance review refer to whether the company has established a compliance department and whether it can review and handle contract signing and invoice receipt in its business activities.

Finally, pay attention to whether the business model of the enterprise has legality and rationality, such as affiliated operation, online freight, flexible employment, etc. If tax authorities, procuratorial organs, or third-party organizations have doubts about the business model of the enterprise, or do not recognize the rationality and authenticity of the business model, the enterprise and its responsible persons may face significant criminal risks.