Editor's Note: In March 2022, the Cyberspace Administration of China, the State Taxation Administration, and the State Administration for Market Regulation jointly issued the "Opinions on Further Regulating Profit-Making Activities in Live Streaming to Promote Healthy Industry Development" (STA Income Tax Notice [2022] No. 25), which explicitly states that "intermediary agencies and related personnel who plan or assist live streamers in illegal tax evasion activities shall be severely punished and publicly exposed." Recently, a major tax-related case involving an MCN agency colluding with illegal intermediaries was reported by CCTV. According to the disclosure, the case involves numerous parties and highly typical tax evasion methods. This article will use this case as a starting point to analyze the causes behind such phenomena in light of current tax administration practices, while clarifying the responsibilities and legal consequences for all parties involved, for the benefit of readers.

Ⅰ. CCTV Exposes Major Tax Evasion Case Involving MCN Agency

On April 21, a major tax-related illegal case involving a live streamer management agency (referred to as an MCN agency) colluding with illegal intermediaries, as reported by the State Taxation Administration, drew widespread public attention. According to CCTV News, the MCN agency obtained 1,196 fraudulent invoices from shell companies, involving a total amount of 226 million yuan. It helped over 700 live streamers evade personal income tax payments totaling more than 32 million yuan, while the company itself underpaid approximately 21 million yuan in taxes and fees. The staggering scale of the case has sparked significant concern.

From the details disclosed in the report, the methods used in this case were not novel but highly typical. First, the illegal intermediaries set up multiple shell companies in regions with tax rebate policies. They then fabricated business transactions in which these shell companies allegedly provided "information technology services" to the MCN agency. Under this pretense, the MCN agency could transfer the streamers' earnings to the shell companies' accounts, which would then issue "information technology service fee" invoices to the MCN agency. Subsequently, after deducting so-called service fees, the shell companies transferred the remaining funds to the personal accounts of the MCN agency's employees, who ultimately paid the streamers via private transfers. Since the streamers received their income through private accounts, no tax withholding was performed, thereby evading personal income tax obligations.

This case involves multiple parties, including streamers, the MCN agency, illegal intermediaries, and their shell companies. The news report classified it as a case of fraudulent invoicing and tax evasion to defraud subsidies. The motivations, methods, and legal liabilities of each party vary, warranting further discussion, which will be elaborated in detail below.

Ⅱ. Practical Motivations and Legal Consequences of the Three Parties

(Ⅰ) Streamers’ Income Mostly Classified as Labor Income, Creating Strong Incentives for Tax Evasion  

The primary revenue of MCN agencies comes from the earnings of their contracted live streamers. Under standard procedures, the live streaming platform should first transfer the income to the MCN agency, which is responsible for withholding and remitting personal income tax before distributing the after-tax payment to the streamers. In practice, MCN agencies typically sign brokerage or cooperation agreements with streamers, and the income received by streamers from MCN agencies is classified as labor remuneration for tax purposes, requiring withholding tax in accordance with relevant regulations.  

Notably, the withholding tax rate for labor remuneration (20%–40%) is significantly higher than that for wage and salary income. Although deductions are allowed—either 800 yuan (for income below 4,000 yuan) or 20% (for income above 4,000 yuan)—the withholding tax still substantially reduces the take-home pay for lower-earning streamers. During the annual tax reconciliation, labor remuneration must be combined with comprehensive income and taxed at progressive rates ranging from 3% to 45%, imposing an even heavier burden on high-earning streamers.  

Due to the nature of this income and the high tax burden, various tax avoidance methods have emerged in practice, such as dual contracts, registering as sole proprietorships to qualify for business income tax under a deemed profit method, and income splitting. These practices highlight the strong motivation for tax evasion in this industry.  

It is important to clarify that, as taxpayers, streamers’ income remains classified as labor remuneration even if received through private accounts. Even if the platform fails to withhold taxes, streamers are still obligated to declare and pay taxes during the annual reconciliation. Failure to do so constitutes tax evasion under Article 63 of the Tax Collection and Administration Law, and defenses in such cases are usually limited. However, due to the exemption clause in Article 201(4) of the Criminal Law, these tax risks rarely escalate into criminal liability.

(II) MCN Agencies' Expense Reclassification: Excessive Input Deductions Are a Poisoned Chalice

While media reports primarily highlighted MCN agencies' assistance in streamers' tax evasion as a talent acquisition strategy, these agencies simultaneously obtained improper tax benefits. However, these so-called "benefits" prove to be a double-edged sword.

1. Tax Benefits Derived from Facilitating Tax Evasion

From a corporate income tax perspective, MCN agencies originally required streamers to obtain ordinary invoices from tax authorities for pre-tax deductions. However, streamers' frequent non-compliance forced agencies to record expenses as informal vouchers. Through illegal operations, agencies instead utilized shell companies to issue false invoices, ostensibly solving cost deduction issues. In reality, Article 8 of the Corporate Income Tax Law and Article 27 of its Implementation Regulations stipulate that genuine business expenses may still qualify for pre-tax deductions if supported by contracts, payment records, and other authenticity proofs - even without compliant invoices.

Regarding VAT treatment, MCN agencies converted non-deductible labor compensation into deductible "technical service fees" through fabricated transactions, achieving short-term VAT reduction. However, with continuous upgrades to the Golden Tax System, tax authorities have intensified scrutiny of high-risk invoices like "IT service fees," "consulting fees," and "marketing fees." When enterprises frequently issue such invoices, the system automatically cross-checks their business scope, workforce size, and operational capacity. For instance, companies reporting 200 million yuan revenue with only three employees would trigger tax audits. Upon investigation, not only would input tax credits be disallowed, but agencies may face charges of fraudulent VAT invoice issuance with severe legal consequences. Clearly, such tax planning through false invoices proves ultimately self-defeating.

2. Legal Liabilities and Penalties for MCN Agencies

The case involved two primary violations: First, failure to fulfill statutory withholding obligations for streamers' individual income tax. According to Article 69 of the Tax Collection and Administration Law, tax authorities may impose fines ranging from 50% to 300% of unwithheld taxes. Notably, Guangdong's discretionary standards (applicable in this case) prescribe penalties between 100% to 300%. Second, fraudulent invoice issuance and deduction, constituting simultaneous violations of false invoicing and tax evasion regulations. Following the principle of applying the heavier penalty for concurrent offenses, tax authorities pursued the more severe charge.

Administrative Penalty Decision Hui Shui Ji Fa [2025] No. 12 imposed separate sanctions: a 100% fine for withholding failures, and a 50% fine for tax evasion through false invoices, totaling 42,686,887.83 yuan in penalties.

(III) Tax Evasion Demand Fuels Proliferation of Illegal Intermediaries Exploiting Tax Policies for Profit

In current tax administration practice, the strong corporate demand for fraudulent input tax credits and tax burden reduction has spawned numerous illegal intermediaries operating under the guise of "tax planning." These intermediaries induce invoice-seeking enterprises to register batches of shell companies in specific industrial parks, establishing a complete fraudulent invoicing industry chain.

From a tax administration perspective, these shell companies should legally pay corporate income tax on their revenue after issuing invoices. However, paying at the statutory 25% rate would render such shell companies unprofitable. Therefore, illegal intermediaries typically exploit Article 3 of the Provisional Measures for Assessed Collection of Corporate Income Tax, applying for assessed collection on grounds of "incomplete accounting records," which in certain preferential tax zones can reduce the effective tax rate to 1%-2%.

The VAT issue also requires resolution. In this case, illegal intermediaries leveraged local government tax rebate policies to avoid VAT liabilities. For central-local shared taxes like VAT and corporate income tax, some local governments compete for tax revenue sources by offering rebates on locally retained tax portions to attract businesses. For instance, park-registered enterprises issue 6% VAT special invoices while charging recipients only a 3.5% "invoice fee," simultaneously enjoying 3% local government tax rebates, ultimately securing 0.5% net profits.

These illegal intermediaries typically operate large-scale, professional criminal schemes. Controlling numerous shell companies and issuing exceptionally high-value invoices makes these cases particularly severe, rarely remaining at the administrative penalty stage. As reported, the involved parties in this case have been transferred to public security authorities for criminal investigation. In practice, such cases are typically prosecuted as the crime of fraudulently issuing VAT special invoices.

III. The Core Defense for MCN Agencies in False Issuance Cases Lies in Whether They Possess Legitimate Deduction Rights

While the previous analysis of MCN agencies' legal liability focused primarily on administrative penalties, the question of criminal liability warrants deeper examination. In judicial practice, the issuing party (shell companies) and the receiving party (MCN agencies) are often charged with different offenses. Whether an MCN agency constitutes the crime of fraudulently issuing VAT special invoices should be evaluated separately from the issuing party, leaving room for legal debate. This debate stems from the specific determination of subjective intent, objective conduct, and other elements of the crime, as well as the unique circumstances of each case.  

(I) MCN Agencies' Entitlement to Input Tax Deductions for Genuine Purchases of Deductible Services

In this tax audit case, part of the MCN agency's expenses were indeed payments to individuals for labor services. Even if formal labor invoices were obtained from tax authorities, such expenses are non-deductible under current VAT rules. However, another scenario exists in practice: the MCN agency may have sought invoices not to fraudulently claim deductions but to overcome deduction barriers caused by a mismatch between transaction form and substance. For example, some MCN agencies or live-streaming guilds, to bypass platform restrictions on corporate account tipping, use employee or affiliated personal accounts to conduct tipping transactions.  

From a tax legal relationship perspective, we argue that although the MCN agency used personal accounts for settlement due to business needs, key facts must be considered: the recharge funds entirely originated from the MCN agency; the personal accounts used for recharging were de facto controlled by the MCN agency; and the funds were used for business operations. Therefore, the true transactional relationship should be recognized as between the MCN agency and the platform.  

Notably, had the MCN agency recharged directly in its own name, the platform should have issued compliant VAT invoices. Thus, under the principle of tax fairness, the MCN agency's legitimate right to deduct input VAT should not be forfeited merely due to the use of personal accounts for settlement. This interpretation aligns with the "substance-over-form" principle in VAT taxation and the legislative intent of tax neutrality.  

If courts or tax authorities recognize that the MCN agency's transactions had actual economic substance, its conduct may not meet the subjective intent requirement for fraudulent invoicing crimes. Instead, the case could be treated as an improper invoicing practice subject to administrative penalties rather than criminal charges. This distinction is crucial for MCN agencies defending against criminal liability, as it hinges on proving that their primary purpose was not tax evasion but operational necessity, with deductions being a secondary consequence.

(II) MCN Agencies' Acceptance of False Invoices Not for Tax Fraud Purposes

When MCN agencies serve as the actual operators of taxable activities with genuine business expenditures, their entitlement to VAT deductions possesses legal legitimacy. Under China's VAT system design featuring "tax control through invoices and deduction based on invoices," invoices merely serve as formal evidence of transactional substance rather than the substantive source of deduction rights. In such circumstances, accepting false invoices essentially constitutes a technical remedy for insufficient transactional formalities. The MCN agencies' purpose was not to claim excessive tax deductions but to realize their legitimately entitled deduction rights, devoid of any fraudulent intent to obtain undue tax benefits.

(III) No Actual Tax Revenue Loss from MCN Agencies' Acceptance of False Invoices

In practice, recipient enterprises typically obtain upstream invoices through two primary models: first, utilizing surplus invoices from suppliers with genuine business operations; second, the fiscal rebate model involved in this case. It must be emphasized that under both models, the issuing parties have legally completed full tax declarations when issuing invoices, meaning no substantive loss of tax revenue has occurred at the national tax collection level.

Regarding the particularity of the fiscal rebate model, some judicial authorities' equating of rebate amounts with tax losses warrants reconsideration. From the perspective of legal relationship attributes:

1. In tax collection relationships, taxpayers fulfill obligations based on taxable activities, with paid taxes legally converted into state fiscal revenue and fully incorporated into treasury management.

2. In fiscal expenditure relationships, local governments allocate funds to enterprises through budgetary procedures in forms like fiscal rebates and subsidies, constituting administrative payment acts.

While fiscal rebate funds originate from tax revenue, they belong to distinct legal relationships. Simply equating rebate amounts with tax losses conflates their fundamental differences. Therefore, under the fiscal rebate model, since the base taxes have been fully collected, no substantive diminution of national tax interests has actually occurred.

IV. Summary

Currently, the Chinese government has initiated systematic rectification of long-standing issues regarding the abuse of deemed-profit taxation and tax rebate policies. According to the newly enacted Fair Competition Review Regulations and its implementation rules, unauthorized tax rebates through disguised methods such as "collection-then-refund" or "immediate refund upon collection" are strictly prohibited for specific operators. Local governments' selective and differentiated financial incentives or subsidy practices will also face stringent restrictions.

These institutional constraints signify that the previously prevalent business models heavily reliant on tax incentives are becoming unsustainable, with the policy arbitrage space exploited by illegal intermediaries being progressively eliminated. For MCN agencies, while administrative penalties may be inevitable, there remains room for defense regarding potential criminal charges of fraudulent invoicing.

Enterprises facing similar circumstances are advised to promptly engage professional tax attorneys to safeguard their legitimate rights through legal channels while strictly preventing risk escalation. The evolving regulatory environment necessitates compliance-focused operational adjustments to ensure sustainable development within legal boundaries.