In the series of articles on false invoicing, tax evasion and tax fraud in the agricultural products industry, we have summarized the types of tax-related cases in the agricultural products industry, analyzed and revealed the tax risks in the agricultural products industry. At the same time, we have provided the key points of defense for how to deal with the tax risk of false opening in the agricultural products industry. In this issue of the article, we intend to start from a real case of false invoicing of agricultural products purchase invoices were found to constitute tax evasion, for the agricultural products industry to resolve the tax risk of tax evasion to provide ideas for the reader's reference.

I. Introduction of the Case: False Opening of Agricultural Product Purchase Invoice by Guizhou Mouxing Pharmaceutical Industry is Qualified as Tax Evasion

(i) Basic facts of the case

In August 2024, Credit China publicized information on a case in which Guizhou Mouxing Pharmaceutical was characterized as tax evasion by its competent tax authority and fined 45.88 million yuan for falsely issuing invoices for the acquisition of agricultural products.

The basic facts of the case are: between September 2015 and 2022, Guizhou Mouxing Pharmaceuticals did not purchase any agricultural products from Liu Moumou, Luo Moumou and seven other people, but issued invoices for the acquisition of agricultural products with the identifying information of the seven people, totaling more than 40,000 invoices, with a total of more than 4.3 billion yuan in the amount involved.

Characterization by the competent tax authorities: the tax authorities characterized Guizhou Mouxing Pharmaceutical's false issuance of agricultural products acquisition invoices for offsetting input tax amount resulting in underpayment of VAT tax of 29.86 million yuan during the period from September 2015 to August 2018 as tax evasion. after September 1, 2018, as Guizhou Mouxing Pharmaceutical started to apply the policy of approved deduction of input tax amount of value-added tax of agricultural products, the false issuance of agricultural products acquisition invoices for offsetting input tax amount since then was not characterized as tax evasion. invoice deduction was not characterized as tax evasion.

(ii) Views of the tax authorities

According to the tax documents in this case, it can be concluded that the tax authorities determined that there was no real procurement business between Guizhou Mouxing Pharmaceuticals and Liu Moumou, Luo Moumou and other seven people, but did not deny that Guizhou Mouxing Pharmaceuticals procured agricultural products from other farmers, i.e., the tax authorities did not deny the authenticity of the procurement business of Guizhou Mouxing Pharmaceuticals of Chinese herbal medicines in its entirety, and the main reason for the characterization of the false invoicing of this case as tax evasion was the fact that Guizhou Mouxing Pharmaceuticals had filled in the false The main reason for the characterization of false tax evasion in this case is that Guizhou Pharmaceuticals falsely filled in the invoice for the purchase of agricultural products with information of other farmers. According to the relevant provisions of the tax law, false invoices can not be offset against VAT input tax, the tax authorities believe that a pharmaceutical industry in Guizhou through false invoices, violation of deduction, resulting in underpayment of VAT tax results. So, is it appropriate for the tax authorities to characterize the behavior of Guizhou Pharmaceuticals' false invoicing of purchase of agricultural products to offset VAT input tax as tax evasion? It is analyzed below.

II whether the false opening of agricultural products purchase invoice offsetting VAT input tax amount constitutes tax evasion?

(i) Agricultural products purchasing enterprises truly purchasing farmers' self-produced agricultural products enjoying substantial tax deduction rights.

Article 15 of the Provisional Regulations on Value-added Tax (VAT) stipulates that agricultural producers are exempted from VAT on sales of self-produced agricultural products. At the same time, the tax law stipulates that agricultural products purchasing enterprises can calculate the VAT input tax credit with the sales invoices of agricultural products issued by agricultural producers or the purchase invoices of agricultural products issued by themselves. This is because, when agricultural producers plant and produce agricultural products, they will inevitably use the means of production for labor, and the price paid by agricultural producers when purchasing these means of production includes VAT tax, and agricultural producers do not need to pay VAT when selling agricultural products to the outside world, therefore, the sales income of agricultural producers can be divided into two parts, one part is the cost of purchasing the means of production, and the other part is the the value-added of agricultural products in this segment, of which the former includes VAT and the latter does not. For agricultural products purchasing enterprises, the price they pay when purchasing agricultural products also includes two parts, and agricultural products purchasing enterprises should be allowed to deduct the VAT on agricultural production materials included in the price they pay. This viewpoint can be confirmed in the “Operational Guidelines for Comprehensively Promoting Camp Reform and Increase in Business”, which points out that “farmers pay VAT on fuel, agricultural machinery and other means of production purchased for the production of agricultural products, and a part of the price of agricultural products includes VAT”. Therefore, although the agricultural products themselves are exempt from tax, their sales price includes the VAT contained in the production materials, and the agricultural products purchasing enterprises can deduct this part of the VAT as input tax. For the agricultural products purchasing enterprise, as long as it truly purchases agricultural products from agricultural producers, it enjoys substantial tax deduction rights.

In practice, the tax authorities often deny the right of agricultural products purchasing enterprises to offset the purchase invoices because they fill out the purchase invoices for agricultural products in a non-compliant manner, and fill out the purchase invoices for agricultural products by using the information of other farmers fraudulently, requiring the enterprises to make the transfer of input tax, and even characterizing the tax evasion. As a matter of fact, in such cases, many enterprises purchasing agricultural products really purchased agricultural products from agricultural producers, but due to the unreasonable restrictions imposed by local tax authorities on the filling of purchase invoices for agricultural products, such as not allowing large households to fill out the invoices in a pooled manner, not allowing cross-province filling out the invoices, not allowing excess purchases, etc., which resulted in the real purchase of agricultural products by agricultural products purchasing enterprises being unable to open invoices in a compliant manner, and not being able to realize the substantial tax deduction rights enjoyed by the enterprises. Right.

In our opinion, as long as the agricultural products purchasing enterprises have truly purchased the agricultural products from the agricultural producers, they are entitled to substantial VAT deduction rights, and even if the agricultural products purchasing invoices are falsely issued, their rights cannot be restricted or even denied.

(ii) False opening of invoices for acquisition of agricultural products does not have the subjective intention of tax evasion and does not result in non-payment or underpayment of VAT tax

In addition to considering the system of value-added tax on agricultural products, to qualify whether an act constitutes tax evasion, it is necessary to start from the constituent elements of tax evasion and analyze whether it meets the statutory conditions of tax evasion one by one before making a determination.

Article 63(1) of the Tax Collection and Administration Law provides that “A taxpayer who forges, alters, conceals or destroys without authorization account books and account vouchers, or overstates expenditures or omits or understates revenues in the account books, or who refuses to make a declaration after being notified to do so by the tax authorities or who makes a false declaration of tax, and who fails to pay or underpays the tax payable is guilty of tax evasion “. Accordingly, it can be seen that the constitution of tax evasion has at least the subjective elements, objective behavioral elements, and damage consequences. And there is some controversy as to whether the subjective element is required. Part of the tax authorities in determining that the actor constitutes tax evasion, the subjective state of the actor does not take into account, as long as the implementation of the four types of tax evasion and the result of non-payment, underpayment of taxes is determined that the actor constitutes tax evasion. As in the aforementioned case, the tax authorities in the case did not assess the subjective state of Guizhou Mouxing Pharmaceutical's implementation of false invoicing of agricultural products. We believe that the tax authority's practice is improper, and the subjective element also belongs to the constituent elements of tax evasion. Specifically:

From the interpretation of the text, the manifestation of tax evasion “forgery” “alteration” “concealment” “unauthorized destruction” The use of terms such as “refusing to declare” indicates that tax evasion is of a willful nature. From the viewpoints, approvals and replies of the State Administration of Taxation, the State Administration of Taxation considers that subjective willfulness is a necessary element to constitute tax evasion. The Interpretation of the New Tax Collection and Management Law and its Implementing Rules prepared by the Department of Collection Management of the State Administration of Taxation states in the explanation of the tax recovery period that “there are various cases of unpaid and underpaid taxes caused by the taxpayers, and even sometimes caused by the taxpayers' subjective willfulness, such as tax evasion, tax fraud, etc.”. It can be seen that the State Administration of Taxation believes that tax evasion, like tax fraud, requires the element of subjective intent. In addition, the State Administration of Taxation in the General Taxation Letter [2016] No. 274, the General Taxation Letter [2013] No. 196, and the State Taxation Office Letter [2007] No. 513 also indicate the view that subjective intent is a constituent element of tax evasion. From the viewpoint of judicial practice of taxation, many intermediate courts and high courts consider subjective intent to be a constituent element of tax evasion and the burden of proof is borne by the tax authorities. In (2020) zhejiang line re 44, (2019) lu 15 line final 277, (2017) Beijing line Shen 1402, etc..

Accordingly, we believe that in the case of real purchase of agricultural products by the agricultural products purchasing enterprise, the agricultural products purchasing enterprise itself enjoys substantial deduction rights and interests, and due to the restrictions on the filling of the agricultural products purchasing invoice, the agricultural products purchasing enterprise is unable to fill in the invoice according to the actual facts, and is unable to realize the deduction rights and interests of value-added tax it enjoys, and accordingly, in order to realize the deduction rights and interests, it is obliged to carry out the act of falsely opening the agricultural products purchasing invoice, and its Subjectively, it was not for the purpose of evading VAT. Therefore, the subjective element of tax evasion is not satisfied by the false opening of agricultural products purchase invoice of the agricultural products purchasing enterprise. At the same time, since the price paid by the agricultural product acquisition enterprise to the agricultural producer includes VAT, even if the VAT input tax is deducted from the falsely issued agricultural product acquisition invoice, it does not result in the non-payment or underpayment of VAT tax. Therefore, it is not possible to determine that the offsetting behavior of the enterprise has caused the national VAT loss due to the inconsistency between the invoice for the purchase of agricultural products and the actual business, and it is not possible to directly qualify that the enterprise for the purchase of agricultural products constitutes tax evasion.

It should be pointed out that some tax authorities believe that the subjective element is the constituent element of tax evasion, but according to the objective principle of subjectivity, the act of falsely opening invoices for acquisition of agricultural products by agricultural products acquisition enterprises can prove that the agricultural products acquisition enterprises have the subjective intention of tax evasion. We believe that this viewpoint of the tax authorities is too arbitrary, and the enterprises can still prove that they enjoy substantial deduction rights by presenting evidence of real purchases, and that the false invoicing does not have the willfulness of tax evasion. In order to strengthen tax compliance, enterprises should pay attention to the retention of transaction materials in the course of business, including, but not limited to, transportation vouchers for purchasing agricultural products at the purchasing place of real farmers, audio recording materials for negotiating prices with farmers, contracts signed with farmers, and vouchers for paying the price to farmers by non-cash means such as bank transfers and micro-credit transfers, and so on. In the event of tax disputes, the use of such evidence can be used to argue that the enterprise does not have the subjective intention of tax evasion, and thus prevent the risk of being recognized as tax evasion.

III how should the case be characterized?

i) Characterization of false invoicing as an administrative offense According to the second paragraph of Article 21 of the Measures for the Administration of Invoice, “No unit or individual shall engage in the following acts of false invoicing: (1) issuing invoices for others or for oneself that do not conform to the actual business operation”, and Article 35, “If a false invoice is issued in violation of the provisions of these Measures, the tax authorities shall shall confiscate the illegal income; where the amount of false invoicing is less than 10,000 yuan, a fine of less than 50,000 yuan may be imposed; where the amount of false invoicing exceeds 10,000 yuan, a fine of more than 50,000 yuan and less than 500,000 yuan shall be imposed; where a crime is constituted, criminal liability shall be investigated according to law“, Article 29 of the Implementing Rules for Measures for the Administration of Invoices, ‘The term ’Measures” referred to in Article 21 of the Measures Inconsistency with the actual business situation refers to having one of the following behaviors: ......

(ii) having purchased or sold goods, provided or accepted services, or engaged in other business activities, but the purchaser, seller, name of goods or business items, amount, etc. contained in the invoices issued or obtained are inconsistent with the actual situation”. In the aforementioned case, Guizhou Mouxing Pharmaceutical filled in the invoice for the purchase of agricultural products with false information of farmers, and the seller stated in the invoice did not correspond to the actual situation, which belonged to the issuance of invoices that did not correspond to the actual situation of business operation, and it should be subject to a fine of less than RMB 500,000 yuan. (ii) Adjustment of tax payment for underpayment of VAT by enterprises According to Article 9 of the Provisional Regulations on Value-added Tax, “Where the VAT deduction vouchers obtained by a taxpayer for the purchase of goods ...... do not comply with the law