Editor's Note: Due to the special nature of missing invoices at the source and the operation practice, the renewable resources industry has generally formed the business pattern of “multi-link transaction”, “one-stop transportation” and “one pound bill to the end”. As a result, cases of false invoicing and tax evasion based on the rationality of the mode and the doubt of the authenticity of the business occur frequently. The Approval Reply of the State Administration of Taxation on the Relevant Taxation Issues of Waste Materials Recycling Business (Guo Shui Han [2002] No. 893) is based on the special situation of the renewable resources industry, and specifies that under the basic mode of “retailer-recycling enterprise-producer”, the recycling enterprise will issue invoices to the producer. The legality of the invoice issued by the recycling enterprise to the production enterprise is clarified under the basic model of “retailer-recycling enterprise-producing enterprise”. With the development of the industry and the change of tax policy, the business model of renewable resources recycling continues to evolve, and more diversified business chains have been derived on the basis of the basic model, in which the legitimacy of the invoicing behavior is worth further discussion. This paper takes the kernel of No. 893 as the entry point to analyze the key points that should be grasped in dealing with tax-related cases of renewable resources enterprises at present.

I. Jurisprudence: in line with the provisions of Article 893 of the circumstances, should not be characterized as false opening

An Administrative Judgment issued by the Intermediate People's Court of Kunming, Yunnan Province in 2019 showed that between 2006 and 2007, a zinc oxide factory and a recycling company entered into an Agreement on the Acquisition and Sale of Waste and Scrap Zinc Dross, which stipulated that the recycling company would acquire the waste zinc dross in accordance with the needs of the zinc oxide factory. In the course of business, the waste zinc dross was transported directly from individuals to the zinc oxide factory, and the recycling company issued invoices to the zinc oxide factory based on the weighbridge sheets and other information provided by the zinc oxide factory, and the amount of the purchases was consistent with the amount of the invoices. The tax authorities considered that there was no real transaction between the zinc oxide factory and the recycling company, and recognized the invoice obtained by the zinc oxide factory as false invoicing, and the act of offsetting tax with false invoices constituted tax evasion and made a penalty decision. The zinc oxide factory did not accept the penalty decision, filed a lawsuit, the court of first instance to support the case, that the situation in line with the “State Administration of Taxation on the recycling of waste materials on the tax issues related to the business of the approval of the reply” (State Taxation [2002] No. 893), should not be recognized as a false openings, which found that there is insufficient evidence of tax evasion. The tax authorities appealed against the decision. Intermediate People's Court of Kunming, Yunnan Province, the acquisition of waste zinc slag directly transported to the buyer of zinc oxide factory, the fact that the objective existence of waste materials business unit (i.e., recycling company) accordingly to the buyer of zinc oxide factory issued invoices in line with the circumstances of No. 893. Considering the operating characteristics of the waste materials industry, the recycling company to zinc oxide factory invoices should not be characterized as false opening, due to “false” invoices and then offset tax evasion can not be established, dismissed the appeal of the tax authorities, and upheld the original judgment.

The business model of the above case was “retailer-recycling enterprise-producing enterprise”, and the recycling enterprise enjoyed the “Notice of the Ministry of Finance and State Administration of Taxation on the Value-added Tax Policies of the Recycling Business of Waste Materials” (Cai Shui [2001] No. 78) when the recycling operation unit sold the waste materials to the enterprises, which was stipulated by the Ministry of Finance and State Administration of Taxation. (Cai Shui [2001] No. 78), which provides for the exemption of VAT on the sale of waste materials acquired by recycling business units. Circular No. 893 cited by the court affirmed the legality of the invoices issued by the recycling enterprises to the manufacturing enterprises under the above “one-stop transportation” and “one pound bill to the end” modes. With the change of tax policy and the macro-control of the state in the field of renewable resources, the recycling chain of renewable resources has been continuously adjusted, and in the case that No. 893 is still in force, whether the recycling chain of waste and old materials under the new industry and new mode is reasonable, and whether the legality of invoicing is worthy of further discussion.

II. No. 893: fit the special characteristics of the renewable resources industry to respond to the controversy of false openings

To discuss the application of Circular 893 at present, it is necessary to revert to the original intention of Circular 893. In 2001, No. 78 to give recycling enterprises sales of waste materials tax-free treatment of the policy was introduced, the lack of invoices at the source of the recycling link caused by the problem of excessive tax burden has been effectively mitigated, the production enterprises have to reshape the trade chain, through the front-end recycling enterprises to acquire waste materials, the formation of the “retailer - recycling enterprises -Producers” business model, and taking into account the transportation, handling costs and other issues, waste materials are often transported directly from the individual retailer to the production enterprises, from the transportation of goods on the trajectory of the ”retailer - production enterprises. For this new policy under the emergence of the business model, in 2002, the State Administration of Taxation made No. 893 of which the recycling enterprises to recognize the legitimacy of the invoicing, “the acquisition of waste materials in the community buyers (non-unit personnel) to buy waste materials, directly transported to the buyer (manufacturer), waste materials business units based on the actual occurrence of the business of the two sides, to the Waste materials acquisition personnel to issue vouchers for the acquisition of waste materials, in the financial purchase processing, while the purchaser to issue VAT invoices or ordinary invoices, in the financial sales processing, the purchase of goods paid by the purchaser of the purchase price in cash to the acquisition of waste materials to pay the personnel. In view of the fact that such business mode is determined by the business characteristics of the current waste materials industry, and that the waste materials business unit did collect the same amount of payment when issuing VAT invoices, and did have the same amount of goods for sale, therefore, the behavior of the waste materials business unit in issuing VAT invoices is not contrary to the relevant tax provisions, and it should not be qualified as false invoicing”.

That is to say, in the mode of “retailer-recovery enterprise-producing enterprise”, the retailer really supply, the producing enterprise really receive the goods, the recycling enterprise issue invoices in accordance with the actual business, the recycling enterprise issue invoices to the producing enterprise should not be characterized as false invoicing. Circular 893 affirms the real existence of the purchase and sale relationship between the retailer and the recycling enterprise, and the recycling enterprise and the production enterprise under the “one-stop” transportation, and also recognizes the reasonableness of the market entities to adjust their business model according to the evolution of tax policies and the legitimacy of obtaining legitimate tax benefits.

In the process of applying Document 893, the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security have also made replies to the letter, such as the Supreme Court [2008] Criminal No. 2 Letter No. 92, which points out that “on the issue of the legal effect of GuoShuiLuan [2002] No. 893, it agrees with your opinion letter, that is, it is not appropriate to treat the behaviors in conformity with the GuoShuiLuan [2002] No. 893 as a the crime of false opening. Regarding the characterization of a company's behavior, whether the case can be applied to Document Guo Shui Han [2002] No. 893, the key lies in whether a company belongs to the unit actually engaged in the operation of waste materials, if it can be proved that a company is indeed an invoicing company with no actual business operation, it does not conform to the substantive subjective elements stipulated in Document Guo Shui Han [2002] No. 893, and does not apply to Document Guo Shui Han [2002] No. 893, and its behavior constitutes the crime of false invoicing. Document [2002] 893 is not applicable, and if its behavior constitutes a crime, it shall be dealt with in accordance with the relevant provisions of the Criminal Law and relevant judicial interpretations”. The Supreme People's Procuratorate, the Ministry of Public Security approved the caliber similar to the Supreme Law, that is, in line with the 893, it is not appropriate to qualitatively deal with false opening, and the key needs to determine whether the recycling company is actually engaged in the waste materials invoicing company is not actually engaged in the operation of the business of invoicing companies.

To summarize, the introduction of Article 893 is a reflection of the diversification of economic transactions and market players, and its response to the new industry based on the specificity of the industry also reflects that the traditional, mechanically based on the inconsistency of the “three streams”, not actually involved in the transportation of the concept of false invoicing has been outdated in the modern economy. 893 of the core meaning of the article is that The core meaning of Circular 893 is that in handling tax-related cases of renewable resources, in addition to exploring the constituent elements of false invoicing and tax evasion, it should also be based on the actual situation of the industry and the tax dilemma, and when characterizing the invoicing behavior of the recycling enterprises, it should be ascertained whether there are any goods existing in the whole transaction chain. As long as the two links of supplying natural person retailers and receiving goods by production enterprises really happen, and the recycling enterprises issue invoices based on the actual business under the purchase and sale relationship, the recycling enterprises should not characterize the invoicing behavior to the production enterprises as false invoicing.

III. Mode Evolution: Whether it constitutes false invoicing should be based on the judgment of the return of industry specificity to the authenticity of business

In 2008, the Circular of the Ministry of Finance and the State Administration of Taxation on the Value-added Tax Policy on Renewable Resources (Cai Shui [2008] No. 157) canceled the tax exemption policy for recycling enterprises as stipulated in Article 78, and the imbalance of tax burden that the purchasing side of the recycling link could not obtain invoices while the sales side needed to issue invoices was reintroduced, and the tax dilemma once again became a shackle for the development of the renewable resources industry. Before the Announcement on Improving Value-added Tax Policies for Comprehensive Utilization of Resources (Announcement No. 40 of 2021 by the Ministry of Finance and the State Administration of Taxation) was issued at the end of 2021, there was almost no policy issued to respond to the problem of unbalanced tax burden in the recycling segment for quite a long time, and part of the enterprises acquired the waste materials and obtained the invoices through the third-party invoicing, which resulted in the eruption of a lot of tax-related risks; part of the enterprises enjoyed financial rebates granted by the local government to alleviate the tax burden. Some enterprises enjoy the financial rebates given by local governments to alleviate the tax burden, and due to the limited areas enjoying financial rebates, the recycling enterprises usually set up another trade link at the location of the terminal production enterprises to facilitate business operation and communication, forming the mode of “retailer - recycling enterprise (financial rebates) - recycling enterprise - production enterprise”. In December 2021, Announcement No. 40 was issued, allowing recycling enterprises to apply simplified tax calculation for their business. in April 2024, the State Administration of Taxation (SAT) issued the Announcement on Matters Related to “Reverse Invoicing” by Resource Recycling Enterprises to Natural Persons Selling End-of-Life Products (“SAT Announcement 2024”). SAT Announcement No. 5 of 2024), issued in April 2024, allows resource recycling enterprises to issue invoices in the reverse direction. Under the aforementioned policy, the recycling chain is still facing a tax burden difference of “low input” and “high output”, and the number of enterprises that can enjoy the policy of immediate levy and refund is very limited, resulting in the financial return to the recycling enterprises to become an important part of alleviating the imbalance of the tax burden, the “retailer - 3% - 3%” and the “retailer - 3%”. The “multi-link” model of “retailer-3% simple tax enterprise (or reverse invoicing enterprise)-recycling enterprise (financial refund)-recycling enterprise-producing enterprise” will still be in force in the future. The “multi-link” model will still exist in practice for a long time. The aforementioned modes are all adjustments to the mode of “retailer-recovery enterprise-producer” based on the specificity of the industry under the change of tax policy, and the application of Circular 893 in the aforementioned modes should be viewed dialectically from the perspective of development:

From the rationality of the model set up, in line with the premise of civil and commercial laws, enterprises based on the real business needs to build business model, the application of tax policy and local government financial support policies with economic rationality, the introduction of the 893 also recognized the market operating body in order to legally obtain legitimate tax benefits, the application of specific tax policies and adjust the transaction object, the addition of the transaction link behavior. Therefore, the consideration and characterization of the reasonableness of the current “multi-link” recycling subject mode should take into full consideration of the specificity of the industry, and the setting up of trade chains that legitimately and reasonably reduces the tax burden doesn't necessarily lead to fraudulent tax credits and tax evasion, and the key is to look at the authenticity of the business and the invoicing whether it is in line with the real transactions of the goods purchased and sold.

As for the authenticity of the recycling business, on the one hand, the conceptual delivery methods such as “instructed delivery” have a clear civil and commercial legal basis, and although the recycling enterprise is not involved in the actual transportation, the “delivery” in the legal sense has already taken place, and the ownership of the goods has been transferred to the downstream enterprise through the recycling enterprise. Although the recycling enterprise does not participate in the actual transportation, “delivery” in the legal sense has already occurred, and the ownership of the goods is transferred to the downstream enterprise through the recycling enterprise. On the other hand, Document 893 also affirms the mode of purchasing and selling by recycling enterprises through the transfer of ownership of goods through the certificate of cargo right, simplification of logistics and transportation links, and simplification of delivery of goods under the premise of real supply of retail customers and real receipt of goods by production enterprises. Therefore, the recycling enterprise's invoicing behavior is characterized, regardless of whether it actually undertake transportation, warehousing, etc., as long as it meets the provisions of No. 893 of the real supply of retail customers, production enterprises real receipt of goods and recycling enterprises in accordance with the actual business of issuing invoices, that is, it is not appropriate to identify false invoicing.

Summary

Recycling resources industry is currently formed multi-recovery link transactions, delivery of goods one-stop transportation, according to the terminal of a pound bill settlement of the business model is formed over the years under the policy iteration of both commercial reasonableness, economic efficiency and tax compliance of the industry practice, the model is not a single enterprise, nor is it a fictitious chain for the purpose of tax evasion, without infringing on the national tax situation, tax enforcement should be Without infringing the national tax, the tax enforcement should respect the order of transaction and autonomy of meaning, and recognize the authenticity of the recycling enterprise's business and the legitimacy of invoicing for those with real business and without multiple invoicing, so as to create a good and stable tax environment for the development of renewable resources industry.