Editor’s Note: Since the implementation of the judicial interpretations on tax-related crimes issued by the Supreme People’s Court and the Supreme People’s Procuratorate (hereinafter referred to as "the two Supreme Judicial Organs"), the applicable boundaries between the Crime of Falsely Issuing Special VAT Invoices, the Crime of Illegally Selling Special VAT Invoices, and the Crime of Tax Evasion have been subject to ongoing disputes, often leading to confusion in practical determination of charges. The key to clarifying the application of these charges lies in identifying which function of the invoice the perpetrator actually exploited. In accordance with the spirit of the judicial interpretations of the two Supreme Judicial Organs, the Crime of Falsely Issuing Special VAT Invoices applies only when the VAT deduction function of the invoice is utilized; if other record-keeping functions of the invoice are exploited, this crime is not constituted. This article takes a case of a petrochemical enterprise evading taxes by reselling refined oil inventory data as an example, and analyzes the differences and application rules among the three crimes from the perspectives of legislative intent, protection of legal interests, and constitutive elements, aiming to provide useful references for tax-related criminal defense.

01 Introduction to the Case

In a tax-related case involving a petrochemical enterprise, Enterprise A first issued naphtha invoices to Enterprise B, and immediately conducted a red-ink cancellation of these invoices, thereby retaining corresponding naphtha inventory data for Enterprise B in the refined oil module. Subsequently, Enterprise B issued naphtha invoices to downstream Enterprise C. After obtaining this inventory data, Enterprise C, following the same approach, issued naphtha invoices to Enterprise D, and finally Enterprise D fulfilled the cargo distribution and sold the products to external parties. How should the conduct in this business model be evaluated?

In practice, some judicial authorities only focus on the superficial act of invoice use, ignoring the core nature of reselling refined oil inventory data behind it, and thus accuse the relevant enterprises of committing the Crime of Falsely Issuing Special VAT Invoices. It is necessary to clarify that the core of such conduct is to exploit the function of invoices in recording refined oil inventory data, and evade the payment of consumption tax by reselling this inventory data. The author argues that this type of conduct utilizes other functions of invoices rather than the deduction function, and the substantial social harm it causes is the loss of national consumption tax revenue, not the defrauding of VAT deductions. Convicting and punishing such conduct under the Crime of Tax Evasion is in line with the principle of legality (nullum crimen sine lege) and the principle of proportionality between crime, responsibility, and punishment. The following analysis will first start with the relationship between the Crime of Falsely Issuing Special VAT Invoices and the Crime of Tax Evasion.

02 Relationship Between the Crime of Falsely Issuing Special VAT Invoices and the Crime of Tax Evasion

The judicial interpretations on tax-related crimes of the two Supreme Judicial Organs have established special rules for excluding criminal liability for the Crime of Falsely Issuing Special VAT Invoices. Among them, Paragraph 1 of Article 10 stipulates five categories of falsely issuing criminal acts, which means conviction based on conduct (conduct-based offenses); Paragraph 2 of Article 10 stipulates circumstances for excluding criminal liability, which means excluding from conviction based on purpose or consequence (purpose-based or consequence-based exemption from conviction). The function of Paragraph 2 of Article 10 is that if an act that has been defined as a crime in accordance with the provisions of Paragraph 1 simultaneously meets the circumstances stipulated in Paragraph 2, the act that has already been included in the scope of crimes shall be excluded from criminal liability.

The above two provisions have a significant impact on the burden of proof for procuratorial organs when prosecuting the Crime of Falsely Issuing Special VAT Invoices, and also put forward higher requirements for the fact-finding work of courts when hearing cases of this crime. When prosecuting and hearing cases of the Crime of Falsely Issuing Special VAT Invoices, judicial authorities must comprehensively examine whether the perpetrator has no intent to defraud tax deductions and whether no tax loss has been caused due to tax deductions. As long as such circumstances exist, the application of the charge must be changed. In other words, if only evidence proving the existence of the falsely issuing act and the tax deduction act can be provided, it is not sufficient to directly confirm the establishment of the Crime of Falsely Issuing Special VAT Invoices; it is also necessary to further examine whether the tax deduction act has actually caused tax losses, that is, whether the tax deduction act constitutes an act of defrauding tax deductions.

(1) The Nature of Falsely Issuing Invoices to Defraud VAT Deductions: "Defrauding" State Property and Infringing on State Tax Property Rights

To accurately examine the circumstances of excluding criminal liability stipulated in Paragraph 2 of Article 10, it is essential to accurately understand what constitutes "defrauding tax deductions" and what constitutes "tax loss caused by fraud". The core reason why falsely issuing special invoices can defraud tax deductions lies in the VAT collection principle that the taxpayer and the tax bearer are separated, and there is an entrusted collection relationship between the state and the taxpayer. For example, an enterprise sells self-produced products and collects a total payment of 339 yuan (including tax) from a downstream customer. Due to the value added from the sale of goods, the enterprise becomes a VAT taxpayer. Calculated at a tax rate of 13%, it is required to pay 39 yuan of VAT to the state, and the remaining 300 yuan is the actual income of the enterprise. It is necessary to clarify that this 39 yuan of tax is not actually borne by the enterprise as the taxpayer, but is paid by its downstream customer together with the payment for goods—this is a typical situation where the taxpayer and the tax bearer are separated. At the same time, the enterprise is required to issue a special VAT invoice to the customer, with the invoice stating the tax-exclusive amount of 300 yuan, tax amount of 39 yuan, and total amount including tax of 339 yuan. Issuing this invoice means that the taxpayer informs its invoice recipient: "I have been entrusted by the state to collect 39 yuan of tax from you, and I will be obligated to hand over this 39 yuan of tax to the state in accordance with regulations." In other words, the taxpayer’s issuance of invoices represents the establishment of an entrusted collection and payment relationship between the state and the taxpayer, where the state is the principal and the taxpayer issuing the invoices is the agent.

Then, how does the act of falsely issuing invoices achieve tax fraud? The operation in practice is not complicated: the enterprise only needs to spend a small amount of cost to purchase an invoice with a total amount of 113 yuan (including tax), and fictitiously record an input tax of 13 yuan in its accounts (corresponding to an invoice with a tax-exclusive amount of 100 yuan and a tax rate of 13%). Then, when calculating the VAT payable for the current period, the enterprise will use "output tax of 39 yuan - input tax of 13 yuan" as the calculation basis and only pay 26 yuan of tax to the state. At this time, the state will be deceived: clearly, the tax bearer has paid 39 yuan of tax to the taxpayer, but the taxpayer has illegally embezzled 13 yuan of tax by means of defrauding tax deductions and taken it as their own. This is a typical act of defrauding tax deductions. In other words, defrauding tax deductions refers to the act of using false input tax to offset genuine output tax, thereby taking the tax paid by the tax bearer as one’s own. Its principle is similar to "theft" or "fraud", with emphasis on the word "defraud"—that is, taking property owned by others as one’s own and illegally obtaining a positive increase in economic benefits, while the economic benefits originally belonging to the state are directly reduced. This is an infringement on the state’s "property rights". Such conduct will fundamentally subvert the state’s VAT collection mechanism and cause destructive harm to the order of VAT collection and administration. According to the provisions of the Criminal Law, the maximum statutory penalty for fraud-related crimes is mostly life imprisonment; therefore, the statutory penalty range for the Crime of Falsely Issuing Special VAT Invoices is set with a maximum penalty of life imprisonment, by analogy with fraud crimes. This is a reflection of the principle of proportionality between crime, responsibility, and punishment.

(2) The Nature of Evading Consumption Tax by Reselling Refined Oil Inventory: "Evading" Debts Owed to the State and Infringing on State Tax Claims

Special VAT invoices are not only certificates for VAT deduction, but also important carriers for determining the tax base of other taxes such as corporate income tax and consumption tax. Taking the consumption tax involved in this case as an example: a refining and chemical enterprise purchases 1 ton of crude oil for production, processes it into 1 ton of naphtha, and sells the naphtha to external parties. At this time, the enterprise will obtain an input invoice for 1 ton of crude oil and issue an output invoice for 1 ton of naphtha to external parties. According to the rules of consumption tax collection and administration, the consumption tax payable by the enterprise in the current period is calculated as "production and sales volume of 1 ton × consumption tax rate of 2,105 yuan/ton for naphtha". However, if the enterprise obtains an invoice for 1 ton of naphtha through purchase, it can fictitiously list the tax amount of consumption tax already included in the raw materials as a deduction. At this time, the consumption tax payable = (tonnage of naphtha sold × 2,105 yuan) - (fictitiously listed tonnage of naphtha raw materials × 2,105 yuan), and the final result is zero yuan.

From the perspective of economic essence, the enterprise does not achieve an increase in economic benefits, but illegally reduces the tax debts it should bear. According to the collection principle of consumption tax as an ad valorem tax (tax included in price), the state does not confirm the consumption tax amount in advance, but requires taxpayers to independently and truthfully declare and pay it. In other words, the state has not yet confirmed and obtained this part of the consumption tax, but requires taxpayers to declare the debt through tax declaration and then perform the obligation to pay to the state in accordance with the law. In essence, this belongs to the state’s "expected tax benefits" rather than "acquired tax benefits". By purchasing refined oil invoices to falsely increase the inventory quantity of raw materials and fraudulently deduct consumption tax, the enterprise illegally reduces the amount of tax it should declare and pay, causing the loss of the state’s expected tax benefits. Its essence is to evade tax debts. Its principle is similar to malicious evasion of debts, which does not cause any damage or impact on the state’s ownership of property, but only infringes on the state’s claims, with emphasis on the word "evade". Such conduct belongs to the act of false tax declaration; although it will cause the loss of state tax revenue, it will not endanger the foundation of the state’s tax collection and administration order. According to the provisions of the Criminal Law, the maximum statutory penalty for debt evasion-related crimes, such as the Crime of Obstructing Liquidation and the Crime of False Bankruptcy, is mostly fixed-term imprisonment of not more than five years; therefore, the statutory penalty range for the Crime of Tax Evasion is set with a maximum penalty of fixed-term imprisonment of seven years, by analogy with debt evasion-related crimes.

In summary, according to the provisions of China’s current Criminal Law, even if the amount of tax evasion is 10 billion yuan and the profit is 1 billion yuan, the maximum statutory penalty is only seven years of fixed-term imprisonment; while if the amount of tax defrauded by falsely issuing invoices is 5 million yuan and the profit is 500,000 yuan, the maximum statutory penalty can be life imprisonment. The reason lies in the fundamental difference in the substantial harm caused by tax evasion and tax fraud by falsely issuing invoices, which has nothing to do with the specific amount and quantity. For the act of reselling refined oil inventory data to evade the payment of consumption tax, it should be convicted and sentenced under the Crime of Tax Evasion rather than the Crime of Falsely Issuing Special VAT Invoices.

(3) The Failure of Tax Authorities to Impose Administrative Penalties Does Not Affect the Establishment of the Crime of Tax Evasion Itself

In practice, some cases are initially initiated for criminal prosecution as falsely issuing crimes, but later review finds that the determination of the charge is incorrect. Can such cases be converted to pursue the Crime of Tax Evasion? The author believes that, in principle, it is possible. The provision of Paragraph 4 of Article 201 of the Criminal Law is a circumstance for excluding punishment, that is, although an act has constituted a crime, due to the existence of specific circumstances, the law stipulates that no punishment shall be imposed. Its core feature is "the crime is established but punishment is exempted", which needs to be distinguished from "circumstances for excluding the establishment of a crime" that directly prevent the establishment of a crime. In tax evasion cases, if the public security organ files a case first, it will lead to the failure of the circumstance for excluding punishment to take effect. Therefore, in practice, public security organs usually do not file cases and pursue responsibility for cases that have not yet been handled and punished by tax authorities, so as to provide an opportunity for the circumstance for excluding punishment to take effect. After the tax authorities impose handling and punishment, taxpayers can enjoy an opportunity to repay taxes and be exempted from punishment. However, in practice, there are indeed situations where the circumstance for excluding punishment cannot take effect. For example, if the public security organ first files a case for a falsely issuing crime, and during the review and prosecution stage or the court trial stage, it is found that the case is essentially a tax evasion case and the perpetrator has already committed the Crime of Tax Evasion, then there is no opportunity for the circumstance for excluding punishment to take effect. Since this adverse legal consequence is caused by the perpetrator’s complex and concealed tax evasion act, the author believes that, in such circumstances, judicial authorities can directly pursue the perpetrator’s criminal liability for the Crime of Tax Evasion, without being restricted by the failure of the circumstance for excluding punishment to take effect.

03 Relationship Between the Crime of Falsely Issuing Special VAT Invoices and the Crime of Illegally Selling Special VAT Invoices

In practice, there may be a view that for the act of reselling refined oil inventory data to evade the payment of consumption tax, can it be convicted and sentenced under the Crime of Illegally Selling Special VAT Invoices? The answer is obviously negative, as there is also a fundamental difference in the legal interests infringed by these two crimes. The following will sort out the historical background and legislative purpose of the Crime of Illegally Selling Special VAT Invoices, clarify its constitutive elements, and further distinguish the applicable boundaries between the two crimes.

(1) Historical Background and Legislative Purpose of the Crime of Illegally Selling Special VAT Invoices

The establishment of the Crime of Illegally Selling Special VAT Invoices is not accidental, but stems from the needs of tax collection and administration in a specific historical period. Its predecessor was the abolished "Crime of Speculation and Profiteering", which undertakes the historical mission of cracking down on specific invoice-related crimes. In the 1990s, China had just established the VAT system. Special VAT invoices were usually sold by tax authorities to general taxpayers in complete sets at cost. Taxpayers filled out invoices manually when using them, and the invoice inspection capacity of tax authorities was insufficient at that time. As a result, a large number of phenomena such as forgery, resale, and theft of blank special VAT invoices emerged immediately in early 1994.

The Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security (hereinafter referred to as "the two Supreme Judicial Organs and the Ministry of Public Security") and the State Taxation Administration jointly launched a special campaign against the above illegal phenomena. On March 28, 1994, the four ministries and commissions jointly issued the Notice on Launching a Special Campaign Against the Forgery, Resale, and Theft of Invoices (Document No. GF〔1994〕5), pointing out that the key targets of the special campaign are "criminal gangs engaged in forging, reselling, or stealing invoices, especially those using underground printing houses to print a large number of fake invoices; those who take forging or reselling invoices as a regular business or seek exorbitant profits; and lawbreakers who use fake invoices to engage in tax evasion or defraud export tax rebates." To provide criminal law system support for this special campaign, on June 3, 1994, the two Supreme Judicial Organs issued the Provisions on the Application of Law in Handling Criminal Cases Involving Forged, Resold, or Stolen Invoices (Document No. GJH〔1994〕25), stipulating that "whoever, for the purpose of profit, illegally prints (reproduces) or resells invoices (including fake invoices), or illegally manufactures or resells invoice anti-counterfeiting materials, if the circumstances are serious, shall be pursued for criminal liability for the Crime of Speculation and Profiteering." It also stipulates that "whoever, for the purpose of profit, illegally issues invoices on behalf of others or falsely issues invoices with a cumulative amount of 50,000 yuan or more, or illegally issues special VAT invoices on behalf of others or falsely issues them with a cumulative deducted tax amount of 10,000 yuan or more, shall be pursued for criminal liability for the Crime of Speculation and Profiteering."

Invoice-related crimes at that time showed distinct characteristics: most of them involved collusion between staff of tax authorities and external lawbreakers, who illegally obtained blank special VAT invoices through fraud, malpractice, and other means, and then resold them to seek profits. Units that purchased such illegal invoices would obtain illegal tax benefits through false issuance. According to the judicial interpretations at that time, these acts were all handled as the Crime of Speculation and Profiteering. Since China was vigorously developing the market economy at that time, it was necessary to completely abolish the Crime of Speculation and Profiteering; but at the same time, to meet the need of severely cracking down on invoice-related crimes, the Standing Committee of the National People’s Congress divided the original pocket crime of Speculation and Profiteering into four separate crimes through the formulation of the 1995 Special Criminal Law, creating four types of invoice-related crimes: "the Crime of False Issuance", "the Crime of Forgery", "the Crime of Sale", and "the Crime of Purchase". Thus, the Crime of Illegally Selling Special VAT Invoices entered the stage of criminal law in the form of provisions in the Special Criminal Law.

Against the above legislative background, the target of this crime clearly points to the act of illegally obtaining blank special VAT invoices through means such as internal and external collusion, fraud, and malpractice, and then reselling them to seek profits. The object of the crime specifically refers to blank special VAT invoices in complete sets at cost, and the subject of the crime includes staff of tax authorities who take advantage of their positions and external lawbreakers. From the perspective of protecting legal interests, the core legal interest infringed by this crime is the state’s exclusive right to issue and sell invoices (hereinafter referred to as "exclusive invoice issuance right"). "Issuance and sale" refers to distribution and sale, not just sale. The infringement of the legal interest of exclusive invoice issuance right by this crime also corresponds to the fact that the object of this crime is blank invoices.

(2) Constitutive Elements of the Crime of Illegally Selling Special VAT Invoices

Combined with the sorting out of the historical background and legislative purpose of the Crime of Illegally Selling Special VAT Invoices, its constitutive elements can be summarized as follows:

Subject of the crime: Staff of tax authorities and external personnel, who should usually form a joint crime with both types of subjects colluding with each other. If there is no participation of staff of tax authorities in the case, and no responsible subject in the tax authorities who takes advantage of their positions to assist the enterprise in illegally obtaining blank invoices, then a joint crime structure of internal and external collusion targeting the acquisition of blank invoices cannot be formed, which does not meet the subject requirement of this crime.

Object of the crime: Blank special VAT invoices, which should usually be in the form of complete sets at cost. If the object of the act in the case is a naphtha special VAT invoice issued by the relevant unit, which is attached to a specific purchase and sale business and specifies specific invoice information and content, it is obviously not a blank invoice and does not meet the object requirement of this crime.

Act of the crime: Staff of tax authorities take advantage of their positions, and external personnel adopt various illegal means such as fraud and malpractice to obtain blank special VAT invoices in complete sets at cost, and then resell them to external parties to seek profits. Specifically, in tax-related cases involving petrochemical enterprises, reselling fictitious naphtha inventory data by issuing naphtha special VAT invoices is not the act of directly selling blank special VAT invoices. The object of the transaction in the case seems to be invoices on the surface, but in fact, it is the naphtha inventory data recorded in the invoices. Therefore, in accordance with the principle of substance over form, the essence of this act is the act of selling naphtha inventory data, not the act of selling invoices.

It should be noted that before the issuance of the 1995 Decision, the Crime of Speculation and Profiteering integrated acts such as printing, resale, and false issuance into one crime for conviction; while after the issuance of the 1995 Decision, acts of forgery, sale, purchase, and false issuance were divided into four separate charges. Therefore, acts involving false issuance should no longer be evaluated using the "Crime of Illegal Sale".

Legal interest infringed: The Crime of Illegally Selling Special VAT Invoices infringes on the state’s exclusive invoice issuance right. It should be noted that acts such as illegal sale and illegal forgery will not directly lead to the loss of state tax revenue; the only act that can cause the loss of state tax revenue is the act of false issuance. Therefore, the object protected by this crime is not state tax revenue, but the state’s invoice management order, specifically the state’s exclusive invoice issuance right. The division of the original Crime of Speculation and Profiteering into four crimes in the 1995 Decision also follows the principle of different objects of legal interest protection: that is, the "Crime of False Issuance" protects the legal interest of state tax revenue, the "Crime of Forgery" protects the legal interest of the state’s exclusive right to print invoices, and the "Crime of Sale" and "Crime of Purchase" protect the legal interest of the state’s exclusive invoice issuance right.

In summary, the Crime of Illegally Selling Special VAT Invoices has its specific historical background and legislative purpose. At present, with the comprehensive digitalization of tax governance, the applicable scope of this crime has been greatly reduced and is about to withdraw from the historical stage. When handling relevant cases, judicial authorities should strictly abide by the principle of legality and shall not expand the interpretation and application of this crime.

04 Conclusion

In practice, the determination of cases involving false issuance is difficult and controversial, especially in the judgment of whether an act constitutes a crime or not, and the distinction between the Crime of Falsely Issuing Special VAT Invoices, the Crime of Tax Evasion, and the Crime of Illegally Selling Special VAT Invoices. Whether it is risk prediction in the early stage of tax disputes or qualitative defense when the case enters the criminal trial stage, the role of professional tax lawyers is crucial. They can analyze the case from the perspectives of legislative intent, constitutive elements, and tax collection and administration logic, clarify the applicable boundaries of charges, and communicate effectively with tax authorities and judicial authorities. It is recommended that enterprises, when facing tax-related disputes, engage professional tax lawyers to intervene as early as possible to maximize the protection of the legitimate rights and interests of the parties and effectively resolve and prevent tax risks.