The National Audit Office released the Audit Work Report on the Implementation of the Central Budget and Other Financial Income and Expenditure in 2020 on June 7, 2021, which pointed out that 15 provinces and municipalities returned 23.873 billion yuan of taxes in the name of financial incentives and other names, and most of the return ratio was more than 90% of the locally shared income. And put forward, some grassroots financial expenditure pressure increases, to urgently clean up and regulate the illegal return of tax behavior in some places. In order to encourage the development of the circular economy, a number of places on the waste materials recycling enterprises have introduced a financial return incentive policy, the release of the work report, will further exacerbate the risk of invoice compliance of waste materials recycling business enterprises. In judicial practice, some courts have denied the recycling business model, and the amount of financial rebates obtained by the enterprise is recognized as the loss of national tax and characterized as false invoicing. Through a case analysis, Huatax lawyers pointed out that fiscal refund cannot be equated with tax loss, and discussed how the authenticity of goods transaction and tax loss involved in the crime of false VAT invoice should be recognized.

I. Case: Recognizing a fiscal rebate as a tax loss and sentencing it to 11 years in prison

(I) The facts of the case

Company A signed a Project Agreement with the local county government in November 2016, which stipulated that if Company A settled in the county, with the business scope of waste materials recycling, etc., and the annual enterprise income tax was above 10 million yuan, the county government would return 48% of the actual VAT payment amount of Company A in accordance with the actual VAT payment amount of Company A, which would be used for the purpose of Company A as investment in technological reforms, expansion of reproduction and infrastructure construction. The public prosecution alleged that Company A utilized the fiscal refund policy to cheat the state tax, and issued VAT invoices with a total price and tax of only 100 million yuan to three companies B, C and D respectively without real goods transaction, and the above three companies offset the input tax amount of 466410.25 yuan, 363,059.70 yuan and 13396,572.22 yuan respectively, and the public prosecution determined that the part of the fiscal refund ( VAT amount × 48%) was the loss of state tax caused by the false VAT invoices.

(II) Court Opinions

Court of First Instance: Company D should have paid the full amount of 133,965,772.22 RMB to Company A on its behalf before it could be deducted, while it actually paid only 7,836,994.74 RMB (at 8.5% of the face amount of the invoice), with a difference of 5,555,977.48 RMB. This difference is the tax, which has been determined to be lost. State tax loss is not only these. company B based on the local government's tax incentives to make up the difference, get 6430354.66 yuan tax incentives, revenue and expenditure profit 870777.18 yuan. This is also the state tax loss. The false driving behavior caused a total state tax loss of 6430354.66 yuan (5559577.48 yuan + 870777.18 yuan = 13396572.22 × 0.48). Local government tax incentives for Branch B to achieve the purpose of the project agreement "as a technological transformation of inputs, the expansion of production and infrastructure construction"? Obviously not, but before the return of company D and company A precisely divided. It is worth noting that the division is only this figure, the actual division of tax evasion, rather than the local government tax incentives. The defendants exploited the loopholes of the government preferential policies to replace the equivalent amount of tax evasion with the government's tax rebate incentives in order to cover up the fact of tax evasion, so as to achieve the purpose of not having to pay any costs, and to profit only by falsely issuing VAT invoices to others. although Company A, as the issuer of the invoices, paid 100% of the tax to the tax authorities, but through the government's preferential tax rebate, 48% of the tax was converted into financial expenditure, and the actual tax revenue was only 52%, while Company D, as the issuer of the invoices, paid 100% of the tax to the tax authorities. Company A, as the issuer, paid 100% of the tax to the tax authority, but 48% of the tax was converted into fiscal expenditure through government preferences, and the actual tax revenue of the state was only 52%, while Company D, as the payee of the invoice, deducted 100% of the tax, resulting in a loss of 48% of the state's tax revenue.

Court of Second Instance: There was no real transaction between Company A and Company D. Company A issued VAT invoices for Company D with a total price and tax of RMB921,999,938.13 and a tax of RMB133,965,722.22, and Company D, with the VAT invoices purchased from Company A (with an invoicing fee of 8.5% of the face value), applied to the tax authorities to deduct the tax paid on the sale of steel to the downstream steel mills, which inevitably led to the loss of state tax. Company B and Company C did not pay VAT when they purchased the goods, so they could not obtain the VAT invoices, and the state did not collect the corresponding tax based on the real transaction. Company B and Company C, by virtue of the VAT invoices purchased from Company A, with which they had no real transaction, were able to offset the VAT. Company B and Company C, by virtue of the special VAT invoices purchased from Company A without any real transaction with Company A for deduction, will also inevitably lead to the loss of VAT of the State. ...... In this case, Company A has no real transaction with the three companies involved in the case, and after charging the invoicing fees of varying amounts, Company A issued special VAT invoices for the three companies and helped the three companies to withhold the corresponding VAT in the subsequent transactions, and Company A has not collected the corresponding tax based on the real transaction. The criminal act of the crime of false invoicing of VAT has been completed, and the invoicing fees collected through the false invoicing of VAT are the illegal income.

(III) Judgment Result

The second trial upheld the part of the judgment of the first trial: Company A was convicted of the crime of false invoicing of VAT and was sentenced to a fine of 500,000 RMB. Liang Mou (general manager of the company) was convicted of false invoicing of VAT and sentenced to eleven years' imprisonment. Part of the revised judgment: the illegal income of RMB 8,457,207.25 cents was recovered (the second trial corrected the calculation of the illegal income in the first trial by delinking the calculation of the illegal income from the tax rebate to the finance, and directly recognized the "invoicing fee" collected by Company A as the illegal income), and was surrendered to the state treasury in accordance with the law.

II. Case Commentary

In judicial practice, some trial authorities, when hearing cases of false VAT invoices, wrongly recognized the fiscal rebate obtained by the enterprise from the government as the actual loss caused to the state tax, and this reason for the judgment actually confused the boundaries between fiscal revenue and tax revenue, which was not justified by the law. In the previously cited case, although the court of second instance upheld the results of the first instance judgment on the part of sentencing, unit crimes and fines, there was a huge difference in the logic of the decision of the two courts on how to determine "loss of tax" and "illegal income", with the court of first instance holding that the enterprise The court of first instance held that the tax incentives obtained from the local government constituted national tax loss, and the amount divided by the invoiced party nominally belonged to the tax incentives of the local government, and in essence was the tax evaded; however, the logic of the court of second instance centered around the existence of a real transaction of goods, and held that the invoices issued by Company A to the three companies, B, C and D, without a real transaction of goods, were offset by the three companies, which inevitably resulted in a loss of tax, but the amount of loss was not further justified. However, the amount of tax loss was not further reasoned and determined. Not only that, there is also a difference between the determination of the court of first and second instance on the illegal income. The court of second instance determined that the illegal income of the invoicing enterprise refers to the invoicing fee charged by the invoicing enterprise, which has nothing to do with whether or not it obtains the financial return (tax incentive) from the local government.

(I) Comment on the first trial: "tax refund" cannot be equated with tax loss

The court of first instance, in its reasoning, firstly considered that the prosecution would "recognize the tax rebate incentive as tax evasion, which is improper", but in the subsequent reasoning, but then "the issuer and the recipient of the invoice have already divided the rebate portion of the rebate prior to the fiscal rebate to the government's rebate incentives in exchange for an equal amount of tax evasion through the government preference to convert 48% of the tax into tax revenue. Government preferences will be 48% of the tax into financial expenditure" and other reasons, still "tax refund" and tax loss is equalized. The logic of the decision still confuses the fulfillment of tax obligations after the enterprise pays tax in full with the financial return to be made by the local government when Company A meets the requirements of the agreement. Tax refund refers to the relevant provisions of the state, the local government as the main part of the tax return to the enterprise, that is, the tax first in accordance with the provisions of the tax law, by the tax authorities in full collection into the treasury, by the same level of finance according to the different circumstances of the whole or part of the return to the enterprise, is the local government in the form of tax incentives for enterprises in the form of a kind of government subsidies. Once the tax revenue is paid into the national treasury, it becomes fiscal revenue. Since the tax financial return funds are listed as financial expenditure, obtaining the tax financial return from the local government does not mean that the tax obligations performed by the enterprise have been discounted, let alone causing the loss of tax money of the country.

In order to support the development of the recycling economy, when formulating the fiscal rebate policy in each place, the purpose of the formulation of the fiscal rebate policy will be clearly defined: "to promote the structural reform of the supply side, to develop the local recycling economy, to develop energy-saving and environmental protection industries, to reduce the cost of the real economy, and to prevent the loss of the local tax source", etc., and for the front-channel specialized in serving the city (county, district) renewable resources enterprises, the conditions for enjoying the policy will be more lenient. Therefore, the court of first instance held that it was a subjective presumption that Company A had already divided the "tax rebate incentives" with the three ticket recipients before the financial rebate. Recycling business enterprises in line with the conditions of the agreement signed with the government, of course, can obtain the return, this part of the financial return in the achievement of the conditions into the assets of the enterprise, can be freely disposed of. Enterprises can effectively integrate waste materials recycling business retailer resources, the authenticity of the supply of retailers can provide evidence to prove the situation, of course, can be part of the tax rebate part of the pricing factors to consider, and recycling business enterprises "divided" to the part of the waste enterprise, increase the use of the waste enterprise absorbing the social acquisition of waste materials willing to promote the development of the circular economy, reduce the cost of the real economy. The purpose of the development of circular economy, reduce the cost of the real economy, in essence, to achieve the effect of financial rebate policy to the final entity production enterprises. If according to the idea of the first instance judgment, the enterprises only engaged in recycling business and not engaged in production and processing have become "can profit only by falsely opening VAT invoices for others", and the financial refund policy introduced for recycling enterprises has become a special encouragement for shell companies to open falsely? This is obviously cutting the recycling economy industry chain, one-sided interpretation of the policy and industry, and neglecting to find out whether the two sides have real goods transactions, and the amount of real goods transactions is the prerequisite for determining whether the perpetrator subjectively has the intention of false invoicing and whether it has caused the loss of tax.

(II) Second Instance: Company A was able to prove that there was no loss of tax on the portion that was truthfully issued on behalf of Company A. 

The Court of Second Instance held that: VAT is a turnover tax levied on the basis of the value added generated in the course of the turnover of goods and services, and only the subject of the transaction who paid VAT in the input items enjoys the right of deduction in the output items. Company C did not pay VAT when it purchased the scrap steel from the market, so it could not obtain the special VAT invoice, and the state did not levy the corresponding tax based on the real transaction of purchasing scrap steel. Since Company C did not pay tax at the time of purchase, it could not enjoy the right of deduction. there was no real transaction between Company A and Company C. Company C applied to the tax authorities for deduction of the tax paid on the sale of steel to the downstream steel mills by virtue of the VAT special invoice purchased from Company A (with an invoicing fee of 8.5% of the face value of the invoice), which would inevitably result in the loss of VAT paid by the State.

The second instance court found that the adjudication gist of the loss of tax focused and paid attention to the principle of VAT levy, real goods transaction, etc., but failed to complete the identification of the transaction chain and neglected the situation of truthful invoicing and affiliation. Taking this case as an example, the audit report of Company C presented by the prosecution showed that during the period involved in the case, Company C purchased more than 63.57 million yuan of scrap steel from individual customers, and the individuals could not issue VAT special invoices to Company C, so that Company C could not realize input deduction, but more importantly, Company C could not realize the cost of expensing either, so Company C converted the above purchasing amount to a tax-inclusive amount, and Company A issued the corresponding VAT special invoices to Company C. Company C issued the corresponding VAT special invoices to Company A. Therefore, after Company C converted the above purchase amount into tax-inclusive amount, Company A issued corresponding VAT invoice to Company C, Company A declared the full amount of tax payment, and Company C assumed the full amount of tax liability and deducted it from the sales tax amount sold to the downstream steel mills, which was a complete VAT chain and did not result in the loss of VAT tax. The judgment of the second instance had a one-sided understanding of the real goods transaction corresponding to the VAT chain. According to the logic of the judgment of the court of the second instance, the individual selling goods could not issue VAT invoices to the buyer and the buyer could not offset the VAT, and the buyer obtained input invoices under the name of the enterprise with the qualification of issuing invoices to offset the VAT, and there was bound to be a loss of VAT, which was obviously wrong. The judgment of the second instance on the "inevitable tax loss", and the State Administration of Taxation Notice No. 39 of 2014, "dependence is not recognized as false opening", the Supreme Prosecutor's opinion of the six stability and six guarantees, "false increase in the performance of the purpose of non-tax cheating, did not cause any loss of state tax. The provisions of the Supreme Prosecutor's opinion on the six stability and six guarantees "non-tax fraudulent purposes such as inflated performance, without causing loss of national tax" are contradictory, so that the judgment that meets the constitutive elements of the crime of false opening and the entire case is found to be false opening is factually inaccurate and the application of the law is wrong.

III. Our viewpoints

(I) In case of real goods transaction, enjoying "tax rebate" will not cause loss of national tax money.

In the case of real goods transactions, the waste materials recycling business enterprises to enjoy the local "tax rebate" whether it will cause national tax losses and suspected of false VAT invoices crime is the waste materials recycling enterprises are generally more concerned about the problem. Whether in academia or judicial practice, the research and practice of this issue is less and has not formed a relatively unified viewpoint. Combined with the criminal law on the identification of the crime of false invoicing and the accumulation of many years of practice, the author believes that the waste materials recycling enterprise enjoys the local "tax rebate" to engage in business activities and issue VAT invoices to the outside world, which will not result in the loss of the national VAT tax, does not meet the constitutive elements of the crime of false VAT invoicing, and does not constitute the crime of false VAT invoicing. It does not satisfy the constitutive elements of the crime of false VAT invoicing and does not constitute the crime of false VAT invoicing. The reasons are mainly as follows: 

(1) The constitution of the crime of false invoicing of VAT shall be based on the subjective purpose of the perpetrator to fraudulently offset the national VAT tax. The legislative purpose of the criminal law to establish the crime of false invoicing is to combat the crime of infringing the national tax revenue. Therefore, the behavior of "false invoicing" that the perpetrator does not have the purpose of fraudulently offsetting the national VAT tax is not the object of evaluation of Article 205 of the Criminal Law. The crime of falsely opening VAT invoices shall be constituted by the purpose of fraudulently offsetting the national VAT tax.

In practice, the recycling enterprises of waste and old materials mostly sign agreements with local governments on the content of tax refund, the enterprises apply for refund to the local governments according to the tax situation and agreement, the local governments pay the refund to the enterprises through the financial department according to the agreement of the enterprises and the enterprise's certificate of tax completion, and the recycling enterprises don't have the purpose of fraudulent offsetting of national VAT tax and subjective willfulness in this process.

(2) The perpetrator constitutes the crime of false invoicing of VAT, which shall be based on the consequences of the perpetrator's objective loss of national tax. If the act of "false invoicing" committed by the perpetrator does not objectively cause the loss of national value-added tax, it does not have the serious social hazards of a crime and should not be evaluated by Article 205 of the Criminal Law. If the subjective purpose is not to cheat the tax and objectively does not cause the loss of national tax, the crime of falsely issuing VAT invoices should not be dealt with.

According to the agreement between the recycling enterprise of waste materials and the local government, the enterprise needs to pay the relevant taxes and fees and obtain the certificate of tax payment before applying for tax refund to the local government, at this time, the recycling enterprise's tax obligation has been fulfilled, the tax payable has been transformed into financial income, the tax refund applied by the enterprise is the allocation of the tax retained portion by the local government, and the purpose of which is to support the development of the local industry of waste materials. The above-mentioned tax rebate will not result in a loss of national tax revenue.

(II) Dependent invoicing and "truthful invoicing" do not cause loss of national tax and do not constitute the crime of false invoicing.

In practice, the practice of "dependent" invoicing is common in many industries. On the issue of how to characterize the behavior of external invoicing by the dependent party, the "Announcement on Issues Concerning the External Issuance of Value-added Tax Special Invoices by Taxpayers" (Guo Shui [2014] No. 39), "Interpretation of the Announcement of the State Administration of Taxation on Issues Concerning the External Issuance of Value-added Tax Special Invoices by Taxpayers Interpretation of the Announcement of the State Administration of Taxation on Issues Relating to the External Issuance of VAT Special Purpose Invoices by Taxpayers" (Guo Shui [2014] No. 39), "Reply Letter to the Opinion of the Research Office of the Supreme People's Court on How to Determine the Nature of the Behavior of Implementing Operational Activities in the Name of the Relevant Company by "Dependent" on the Company and Letting the Relevant Company Fraudulently Issue VAT Special Purpose Invoices for Himself" (LR [2015] No. 58), all of them have already made it clear that If a party actually sells goods to the invoiced party in the form of dependence and the dependent party issues VAT special invoices to the invoiced party, it does not belong to the false invoicing of VAT special invoices as stipulated in Article 205 of the Criminal Law. Therefore, in the recycling business of waste materials, the retailer engages in business activities through dependence and sells goods to the outside world in the name of the dependent party, the dependent party is the legal taxpayer and should issue VAT invoices to the purchaser, and the invoicing behavior of the dependent party is in line with the provisions of the tax law and should not be recognized as false invoicing.

The behavior of "truthful invoicing" is a new situation that emerges in the operation and management of enterprises with the development of market economy. In the bulk trade industry, such as waste materials, this kind of invoicing behavior is even more prevalent in line with the real transaction. The second item of Law Research [2015] No. 58 clearly points out: "The harm of the crime of false VAT invoicing lies in the fact that the false invoicing behavior is to cheat tax deduction, and for the existence of the actual transaction of the invoicing behavior, such as the subjective behavior of the perpetrator does not have the intention of cheating tax deduction and objectively does not cause the loss of national VAT, it is not appropriate to deal with the crime of false VAT invoicing. " Although the reply letter is not a judicial interpretation, it has an important guiding role in the trial practice. In the behavior of "truthful invoicing", the third party truthfully issues VAT special invoices to the invoiced party according to the transaction quantity and amount of both parties in the actual transaction, the invoicing party truthfully declares the VAT, the invoiced party obtains the rights and interests of offsetting according to the law, and the whole VAT offsetting chain is not cut off, and the invoiced party obtains the VAT special invoices for offsetting the input tax amount, and the crime of false VAT issuance will not cause loss of the state VAT payment. In essence, the offsetting of input tax amount by the invoiced party will not result in the loss of VAT payment of the state. Although "truthful issuance" violates the invoice management system, it cannot be simply equated with false issuance, and the act of "truthful issuance" should not be recognized as the crime of false issuance of VAT special invoices.

Specifically, in the aforementioned case, the part of the goods purchased by companies B, C and D and issued by company A should be deducted from the amount of the crime if there is evidence confirming that the goods were purchased by company B, C and D in real terms.

IV. Enterprise risk prevention

(I) Illegal Tax Rebate Cleanup or Re-triggering of Fraudulent Invoicing Risks for Scrap Material Recycling Enterprises after Double-Down Actions

On June 7, 2021, the State Council released the Audit Work Report on the Implementation of the Central Budget and Other Financial Income and Expenditure for the Year 2020 (hereinafter referred to as the Audit Work Report), which exposed the messy phenomena related to finance, false invoicing, and financial rebates. The Audit Work Report showed that the phenomenon of fiscal revenue loss caused by illegal return of taxes still exists, with 15 provinces and municipalities returning 23.873 billion yuan of taxes in the name of fiscal incentives, etc., with most of the return ratios amounting to more than 90% of the local share of revenues. This is the first time that the Government has so characterized the issue of financial reimbursement. In the final part of the audit recommendations, the Audit Report mentions that some grass-roots financial expenditure pressure has increased, and it is necessary to urgently clean up and standardize the illegal tax return behavior of some places, so as to avoid a large amount of loss of financial revenue.

CaiShui [2008] No. 157 of the implementation of the waste materials industry has a huge impact, due to the worsening of the price of vicious competition and operating costs, a large number of recycling enterprises, production enterprises can hardly survive, the local economy is damaged. Part of the local government of the regenerative resources industry agglomeration, had to take local financial rebates and other measures, but due to the different levels of economic development around the local government support varies, the unfair competition in the industry is becoming more and more obvious. In addition, after the cleanup of local tax incentives in 2014, many local tax incentives have legitimacy problems, and there is a risk of calling it quits at any time. At present, in order to make full use of the tax incentives in different regions, many groups of enterprises have set up subsidiaries/branches in different places, the specific provisions of different places, the implementation of different caliber issues, exacerbating the tax-related risks faced by enterprises. Therefore, for the waste materials recycling enterprises, in the application of local policies, should be on its legality, reasonableness and prudent analysis, while the potential risks for prevention and control.

In recent years, the State Council has repeatedly issued documents to clean up the local tax incentives, "Audit Report" for the state to further rectify the local financial return policy laid the cornerstone. At the same time of cleaning up the illegal financial rebates, it should also be noted that in judicial practice, there are some trial organs will be financial rebates and evasion of state taxes equated to the phenomenon of false invoicing. As a product of the local government's exercise of the right to dispose of fiscal revenues, the nature of fiscal reimbursement is completely different from that of taxes, and it is not possible to simply and crudely confuse the two.

(II) "Truthfulness of opening" should ensure truthfulness, false opening, multi-opening still have the risk of false opening

Enterprises should be retained to prove that the "truthful opening" of the complete chain of evidence. For example, the individual for the B waste enterprise to provide goods, by company A for company B invoicing. At this time, as B waste enterprise, when accepting invoices issued by A company, each invoice actually corresponds to the goods of the weighing sheet, warehousing list, transportation information, the actual supplier, etc., should be able to form a complete chain of evidence with the invoices, proving that the invoices accepted are "truthful invoicing". Once accused of false invoicing case, both the invoiced enterprises or individual suppliers, should be invoiced as the basis for combing the corresponding business information, in order to confirm that the corresponding transactions are really happening.

The existence of multiple or false invoices still constitutes false invoicing. Part of the invoiced enterprise by inflating the tonnage of goods, inflating the number of invoices, the amount, requesting the invoicing party to issue, the invoicing party did not do the verification obligation, both sides may still constitute a false invoicing crime. Therefore, enterprises should adhere to the bottom line of "truthfulness", and if they cannot state that the transaction corresponding to the invoice has really occurred, they still face the risk of being held criminally liable for false invoicing.

V. Summary

Since 2017, the tax authorities have carried out tax special rectification in the waste materials industry, and the problem of false invoicing in the waste materials industry has continued to ferment, and tax-related criminal cases have continued to break out. Combined with the characteristics of the waste materials recycling business, enterprises should strengthen their own tax risk management to avoid the risk of false invoicing as much as possible. Scrap material recycling enterprises should strengthen internal risk prevention and control by improving the transaction mode, optimizing the transaction chain, completing the content of the transaction materials, attaching importance to the rationalization of the transaction chain and business operations to avoid the generation of false invoices. Secondly, in the face of tax inspection under such circumstances as the risk warning of Jin San system and the co-inspection of tax authorities, they should analyze the legal risks through tax lawyers and communicate with the tax authorities in a timely and professional manner. Finally, for the cases that have entered the tax administrative procedure or criminal judicial procedure, it is necessary to hire lawyers to carry out judicial relief in time, analyze the specific situation and core legal issues from the perspectives of factual determination, legal application, and proof of evidence, and actively communicate with the organizing authorities, and promote the judiciary to actively draw on the correct treatment and practice of favorable cases, so as to accurately protect the national tax money and at the same time We also actively communicate with the organizing authorities to push the judicial authorities to actively draw on favorable cases for correct handling and practices, so as to accurately protect the state tax money and at the same time make the persons involved in the case bear the corresponding fair and legal responsibilities.