Editor's Note:The medical device industry involves lengthy procurement and sales chains, with multiple parties participating in transactions, including manufacturers, distributors, medical institutions, and third-party service providers. Tax risks primarily arise in areas such as sales revenue recognition, the deduction of costs and expenses, and invoice management. Since the beginning of 2026, as special tax enforcement campaigns targeting the medical device sector have continued to intensify, tax violations in the industry have attracted increased scrutiny from tax authorities. Drawing primarily on publicly disclosed tax enforcement cases involving the medical device industry since 2026, this article examines typical tax-related violations in the sector and puts forward corresponding tax compliance recommendations.

I. Intensified Regulatory Oversight of Pharmaceutical Procurement and Sales, and Rising Tax Compliance Requirements in the Medical Device Industry

The medical device industry comprises a large number of market participants, with procurement and sales chains involving multiple entities, including manufacturers, distributors, medical institutions, and third-party service providers. According to the Annual Statistical Report on Drug Administration (2025), as of the end of 2025, China had approximately 33,000 medical device manufacturers and approximately 1.52 million enterprises licensed to operate Class II and Class III medical devices. With the normalization of centralized volume-based procurement of pharmaceuticals and medical consumables, as well as strengthened regulatory oversight of high-value medical consumables and medical equipment procurement, medical device enterprises are required to further strengthen controls over the consistency between the authenticity of procurement and sales transactions, fund settlements, and invoice issuance, resulting in increasingly stringent tax compliance requirements.

A review of policy initiatives over the years demonstrates that regulatory oversight of the pharmaceutical procurement and sales sector has been characterized by continuity, systematic implementation, and interdepartmental coordination. The National Health Commission, the State Taxation Administration, and other government authorities have jointly issued the Key Tasks for Correcting Unhealthy Practices in the Pharmaceutical Procurement and Sales Sector and Medical Services on an annual basis for several consecutive years. These initiatives focus on key areas such as pharmaceutical procurement and sales practices, medical service conduct, the use of medical insurance funds, pharmaceutical product procurement, commercial bribery, and tax-related violations, while continuously implementing targeted enforcement campaigns and regulatory measures. The policy developments over the years indicate that regulatory oversight has gradually expanded beyond the provision of medical services to encompass pharmaceutical product procurement and sales, procurement activities of medical institutions, third-party services, and tax-related conduct. This has given rise to a comprehensive regulatory framework involving coordinated participation by multiple government authorities, including health authorities, tax authorities, medical insurance regulators, market supervision authorities, and drug administration authorities. In particular, regulatory requirements concerning tax-related violations in the pharmaceutical procurement and sales sector have become increasingly detailed, with the scope of supervision and the entire chain of regulatory enforcement continuing to expand.

In response to prominent issues in the pharmaceutical procurement and sales sector, on May 22, 2026, the National Health Commission, the State Taxation Administration, and 12 other government departments jointly issued the Key Tasks for 2026 to Correct Unhealthy Practices in the Pharmaceutical Procurement and Sales Sector and Medical Services (Guo Wei Yi Ji Han [2026] No. 123), setting out measures to regulate pharmaceutical procurement and sales practices and combat tax-related violations. Section VIII of the document specifically addresses the rectification of tax-related violations. It calls for joint investigations and targeted enforcement campaigns to crack down on tax-related crimes and violations in the medical device sector, including the "alteration and overprinting" of invoices, the fraudulent issuance of VAT invoices, and the concealment of income to evade taxes. It also requires authorities to trace entities that accept fraudulently issued invoices and impose strict penalties for unlawful and non-compliant conduct. In addition, the document calls for strengthened end-to-end risk prevention and control over invoice management and enhanced credit evaluation in the medical device procurement and sales sector. Furthermore, Section V identifies the use of third-party entities to disguise kickback-driven sales practices as scientific research activities as a key area for rectification. Section VII requires strengthened regulatory oversight of high-value medical consumables and medical equipment procurement, as well as legal action against irregularities such as fictitious transactions and commercial bribery. These provisions demonstrate a regulatory approach under which the rectification of tax-related violations is being pursued in coordination with efforts to regulate industry procurement and sales practices and combat commercial bribery.

At the national level, the special tax enforcement campaign targeting the medical device industry has already achieved phased results. On July 28, 2026, the State Taxation Administration disclosed at a press conference that, since launching the special enforcement campaign targeting invoice falsification and fraudulent issuance in the medical device sector, tax authorities had formally initiated investigations into 3,611 medical device distributors and assessed and recovered RMB 5.9 billion in taxes. These figures reflect the tax authorities' heightened focus on invoice-related violations and other associated tax compliance issues in the medical device industry, as well as their continued enforcement efforts. At the same press conference, when introducing efforts to address the so-called "invoice-driven economy," the State Taxation Administration noted that, in tackling invoice-driven business practices among medical device distributors, tax authorities, in collaboration with other government departments, had taken the rectification of invoice falsification and fraudulent issuance as an entry point. These efforts have also facilitated more intensive industry-wide action against risks such as kickback-driven sales, improper rebates, and the resale of medical devices lacking the required production or registration documentation (commonly referred to as "three-no" medical devices), thereby further strengthening interdepartmental coordination in regulatory enforcement.

Against the backdrop of ongoing nationwide special enforcement campaigns, local-level investigations into tax risks have also increasingly demonstrated a tendency to follow invoice-related leads and involve coordinated investigations across government departments. On June 22, 2026, an article on the official website of the State Taxation Administration concerning the work of the Guizhou tax authorities disclosed that disciplinary inspection bodies within the Guizhou tax system had proactively integrated their efforts into the province's broader regulatory initiatives and launched a special campaign targeting tax-related violations in the medical device industry. The campaign focused on suspicious practices such as clustered business registrations, the circulation of invoices through shell companies, issuing invoices at inflated amounts despite lower actual sales prices, and other improper invoice issuance arrangements. Starting with leads involving the improper issuance and use of medical device invoices, local authorities employed an invoice-based approach to identify tax violations and uncovered tax evasion exceeding RMB 1.6 million by two private hospitals. Meanwhile, through a tax-to-medical-insurance investigative approach, they worked jointly with local discipline inspection commissions, market supervision authorities, and public security authorities to investigate related enterprises suspected of unlawfully obtaining funds from the National Medical Insurance Fund. The investigation was further extended to examine the individual income tax compliance and employment information of highly paid personnel at the hospitals involved, providing substantial support to local discipline inspection and supervisory commissions in uncovering concealed corruption through in-depth investigations. These enforcement practices indicate that tax-related risks in the medical device sector may extend beyond the industry itself to encompass tax compliance issues involving medical institutions, violations relating to medical insurance funds, and investigations into the individual income tax liabilities and employment information of relevant personnel. Regulatory oversight is therefore increasingly characterized by interdepartmental coordination and the extension of investigations along tax-related leads.

II. Widespread Tax Violations in the Medical Device Industry: Frequent Cases of Tax Evasion and Fraudulent Invoice Issuance

This section summarizes typical tax-related violations based on publicly available tax administrative penalty cases involving the medical device industry since 2026, supplemented by publicly disclosed reports from tax authorities and relevant tax assessment decisions.

(I) Failure to Record or Understatement of Revenue in Accounting Books

1. Concealment of Sales Revenue Through Invoice Alteration and Overprinting, Improper Voiding, and Reversal of Issued Invoices

In 2026, the special tax enforcement campaign targeting the medical device industry identified invoice alteration and overprinting as key enforcement priorities. Based on currently available tax administrative penalty decisions, such violations have been particularly prominent. They primarily involve enterprises altering invoice details through overprinting after selling medical devices to downstream medical institutions, resulting in discrepancies between the invoice information provided to the medical institutions and the corresponding information retained in the tax authorities' systems, thereby concealing actual sales revenue. For example, Tax Administrative Penalty Decision No. Huai Shui Yi Ji Fa [2026] No. 37 (淮税一稽罚〔2026〕37号) indicates that, between 2019 and 2022, a medical device enterprise sold medical devices to 40 hospitals in Anhui Province and altered and overprinted a total of 1,300 ordinary VAT invoices. As a result, the enterprise underreported revenue amounting to approximately RMB 50 million (inclusive of VAT). By examining the enterprise's corporate bank account transactions, the tax authorities discovered that payments actually made by certain hospitals exceeded the amounts reflected in the overprinted invoices and the corresponding invoices recorded in the tax authorities' system. This discrepancy enabled the authorities to establish that the enterprise had underreported its sales revenue. The tax authorities consequently determined that the enterprise had concealed income, resulting in an underpayment of taxes and constituting tax evasion. A penalty equivalent to 100% of the underpaid taxes was imposed, amounting to approximately RMB 1.9 million.

In addition to altering and overprinting invoices, some enterprises conceal sales revenue by improperly voiding or reversing previously issued invoices through the issuance of red-letter invoices. For example, Tax Administrative Penalty Decision No. Ji Shi Shui Ji Fa [2026] No. 8 (吉市税稽罚〔2026〕8号) indicates that an enterprise voided or reversed ordinary VAT invoices issued to 30 downstream entities, involving a total amount of approximately RMB 34.63 million (inclusive of VAT). The tax authorities subsequently examined 47 downstream invoice recipients and found that all the relevant invoices had been properly recorded in their accounting books and that the corresponding payments had been made. Furthermore, none of the invoice recipients had voided or reversed the corresponding invoices. Based on these findings, the tax authorities determined that the enterprise had concealed sales revenue through the improper voiding and reversal of invoices, resulting in an underpayment of taxes and constituting tax evasion.

2. Collection of Payments Through Personal Bank Accounts and Concealment of Revenue

Some enterprises collect sales proceeds through the personal bank accounts of their actual controllers, shareholders, relatives, or other individuals, or transfer business funds through related-party enterprises, thereby excluding sales revenue from the enterprises' regular financial accounting records. For example, Tax Administrative Penalty Decision No. Yang Shui Ji Yi Fa [2026] No. 89 (扬税稽一罚〔2026〕89号) indicates that a related-party enterprise controlled by the actual controller transferred approximately RMB 8 million to the bank account of one of the controller's relatives. The funds were subsequently transferred to the personal bank accounts of the actual controller and the controller's spouse. The enterprise neither issued invoices for these amounts nor reported them as revenue for tax purposes. On this basis, the tax authorities determined that the enterprise had concealed revenue, resulting in an underpayment of taxes and constituting tax evasion. In addition, Tax Administrative Penalty Decision No. Yang Shui Ji Fa [2023] No. 5 (阳税稽罚〔2023〕5号) also involved the collection of medical device sales proceeds through personal bank accounts. In this case, certain medical devices purchased by the enterprise were delivered directly by upstream suppliers or manufacturers to the end-user medical institutions. However, the enterprise failed to recognize the corresponding sales revenue, issue invoices, or declare and pay the relevant taxes. The tax authorities' investigation revealed that the proceeds from these medical device sales were primarily collected by sales personnel and subsequently transferred to the personal bank accounts of individuals associated with the enterprise. Some customers also transferred payments directly into these personal accounts. As the enterprise failed to provide the relevant accounting books and supporting documentation, the tax authorities assessed the concealed sales revenue, exclusive of VAT, at approximately RMB 15.3 million based on the circumstances surrounding the purchase and sale of the medical devices and the associated fund flows. A penalty equivalent to 50% of the underpaid taxes was subsequently imposed.

3. Splitting Sales Revenue Through Branches Lacking Substantive Business Operations

Some enterprises establish branches without substantive business operations to split sales transactions and distribute revenue that would otherwise be attributable to the head office, thereby reducing the revenue reported by the head office, circumventing the registration requirements for general VAT taxpayer status, and improperly benefiting from tax incentives available to small-scale VAT taxpayers. According to China Tax News, a medical device distributor in Qingdao established a branch without substantive business operations and used it to split approximately RMB 13 million in sales revenue. During its investigation, the tax authorities found that the head office and the branch engaged in the same medical device wholesale business, shared overlapping key management and operational personnel, and had substantial overlap in their purchased goods, upstream suppliers, and downstream customers. An on-site inspection further revealed that the branch lacked actual office premises and permanent operating personnel and was unable to provide independent business records, including goods receipt and dispatch records, inventory records, and logistics and transportation documents. Based on these findings, the tax authorities determined that the branch lacked substantive business operations and consolidated the relevant sales revenue for tax calculation purposes. The enterprise subsequently amended its tax returns and paid the additional taxes and surcharges for late payment.

(II) Overstatement of Expenses in Accounting Books

Medical device enterprises may incur service expenses in connection with clinical support, marketing and promotion, and equipment commissioning, including fees for expert guidance, intraoperative support, personnel training, and other related services. Some enterprises record such expenses as administrative expenses and deduct them from taxable income for corporate income tax purposes, despite being unable to provide sufficient documentation to substantiate that the underlying services were actually performed. For example, Tax Administrative Penalty Decision No. Tong Shui Ji Fa [2026] No. 96 (通税稽罚〔2026〕96号) indicates that an enterprise recorded administrative expenses under various categories, including expert clinical guidance fees, intraoperative support fees, disinfection fees, personnel training fees, marketing and promotion fees, academic exchange fees, departmental meeting fees, and equipment commissioning and testing fees. However, the accounting vouchers were supported only by expense breakdown schedules, with the expenses recorded on the basis of informal payment slips (commonly referred to as baitiao), rather than valid supporting documentation. The tax authorities determined that these expenditures did not satisfy the requirements for pre-tax deduction. They therefore classified the enterprise's overstatement of expenses, which resulted in an underpayment of corporate income tax, as tax evasion and imposed a penalty equivalent to 100% of the underpaid tax. Furthermore, following the adjustment of taxable income, the enterprise no longer qualified as a small low-profit enterprise. Consequently, beginning in July 2025, it was no longer eligible for the 50% reduction under the preferential "six taxes and two fees" policy and was required to pay the corresponding additional taxes.

A similar issue was addressed in Tax Administrative Penalty Decision No. Tong Shui Ji Fa [2026] No. 92 (通税稽罚〔2026〕92号). In this case, the enterprise recorded approximately RMB 6 million and RMB 32 million in administrative expenses in 2024 and 2025, respectively, using informal payment slips. The tax authorities established that the enterprise had failed to provide documentation substantiating the authenticity of the underlying transactions and had not obtained the corresponding invoices. Accordingly, the tax authorities disallowed the relevant expenses as pre-tax deductions, determined that the resulting underpayment of taxes constituted tax evasion, and imposed a penalty equivalent to 100% of the underpaid taxes.

(III) Fraudulent Issuance of Invoices

1. Acceptance of Invoices Issued by Others That Do Not Correspond to Actual Business Transactions

Some enterprises obtain invoices that do not correspond to their actual business transactions when purchasing medical devices and medical consumables or engaging third-party service providers. Such invoices are subsequently used for accounting purposes, recording costs and expenses, or claiming input VAT credits. For example, Tax Administrative Penalty Decision No. Qing Shui Ji Er Fa [2026] No. 75 (青税稽二罚〔2026〕75号) indicates that a medical device enterprise obtained 13 VAT special invoices issued by another party that did not correspond to its actual business transactions, with a total invoice amount of approximately RMB 1 million (inclusive of VAT). The enterprise subsequently verified the invoices and claimed the corresponding input VAT credits, thereby filing false tax returns and resulting in an underpayment of taxes. The tax authorities determined that the enterprise had committed both the acceptance of fraudulently issued invoices and tax evasion. Pursuant to Article 29 of the Administrative Penalty Law of the People's Republic of China, which provides that where the same unlawful act violates multiple legal provisions, the penalty prescribed by the provision providing for the higher fine shall apply, the tax authorities ultimately imposed a fine of RMB 100,000.

Tax Administrative Penalty Decision No. Shi Shui Ji Fa [2026] No. 3 (石税稽罚〔2026〕3号) also involved the acceptance of fraudulently issued invoices within the medical device procurement and sales chain. Between 2019 and 2023, a hospital accepted and recorded 547 altered and overprinted ordinary VAT invoices, with a total amount of approximately RMB 46 million (inclusive of VAT). Upon verification through the invoice verification platform, the tax authorities discovered that the actual seller displayed on the platform differed from the seller identified on the face of the invoices obtained by the hospital. Furthermore, the seller identified on the platform was not the successful bidder or supplier for the hospital's actual procurement projects. On this basis, the tax authorities determined that the relevant invoices had been fraudulently issued and imposed a fine of RMB 450,000 on the hospital.

2. Issuance of Invoices to Others That Do Not Correspond to Actual Business Transactions

Some enterprises issue invoices for other companies' medical device sales transactions that do not correspond to the actual business transactions, in exchange for invoice issuance fees, management fees, or other payments. Other enterprises use entities lacking a genuine business foundation to issue invoices in bulk without conducting any actual procurement or sales transactions. For example, Tax Administrative Penalty Decision No. Tong Shui Ji Fa [2026] No. 44 (通税稽罚〔2026〕44号) indicates that, between 2019 and 2020, a medical device enterprise issued ordinary VAT invoices for other parties' medical device sales transactions and charged management fees calculated as a certain percentage of the invoice amounts. On this basis, the tax authorities determined that the enterprise had issued invoices to others that did not correspond to actual business transactions, and imposed a fine and confiscated its unlawful gains.

Tax Treatment Decision No. Chi Shui Ji Chu [2026] No. 23 (赤税稽处〔2026〕23号) involved another case in which an entity lacking a genuine business foundation was used to issue invoices in bulk. Shortly after its establishment, a medical device enterprise issued 63 electronic ordinary VAT invoices to external parties, with a total amount of approximately RMB 5.9 million (inclusive of VAT). However, the enterprise had neither obtained invoices for purchased goods or services nor filed tax returns. In addition, its registered address was found to be fictitious, and the contact information provided was unreachable. Based on these circumstances, the tax authorities determined that the invoices issued by the enterprise were fraudulently issued and referred the case to the public security authorities for further investigation and handling in accordance with the law.

(IV) Other Tax-Related Violations

In addition to the aforementioned violations, medical device enterprises have also been found to engage in other forms of tax non-compliance, including failure to properly declare and pay stamp duty, failure to fulfill individual income tax withholding and remittance obligations, and violations of regulatory requirements governing the maintenance and retention of accounting books and supporting documents. For example, Tax Administrative Penalty Decision No. Ji Shi Shui Er Ji Fa [2026] No. 9 (吉市税二稽罚〔2026〕9号) involved an enterprise's failure to declare and pay stamp duty on loan contracts. The enterprise made false tax declarations, resulting in an underpayment of stamp duty. The tax authorities determined that such conduct constituted tax evasion and imposed a penalty equivalent to 50% of the underpaid tax. The case also involved the enterprise's failure to withhold and remit individual income tax on employee wages. The tax authorities imposed an additional penalty equivalent to 50% of the tax that should have been withheld but was not.

With respect to individual income tax, Tax Administrative Penalty Decision No. Chang Shi San Shui Ji Fa [2026] No. 24 (长市三税稽罚〔2026〕24号) involved an enterprise that distributed gifts to external individuals in the course of its business promotion activities. These gifts included prepaid cards, beauty service cards, footwear, clothing, and beauty and skincare products. However, the enterprise failed to fulfill its statutory individual income tax withholding obligations. The tax authorities assessed approximately RMB 170,000 in individual income tax that should have been withheld but was not, treating the relevant benefits as incidental income for individual income tax purposes. A penalty equivalent to 50% of the tax that should have been withheld was subsequently imposed on the enterprise. Furthermore, Tax Administrative Penalty Decision No. Yang Shui Ji Yi Fa [2026] No. 89 (扬税稽一罚〔2026〕89号), in addition to addressing the concealment of revenue, also involved irregularities in the enterprise's accounting records, including disorganized accounting books and failure to retain accounting books and related documents in accordance with the applicable requirements. The tax authorities imposed a separate fine of RMB 2,000 for these violations.

III. Tax Compliance Recommendations for Medical Device Enterprises

(I) Standardize Procurement and Sales Activities and Improve Revenue Accounting

Medical device enterprises should standardize the execution of contracts, delivery of goods, settlement of payments, invoice issuance, and revenue recognition based on genuine procurement and sales transactions, ensuring that all sales proceeds are promptly and fully recorded in their accounting books. Where business payments are collected or transferred through personal bank accounts or the accounts of related-party enterprises, enterprises should accurately document the flow of funds and the corresponding underlying transactions. For special business arrangements, such as manufacturer rebates, distributor rebates, the provision of demonstration units, and the disposal of obsolete medical consumables, enterprises should ensure that appropriate accounting treatment and tax reporting are carried out in a timely manner in accordance with the actual nature of each transaction. Where enterprises conduct business through branches, they should also clearly define the respective business functions and revenue attribution of each entity and retain relevant supporting business documentation.

(II) Standardize Invoice Management and Strengthen Expense Verification

Enterprises should strengthen controls over all aspects of invoice management, including invoice issuance, receipt, voiding, and the issuance and processing of red-letter invoices, ensuring that the information stated on invoices corresponds to the underlying actual transactions. For service expenses relating to intraoperative support, expert guidance, personnel training, academic promotion, departmental meetings, and equipment commissioning, enterprises should pay particular attention to verifying the scope of services and whether such services were actually performed. They should retain relevant supporting documentation for inspection, including contracts, service records, work deliverables, and payment vouchers, to substantiate the authenticity of the underlying transactions and ensure that the expenses are genuine, reasonable, and business-related, and satisfy the requirements for pre-tax deduction.

(III) Strengthen Tax Risk Management and Properly Address Tax-Related Issues

Enterprises should conduct regular tax self-assessments and reconcile their accounting books, invoices, fund flows, and tax return data, with particular attention to revenue recognition, the deduction of costs and expenses, input VAT credit claims, and the declaration and payment of taxes such as stamp duty and individual income tax. At the same time, enterprises should standardize their accounting systems and the retention of financial and tax-related documentation, ensuring consistency and cross-verification among underlying business documents, accounting records, and tax return data.

Where enterprises identify historical tax compliance issues, they should promptly verify the relevant business circumstances and address such issues in accordance with applicable laws and regulations. When subject to a tax inspection, enterprises should provide relevant documentation truthfully and actively cooperate with the investigation. For matters involving complex facts, substantial tax amounts, or significant disputes, enterprises should promptly seek assistance from qualified professionals to review the underlying business facts and relevant evidence, communicate with the tax authorities in accordance with the law, and, where necessary, exercise their statutory rights to make representations and submit defenses. Such measures can help enterprises properly resolve tax disputes and safeguard their legitimate rights and interests