Editor's Note: Recycling of renewable resources is a key link in the comprehensive utilization of resources, which is of great significance in promoting the development of circular economy and realizing green, low-carbon and high-quality development. For a long time, the lack of "source invoices" has been restricting the development of the resources recycling industry. In order to make up for the shortfall of input items and obtain compliant pre-tax deduction vouchers for enterprise income tax, some of the recycling enterprises have obtained VAT invoices by changing their business model, seeking third-party issuance or even purchasing them, which has led to frequent tax-related risks. In recent years, in order to promote the sustainable development of resources recycling industry, the Ministry of Finance and the State Administration of Taxation (SAT) have issued a series of policies, and the much-anticipated "reverse invoicing" policy has also been put into practice, which requires renewable resources enterprises to pay attention to the tax-related risks in adjusting their business model. Hwuason Law Firm has issued compliance reports on tax-related issues in the resources recycling industry for many consecutive years, and continues to pay attention to the latest tax regulatory situation and corporate compliance management in the recycling industry. Recently, Hwuason Law Firm attorneys Liu Tianyong and Zhang Qian were interviewed by China Tax News on the common tax-related risks in resources recycling industry and the compliance suggestions of enterprises.

How to prevent and control tax risks? Tax experts suggest that renewable resource recycling enterprises -Strengthen the bottom line thinking: do real business and open real invoices

Reporter He Shuang Correspondent Lin Jingshuai Li Yongxing

Renewable resources industry is an important part of the circular economy, recycling as the core link of the renewable resources industry, bear a variety of dispersed waste materials for the collection and initial processing of the task, is an important means of realization of the circular economy and the development of security. The Tax Compliance Report of Recycling Industry (2024) released by Hwuason Law Firm points out that with the continuous adjustment of the business model of resources recycling industry, the tax risk of China's recycling industry is becoming more and more prominent, which is particularly worthy of attention. In this regard, Hwuason Law Firm director Liu Tianyong suggests that renewable resources recycling enterprises must continue to strengthen the bottom line thinking in their daily operations, do real business, open real invoices.

Common Risk Point 1: Compliance "first invoice" difficult to obtain

H Steel Company acquired scrap steel from individuals without obtaining an invoice, in order to carry out the VAT input deduction and corporate income tax costs, the person in charge of the company decided to S Company, D Company, X Company's name to the H Company issued VAT invoices, the invoice information to the H Company's actual acquisition of scrap steel situation shall prevail. Later, Company H was filed by the judicial authorities for false invoicing, involving 370 VAT invoices, with a total of more than 58 million yuan in price and more than 8 million yuan in tax.

Hwuason Law Firm partner Zhang Qian told reporters that the natural person retailer is the main supplier of renewable resources chain, because of its weak tax awareness or unwillingness to pay taxes and fees, etc., its sales of waste materials to the recycling enterprises usually do not bring tickets, so the practice has long existed in the recycling enterprises can not get VAT invoices from the retailer, and downstream with the waste of the enterprise required to issue invoices of the situation.

Recently, the State Administration of Taxation ("SAT") issued the Announcement on Matters Relating to "Reverse Invoicing" by Resource Recycling Enterprises to Sellers of End-of-Life Products to Natural Persons (SAT Announcement No. 5 of 2024), which clarifies that since April 29, 2024, sellers of end-of-life products to resource recycling enterprises by natural persons can sell end-of-life products to eligible resource recycling enterprises without invoices. Qualified resource recycling enterprises can issue invoices to the sellers (i.e. "reverse invoicing"), and resource recycling enterprises should handle tax declaration and payment on behalf of the sellers after "reverse invoicing". Liu Tianyong said that the introduction of this policy will undoubtedly solve the problem to a large extent that resource recycling enterprises can not get the "first ticket", and at the same time to improve the tax collection and management of the natural person seller, and effectively reduce the tax risk of the relevant subjects. Ma Bo, Chief of Goods and Services Tax Section, Baicheng City Taxation Bureau, State Administration of Taxation, reminded that resource recycling enterprises with the intention of "reverse invoicing" should learn and master the content of the policy of "reverse invoicing" and the matters to be noted, and provide the information in time to legally and legally comply with the reverse invoicing. Invoicing.

Common Risk Point 2: Failure to Pay Attention to Confirm the Authenticity of Business

In October 2023, the official website of Fujian Provincial Tax Bureau showed that a renewable resources utilization company acquired waste materials from individuals, and although it set up account books, there were problems such as the authenticity of the cost of the acquisition business could not be verified, the cost accounting was confusing, and the cost carry forward was inaccurate. After investigation, the First Inspection Bureau of Fuzhou Municipal Taxation Bureau approved the enterprise to pay more than 40 million yuan of enterprise income tax.

Ma Bo said, before the recycling enterprise from the retailer to acquire waste materials is difficult to obtain a compliant invoice, acquisition of business costs are more controversial. In the "reverse invoicing" policy, the recycling enterprise from the eligible natural person end-of-life products sellers to acquire end-of-life products reverse invoicing, can be used as a pre-tax deduction of enterprise income tax vouchers. However, it should be noted that the recycling enterprise should keep the materials that can prove the authenticity of the business in accordance with the relevant regulations, including the purchase contract or agreement for the acquisition of end-of-life products, transportation invoices or vouchers, weighing slips of the goods, transfer and payment records, etc., and set up a purchase account to record in detail the time and place of each purchase, the seller and his contact information, the name of the end-of-life products, the quantity and the price of the end-of-life products. If the resource recycling enterprise submits false information to obtain the "reverse invoicing" qualification or resource recycling business is false, the tax authorities will cancel its "reverse invoicing" qualification, and be held accountable according to law.

The reporter understands that in the above information, the recycling enterprises usually have difficulty in obtaining transportation vouchers. In practice, the end-of-life products are generally transported by the seller, the agreed settlement price has included transportation costs, the seller's own transportation or find an individual driver, fleet transportation, it is difficult to issue transportation invoices to recycling enterprises. Zhang Qian suggests that, in this case, resource recovery enterprises can retain vehicle information (driver's name, license plate number, driver's license, driving license, etc.), take photos (video) of vehicle transportation, preserving the transportation cost payment vouchers, etc., in order to corroborate as far as possible the acquisition of business and the real occurrence of transportation.

Common Risk Point 3: Accepting false invoices from upstream enterprises

In November 2023, the Dalian Municipal Tax Bureau announced a case in which a renewable resources enterprise utilized false VAT invoices and applied the VAT addition and deduction policy in violation of the law. It was found that an enterprise, without real business, allowed others to falsely issue 42 VAT special invoices for itself, with a total price and tax amount of RMB 4,084,300, inflated input tax amount by RMB 337,200, and illegally applied the additional credit and deduction of RMB 33,700.

In practice, downstream enterprises faced different legal consequences after being implicated in tax inspections due to upstream false invoicing. In some cases, the tax authorities recognized the acceptance of false invoices by the enterprises as tax evasion and imposed corresponding penalties in accordance with the Circular of the State Administration of Taxation on the Handling of Issues Concerning the Acquisition of Fraudulently Issued VAT Special Invoices by Taxpayers (Guo Shui Fa [1997] No. 134). According to the document, if the party receiving the invoice makes use of the special invoice falsely issued by another person and declares to the tax authorities to offset the tax for tax evasion, the tax shall be recovered in accordance with the Law on the Administration of Tax Collection and the relevant regulations and a fine up to five times of the amount of tax evaded shall be imposed. At the same time, the enterprise is required to pay the value-added tax, enterprise income tax and the corresponding late payment fees.

In this regard, Liu Tianyong reminds the renewable resources recycling enterprises, should enhance the awareness of tax compliance, the formation of internal compliance legal department, so that major transactions are reviewed by legal professionals, and the legal department to the business sector, the financial sector, the executive management to carry out regular training on the prevention of tax-related risks, to strengthen the awareness of operational compliance. If it is difficult to set up an independent legal team, it is recommended to hire an external professional team to carry out regular risk investigation and resolve potential tax risks in a timely manner.