Highlights and Suggested Revisions to the Exposure Draft of the Administrative Penalty Discretion Benchmark (2026 Edition)

Editor's Note: In July 2012, the State Taxation Administration (STA) issued the Guiding Opinions of the State Taxation Administration on Regulating the Exercise of Tax Administrative Discretion (Guo Shui Fa [2012] No. 65), requiring provincial tax authorities to establish, in principle, a system of tax discretion benchmarks. In November 2016, the STA further issued the "Rules for the Exercise of Tax Administrative Penalty Discretion", which explicitly required provincial tax authorities to jointly formulate unified tax administrative penalty discretion benchmarks applicable within their respective jurisdictions, and set out clear provisions on the formulation of such benchmarks and the application of the rules. In recent years, regions such as Northeast China and Southwest China have successively issued tax administrative penalty discretion benchmarks, unifying the standards of tax law enforcement within their regions. However, there remains a lack of unified rules at the national level. To improve the system of administrative discretion benchmarks and promote the integration of national tax law enforcement standards, the STA has drafted the "Announcement of the State Taxation Administration on Promulgating the Administrative Penalty Discretion Benchmark (2026 Edition) (Exposure Draft)" (hereinafter referred to as the "Discretion Benchmark") and is soliciting public comments. Based on a summary of the highlights of the Discretion Benchmark and combined with practical experience, this article proposes targeted revisions.

I. Three Major Highlights of the Discretion Benchmark

First, it unifies the structural framework and establishes a five-tier discretion hierarchy. In terms of structural framework, previously the tax administrative penalty discretion benchmarks in regions such as Northwest, Northeast, and North China mixed various types of illegal acts with corresponding penalty benchmarks in a disordered manner, resulting in a vague hierarchical logic that made it difficult for law enforcement officers to consult and apply. The Discretion Benchmark specifies, for 66 tax penalty matters across 9 categories, the legal basis, discretion tiers, applicable conditions, and specific standards item by item, with clear logic and readily identifiable elements, thereby reducing the difficulty of law enforcement application. Specifically regarding the discretion tiers, previously the classification standards varied greatly across regions—the Northeast region had no tiers, the Central South region was divided into three tiers (relatively minor, relatively serious, and serious), and the East China region had four tiers (minor, relatively minor, general, and serious). This inconsistency in tiering across regions made it highly likely that cross-regional enterprises would face "different penalties for the same case." The Discretion Benchmark uniformly establishes five tiers: minor, relatively minor, general, relatively serious, and serious. This helps to achieve a unified national standard, "one ruler to measure all," and to build a progressively layered, objectively quantifiable system for evaluating illegal conduct.

Second, it adds two new categories of illegal acts. Previously, the tax administrative penalty discretion benchmarks in various regions were mainly based on the "Law on the Administration of Tax Collection", the "Measures for the Administration of Invoices", the "Measures for the Administration of Tax Registration", and other regulations, categorizing illegal acts into seven major types: violations of tax registration, account books and vouchers, tax declaration, tax collection, tax inspection, invoices and certificates, and tax guarantee provisions. The Discretion Benchmark incorporates new regulations such as the "Measures for the Administration of Tax-related Professional Services (Trial)" and the "Provisions on the Reporting of Tax-related Information by Internet Platform Enterprises", adding two new categories: "violations of tax-related professional service administration" and "violations of tax-related information reporting provisions." This brings new business forms and newly regulated areas into a standardized discretion system, addressing the issue of there being no unified standards for penalizing illegal acts by tax intermediaries and internet platform enterprises.

Third, it reasonably combines multiple discretionary factors to prevent "one-size-fits-all" penalties. For example, for typical tax violations such as tax evasion and fraudulent export tax refunds, previously the discretion benchmarks and logic in various regions were relatively simplistic. Some regions used only single indicators, such as whether the taxpayer cooperated with tax inspections or the number of violations, as the basis for discretion. They failed to comprehensively consider factors such as the facts of the violation, the nature of the conduct, the severity of the circumstances, and the degree of social harm, which often led to disproportionate penalties and a lack of reasonableness. The Discretion Benchmark comprehensively selects discretionary factors that are highly correlated with the illegal conduct and can objectively reflect the nature of the violation, the consequences of the harm, and the attitude towards correction and cooperation. It makes full use of a "fixed amount plus range" approach to set penalty standards, balancing unified enforcement standards with room for differentiated case handling, thereby preventing injustice caused by simplistic "one-size-fits-all" approaches. Taking tax evasion as an example, the Discretion Benchmark comprehensively considers factors such as the number of violations, the attitude of cooperation, and the amount of tax evaded to define penalty ranges, leaving reasonable discretion for case-specific handling. For fraudulent export tax refunds, the Discretion Benchmark refers to the sentencing standards in the judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate on tax-related crimes, achieving an effective alignment of evaluation standards and logic between tax administrative penalties and criminal penalties.

II. Main Proposed Revisions to the Discretion Benchmark

"No penalty without fault" and "proportionality between penalty and fault" are fundamental principles of administrative punishment. Fault includes three dimensions: subjective intent, objective illegal conduct, and harmful consequences. Article 33, Paragraph 2 of the "Administrative Punishment Law", which provides that "if a party has evidence sufficient to prove that it has no subjective fault, it shall not be subject to administrative punishment," indicates that subjective intent is a prerequisite for the establishment of administrative punishment. However, current tax laws do not explicitly provide for the element of subjective intent. For example, Article 63 of the "Law on the Administration of Tax Collection", concerning tax evasion, does not directly state that only taxpayers who intentionally commit tax evasion constitute the offense. Instead, it embeds the subjective intent element within expressions such as "falsifying, altering, concealing, or destroying," and "refusing to declare." The State Taxation Administration has, through interpretive commentaries and case-specific replies, repeatedly sought to unify enforcement standards and clarify that subjective intent is a necessary element for establishing tax evasion, in order to regulate tax law enforcement. For instance, in its interpretation of the new "Law on the Administration of Tax Collection and its Implementing Rules", it emphasized that "there are many situations where taxpayers fail to pay or underpay taxes due to the taxpayer's own reasons, sometimes even due to the taxpayer's subjective intent, such as in tax evasion or tax fraud." In the "Notice on Further Improving the Work Related to the Investigation and Handling of Tax-related Cases" (Shui Zong Fa [2017] No. 30), it clarified that "where a taxpayer fails to pay or underpays taxes due to errors such as misunderstanding of tax policies or miscalculations, without resorting to deception or concealment, it shall not be characterized as tax evasion." Furthermore, replies such as Shui Zong Han [2016] No. 274, Shui Zong Han [2013] No. 196, and Guo Shui Ban Han [2007] No. 513 all indicate that subjective intent is a constitutive element of tax evasion, and the burden of proof lies with the tax authorities. Nevertheless, such implicit legislative expression can easily lead to disputes and result in objective imputation in tax law enforcement. Some tax law enforcement officers, when determining whether tax evasion is established, only examine the objective acts of tax evasion and the harmful consequences of underpayment of taxes, without considering the taxpayer's subjective state. This clearly contradicts the fundamental principles of administrative punishment. This issue also extends to illegal acts such as issuing false invoices and fraudulent export tax refunds.

The author believes that, under the current circumstances where tax laws do not explicitly provide subjective intent as a constitutive element of tax violations, subjective intent can be excluded from the scope of punishment through provisions on precluding administrative liability. This legislative model has precedent in judicial interpretations on tax-related crimes. Article 205 of the "Criminal Law", concerning the crime of issuing false VAT invoices, appears, on its face, to be more akin to a crime of conduct. The Supreme People's Court and the Supreme People's Procuratorate have repeatedly emphasized, through official replies, cases, and published articles, that if a person merely issues false invoices without the purpose of evading taxes and without causing tax losses, they do not constitute the crime of issuing false VAT invoices. Nevertheless, there are still many cases of objective imputation in practice. To unify the national judicial standard without amending the Criminal Law, in March 2024, the Supreme People's Court and the Supreme People's Procuratorate jointly issued the "Judicial Interpretation on Tax-related Crimes", which reasonably delimited the scope of the crime of issuing false VAT invoices through explicit exculpatory provisions.

From the legislative path of the crime of false invoicing, it can be seen that even without amending the law, adding exculpatory provisions that make subjective purpose and harmful results prerequisites for criminal prosecution can eliminate objective imputation in judicial practice and achieve the requirement of unity of subjectivity and objectivity. The tax administrative penalty field currently faces a similar dilemma—the determination of tax violations such as false invoicing, tax evasion, and fraudulent export tax refunds generally overlooks the element of subjective intent and imposes penalties solely based on objective conduct. It is difficult to correct grassroots enforcement practices through case-specific replies and official correspondence alone. Accordingly, the author suggests that the Discretion Benchmark should follow the legislative path of the crime of false invoicing. For illegal acts such as false invoicing, tax evasion, and fraudulent export tax refunds, the applicable conditions and corresponding specific standards in the discretion benchmark should include a review element of subjective intent, explicitly stating that "if a taxpayer commits a tax-related illegal act, but there is no evidence proving the taxpayer had subjective intent, no administrative penalty shall be imposed."

III. Main Manifestations of "Absence of Subjective Intent"

Based on tax practice, the author believes that the determination of a taxpayer's lack of subjective intent includes, but is not limited to, the following four types of circumstances:

First, voluntarily correcting the declaration and paying the taxes and late payment fees before the tax investigation is initiated. If a taxpayer, before the tax investigation bureau initiates a case investigation, independently discovers tax issues and voluntarily corrects them, paying the taxes and late payment fees, this voluntary correction conduct, as referenced in Shui Zong Han [2016] No. 274, Shui Zong Han [2013] No. 196, and Guo Shui Ban Han [2007] No. 513, is sufficient to prove that the actor did not have the subjective intent to evade tax, and therefore lacks the subjective culpability required for administrative punishment. At the same time, late payment fees themselves carry a punitive nature, representing a penalty for the taxpayer's failure to fulfill tax obligations on time. By imposing late payment fees, a negative evaluation and accountability for the taxpayer's failure to fulfill tax obligations has already been made. In the absence of subjective intent to evade tax, the penalty cannot be escalated to one for tax evasion.

Second, underpayment of taxes due to misunderstanding of policies or accounting errors. The tax rules system is highly specialized and complex, with some concepts, calculation scopes, and preferential application standards being relatively abstract, such as the scope of agricultural product taxation, which is difficult for ordinary market entities to grasp precisely. Where a taxpayer under pays taxes due to a misunderstanding of tax policies, accounting omissions, or other non-negligent reasons, without any subjective intent to deliberately conceal income, inflate costs, or avoid tax obligations, the taxpayer lacks administrative culpability.

Third, underpayment of taxes due to deception by a third party. VAT has the characteristic of a chain of deductions, with strong upstream and downstream transactional links. In practice, after an upstream entity is determined to have issued false invoices, downstream invoice-receiving enterprises are often passively subject to liability such as input tax transfer-out and corporate income tax adjustments, and may even be directly characterized as having issued false invoices or evaded taxes and penalized accordingly. Market transaction models are complex and diverse. If an invoice-receiving enterprise has exercised reasonable and prudent care throughout the entire transaction process, verified the business license and transaction authorization documents of the invoicing entity, completed the payment in accordance with the contract, and obtained invoices, without any intent to issue false invoices or evade taxes by using false invoices to deduct taxes, and the tax issue arose solely due to the upstream counterparty's malicious deception and concealment of the false invoicing, then the invoice-receiving enterprise should be deemed to lack subjective intent, and no administrative penalty should be imposed for such cases of third-party deception. For example, where an apparent agency relationship exists between the seller and the invoicing party, it is not reasonably foreseeable to require the invoice-receiving party to investigate the absence of a legal relationship between them. The author suggests further improving the provisions on the bona fide acquisition of false invoices, using the concept of bona fide acquisition to evaluate the act of obtaining false invoices without subjective intent.

Fourth, where the invoicing enterprise provides services in an illegal manner, and the invoice-receiving enterprise is unaware. For example, in the pharmaceutical industry, false invoicing is often accompanied by commercial bribery. A pharmaceutical manufacturer has established a genuine promotional service relationship with a promotional service provider, pays the promotional service provider for promotional services, and obtains invoices issued by the promotional service provider accordingly. However, the promotional service provider does not conduct legitimate promotional services but instead promotes drugs through methods such as "pay-to-prescribe," and the pharmaceutical manufacturer is unaware of this. In practice, some tax law enforcement officers, based solely on the fact that the promotional service provider engaged in commercial bribery, conclude that the promotional service provider did not actually conduct promotional services, deny the authenticity of the business relationship between the promotional service provider and the pharmaceutical manufacturer, and thus deem the invoices to be false, requiring the invoice-receiving enterprise to make tax adjustments and even imposing fines, thereby extending liability to the pharmaceutical manufacturer. The author believes that the upstream promotional service provider's commercial bribery and failure to actually provide promotional services constitute an independent, unilateral illegal act, separate from the genuine transaction between the pharmaceutical manufacturer and the promotional service provider. The upstream enterprise's subsequent illegal conduct cannot be used to retroactively presume that the invoice-receiving enterprise did not conduct genuine business. In such cases, the pharmaceutical manufacturer has retained all transaction documentation, fulfilled its reasonable duty of review, and was unaware of the upstream promotional service provider's conduct. It should be determined that the invoice-receiving enterprise lacks subjective intent and should not be subject to administrative penalty.

IV. Conclusion

The author believes that, as tax legislation advances in the future, when revising laws and regulations such as the "Law on the Administration of Tax Collection" and the "Measures for the Administration of Invoices", subjective intent should be explicitly included as a statutory constitutive element of tax violations such as tax evasion, false invoicing, and fraudulent export tax refunds. This would fundamentally resolve the issue of improperly penalizing tax violations committed without subjective intent, promote greater fairness and standardization in tax administrative penalties, and further enhance the rule-of-law and modernization levels of tax governance.