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Precedent Analysis: How to determine the amount of tax cheated in the crime of fraudulent export tax drawback?

Dec. 1, 2023, 5:58 p.m.

Foreword: The means to make the declared value of goods higher than their actual value by fraud has long been regarded as a typical behavior of defrauding export tax drawbacks because it obtains more national export tax drawbacks fraudulently. However, if the crime of fraudulent export tax drawback is identified as a consequential offense, it must be accomplished by the realization of result of the constitutive requirement, that is, the perpetrator must actually obtain the benefits of the fraudulent tax drawback. In practice, in some cases, the amount of tax fraud is determined based on the amount of tax refund applied by taxpayers, which is contrary to the purpose of Article 204. The Criminal Judgment [(2017)Qiong Xing Zhong No.60] of Hainan Provincial Higher people’s court adjudicated that the amount of tax fraud must be analyzed in combination with the authenticity of the exported goods and the tax payment situation, and the amount of tax fraud cannot be determined only by the amount of tax refund, which has established a good precedent rule for clarifying the constitutive requirement of the crime of tax fraud. Through the in-depth analysis of this case, this article hopes to provide suggestions for the majority of foreign trade enterprises.

I. The basic facts of the Criminal Judgment [(2017)Qiong Xing Zhong No.60] and the adjudication views

(I) The basic facts ascertained by the court of first instance

The first instance court found two facts in total. The first fact is that the defendant unit and the defendants carried out tax fraud in circular export, in short, the defendants smuggled aquatic products exported abroad into the country through border people's mutual market trade and other channels, and in essence, obtained export tax drawbacks without exporting the goods, and at the same time evaded the taxes and fees for the entry of the goods. After investigation, a total of 1,365,351.35 yuan of export tax drawbacks were fraudulently obtained.

The second fact is that between 2009 and 2014, the defendant unit and the defendants declared the exported goods for export at a value higher than the actual transaction price, increasing each batch of goods by US$5,000 to US$20,000, and falsifying customs declaration contracts, invoices and other documents at false and high prices to declare export tax drawbacks. After investigation, from January 2009 to November 2014, the defendants had a total of 669 export businesses that overstated the actual transaction price of goods and declared export tax drawbacks.

In terms of evidence, the investigating agency extracted the original data from the defendant's computer and found the original foreign trade export contract corresponding to the above-mentioned customs declaration. After comparing the amount of the original foreign trade contract with the contract amount of the tax drawback declaration, and asking the State Taxation Administration Hainan Provincial Tax Service to check, it was determined that the defendant unit had applied for an additional export tax drawback of ¥3.48 million. However, no evidence was provided as to whether the invoices were falsely issued.

The court of first instance held that in the first criminal fact, the smuggling act and the tax fraud constituted an implicated offense, and were punished as the crime of tax fraud (felony). In the second criminal fact, the defendant unit and the defendants defrauded the export tax drawback by overstating the actual transaction price, which constituted the crime of defrauding the export tax drawback.

The defendant unit and the defendants were dissatisfied with the determination of the second fact above and the application of law, and appealed.

(II) The opinion of the court of second instance is that the amount of tax fraud cannot be determined solely on the basis of the amount of tax refund

The court of second instance did not object to the first criminal fact mentioned above, and the dispute mainly focused on the second fact. The court of second instance held that the facts of this section finding that the defendant unit had defrauded the export tax drawback of 3.48 million yuan were unclear and the evidence was insufficient. The main reasons are:

First, 3.48 million yuan is an overdeclared tax refund amount, which cannot be directly identified as a tax fraud amount.

Second, according to the current export tax drawback policy, the actual amount of tax refund cannot exceed the amount of input VAT it has paid. In other words, as a foreign trade enterprise, even if the defendant unit overdeclares the value of exports, it can only obtain the input VAT paid by it at most, and the overstated part cannot cause the possibility of excessive tax refund by the state, which is an "unrealized offense".

Third, due to the impact of policies such as the retention of input value-added tax, the overstatement of 3.84 million yuan calculated by the national tax department cannot fully reflect the tax payment and business development of the enterprise, and the evidence cannot calculate the specific data of tax fraud in detail.

Fourth, at that time, the regulations allowed export enterprises to have a difference of plus or minus $5,000 when collecting foreign exchange. Some of the overreporting was within the allowed reasonable range, and the defendants did not have the intention of tax fraud.

(III) The core disputes and scope of application of this precedent

According to the case analysis of the Criminal Judgment [(2017) Qiong Xing Zhong No. 60], the core point of this case is that the amount of tax fraud should not be determined simply based on the amount of tax refund declared by the foreign trade enterprise, but should be comprehensively evaluated and considered the input VAT paid by the foreign trade enterprise, and whether the tax refund obtained was obtained by fraud and whether it caused the objective result of the state's excessive tax refund. The peculiarity of this case lies in the fact that this case did not ascertain whether the special VAT invoices obtained by the defendant were falsely issued, in other words, the prosecution also admitted that the goods exported by the defendant had truthfully paid VAT in China, and it only determined that the part of the tax refund overdeclared by the defendant was tax fraud. However, if the goods purchased by the defendant have not been taxed in China, or if the input invoice is defective, it may not be possible to obtain the result of revising the judgment of the second instance. In other words, in the case that export enterprises have obtained drawbacks, which taxes are "tax fraud" is worth further thinking.

II. Analysis of the precedent's viewpoint: the part of obtaining the truthful payment of tax does not belong to tax fraud

(I) The scope of "fraudulent" national export tax drawbacks

Article 204 of the Criminal Law does not clearly stipulate the specific composition of the crime of fraudulently obtaining export tax drawbacks, but only stipulates that "fraudulently obtaining export tax drawbacks from the state by false export declarations or other deceptive means" has become a controversy. In practice, there is a view that as long as the export enterprise has false export declarations or other fraudulent means, all the tax drawbacks declared and obtained are state taxes obtained by fraud. However, taking into account the current Criminal Law and judicial interpretations, this view is open to debate.

According to the second paragraph of Article 204 of the Criminal Law, if a taxpayer adopts "false export declaration or other deceptive methods" to defraud the tax paid after paying the tax, he shall be convicted and punished for the crime of tax evasion;

Article 2, Paragraph 3 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Fraudulent Export Tax Drawbacks (Fa Shi [2002] No. 30) stipulates that "although goods are exported, the export goods are fabricated to obtain the export tax drawback that has not actually paid taxes" is a crime of defrauding the export tax drawback by fraudulently obtaining export tax drawbacks.

Based on the above two provisions, it is not difficult to draw the following conclusions: if a taxpayer has actual export of goods, and the export goods have been taxed in the domestic procurement process, the export tax drawback obtained by the taxpayer from the actual tax payment is not a fraudulent export tax drawback.

(II) The goods purchased have been taxed, and it is impossible to defraud the tax drawback by overstating the export price

At present, the foreign trade enterprise has obtained a legal special VAT invoice for the goods in the procurement process, or if the public prosecution authority has no evidence to prove that the invoice is false, it should consider that the taxpayer has borne the amount of tax stated on the invoice, and the batch of goods is sufficient to be regarded as paying tax within the territory. At this time, it is impossible for taxpayers to achieve the purpose of fraudulently obtaining export tax drawbacks by tampering with the amount of foreign trade contracts and falsely increasing foreign exchange receipts.

According to the Notice of the Ministry of Finance  and the State Administration of Taxation on the Value-Added Tax and Consumption Tax Policies for Exported Goods and Services (CS [2012] No. 39), Article 4 of the "Tax Basis for VAT Refund (Exemption)" clearly stipulates that when a foreign trade enterprise exports goods after purchasing goods within the country, the tax basis for its tax refund (exemption) is "the amount indicated in the special VAT invoice for the purchase of import and export goods or the dutiable value indicated in the special payment certificate for import VAT by the customs." In other words, the basis for calculating export tax refund (exemption) is not the transaction price recorded in the foreign trade contract, nor the amount of foreign exchange obtained by the foreign trade company, but the price of the purchased goods. Among them, if the purchase voucher is a special VAT invoice, it is the price (amount) excluding tax.

Under normal circumstances, the export tax drawback rate of China's goods is equal to or less than the VAT rate of the goods. Therefore, the amount of export tax drawback obtained by a foreign trade company will inevitably be equal to or less than the value-added tax on the goods it has already paid, which belongs to the "actual tax payment part". Therefore, no matter how a foreign trade enterprise falsifies a foreign trade contract, falsely inflats its foreign exchange income, or subjectively intends to defraud the state of taxes, its objective behavior cannot achieve its criminal intent, which constitutes a "unrealized offense" under the Criminal Law. The act does not constitute a crime.

(III) The part that is falsely opened after paying VAT truthfully shall be allowed to be deducted according to the truth

Since the basis of China's export tax refund (exemption) is based on the VAT input invoice for the purchase of goods, there are also some actors who falsely issue special VAT invoices in order to obtain more national export tax drawbacks. Specifically, there are two modes:

The first is "there are true and false", and the number is inflated. The actor first obtained the goods from the supplier, and assumed the VAT payment in accordance with the law and obtained a legal VAT special invoice, and then obtained a fictitious VAT input invoice from a third party, and mixed the two to falsely increase the total amount and amount of the exported goods, and applied for export tax drawback accordingly. At this time, the perpetrator truthfully paid part of the tax, and the other part was obtained by fraud.

The second is that the actor first purchased the goods from the supplier "without invoice", and then asked a third party to issue a special VAT invoice for him, some of which were issued truthfully, and some of which were invoices that exceeded the quantity or value of the goods. The actor applied for an export tax drawback on this basis after exporting. In practice, such acts are mostly determined to be false issuance of all input invoices, and all tax refunds obtained are considered to be tax fraud. However, according to the Reply of the Research Office of the Supreme People's Court of the Supreme People's Court on How to Determine the Nature of Carrying out Business Activities in the Name of "Affiliated" to the Relevant Company and Allowing the Relevant Company to Falsely Issue Special VAT Invoices for Itself (Fa Yan [2015] No. 58), it has been proposed that truthful issuance will not cause the loss of VAT and is not a crime of false issuance. On the premise that the truthful issuance does not cause a loss of value-added tax, in such cases, the perpetrator also truthfully bears a part of the tax, and the other part is obtained by fraud.

Accordingly, in accordance with the provisions of Paragraph 2 of Article 204 of Criminal Law and Article 2, Paragraph (3) of (Fa Shi [2002] No. 30), if the taxpayer has indeed exported genuine goods and the goods have paid the tax, only the part of the input VAT obtained by the taxpayer in excess of the amount of input VAT truthfully borne by the taxpayer is fraudulently obtained from the export tax drawback, and the input part of the VAT truthfully borne by the taxpayer shall be deducted.

III. Extended analysis: the taxability of export goods in China should not be overly pursued

(I) Observation: The legitimacy of special VAT invoices has a huge impact

Due to the deduction function of the special VAT invoice, the risk of ticket involvement will be transmitted layer by layer. For example, a foreign trade enterprise company A carries out garment export business, after a friend's introduction, company A purchases clothing from a garment production enterprise company B and obtains a special VAT invoice, due to the distance from the port, company A instructs company B to transport the garment goods to the port and inspect and sign at the port. After the incident, it was found that Company B had no garment production and processing capacity, and the goods it sold to Company A were purchased from the local factory at the port without tickets, and the local factory was allowed to transport them to the port. Later, Company B inflated the purchase invoices for agricultural products to offset the cost and input tax. At this time, the more unfavorable situation for Company A is that because Company B has no production capacity, the tax authorities will characterize Company B as a shell enterprise, and the invoices issued by it will be characterized as falsely issued, and the public security organs will jointly and severally file a case against Company A for investigation for the crime of fraudulently obtaining export tax drawbacks.

If we explore upwards along the VAT deduction chain of the exported garments, it may be concluded that since the invoice for the purchase of agricultural products as the source is false and Company B has not paid the tax, the invoice obtained by Company A is false, and the goods exported by it have not paid the tax in China, depending on the severity of the circumstances, it is characterized as an administrative violation of defrauding export tax drawbacks or even the crime of defrauding export tax drawbacks.

However, it is obvious that this practice mistakenly expands the liability of upstream enterprises, leads to risk transmission, is not conducive to the protection of foreign trade enterprises as the terminal recipient, and does not conform to the principle of proportionality of criminal responsibility and punishment.

(II) Accurately distinguish the responsibilities of both parties to issue and receive special VAT invoices, and avoid the transmission of liability

For foreign trade enterprises, especially at present, there are still a large number of emerging foreign trade enterprises in China's foreign trade industry, which inevitably face some difficulties in business development, resulting in certain compliance problems in the business. For example, in practice, because the port is located in the southeast coastal area of China, foreign trade enterprises in the mainland require suppliers to transport goods directly to the port for cost considerations, rather than transshipment to the location of the enterprise and then to the port. If the supplier flees and loses contact, or is considered to constitute a false opening, the foreign trade enterprise is vulnerable to being implicated.

We believe that the determination of whether a foreign trade enterprise obtains a special VAT invoice or not, should be judged by the standard of the foreign trade enterprise. That is, from the standpoint of a foreign trade enterprise, if it has paid the full tax-included price and obtained the goods, then it believes that it has borne the tax on the invoice. Due to the characteristics of value-added tax, the tax liability is borne by the upstream supplier, but whether the upstream supplier pays the tax truthfully and whether there is the possibility of inflated items is not known and controlled by the foreign trade enterprise. Accordingly, the inflated behavior of upstream suppliers should not be extended to the downstream, but should protect the reasonable interests of downstream invoice recipients, which is also in line with the provisions of the Announcement of the State Administration of Taxation on Issues Concerning the Issuance of Special VAT Invoices by Taxpayers (State Taxation Administration Announcement [2014] No. 39).

(III) Summary: The core of export tax drawback is "export of taxed goods"

The core of the state's implementation of the export tax refund (exemption) policy is to refund the value-added tax and consumption tax borne by the goods in the process of domestic processing and trading, so that commodities can participate in international market competition at tax-free prices, and encourage the development of foreign trade export industries. Therefore, when determining whether it constitutes fraudulent export tax drawbacks, two aspects should be firmly grasped. First, whether there is a genuine export of goods, and second, whether the exported goods are taxed within the country.

Therefore, when determining the composition of the crime of fraudulent export tax drawbacks, it should first be considered under the chapter of "crimes endangering tax collection and management", and the core should be to grasp the issue of whether the perpetrator has defrauded the state of export tax drawbacks and how much export tax drawbacks have been defrauded. If the taxpayer does export genuine goods and the goods are taxed within China, even if there is any false declaration, deception and other acts as stipulated in Articles 1, 2 and 6 of judicial interpretation (Fa Shi [2002] No. 30), it does not constitute fraudulent export tax drawbacks. If a taxpayer fraudulently obtains more export tax drawbacks after truthfully paying VAT, the part of the tax paid truthfully shall be deducted. When a taxpayer's supplier commits a criminal act involving bills, it shall cut the responsibility according to the identity, role and subjective understanding between different entities, and determine that the foreign trade enterprise that has truthfully paid the tax-included price has fulfilled its obligation to "truthfully pay the tax", so as to avoid the improper expansion of the risk of ticket involvement, so as to protect the healthy development of the foreign trade industry.

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