Editor's Note: Under the influence of various economic factors both at home and abroad, some enterprises have defaulted on tax payment due to broken capital chain and tax non-compliance in the course of past operations. Many enterprises are struggling to maintain their business in the state of long-term tax arrears, and even the unlawful phenomenon of evading the recovery of tax arrears.2024 The Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Hazardous Tax Collection and Management promulgated by the Supreme People's Court and the Supreme People's Procuratorate on March 18th filled in the performance of criminal acts of China's criminal law on the crime of evading the recovery of tax arrears and activated the crime that has long been dormant, and the enterprises in tax arrears are afraid of facing severe criminal liability risks. are afraid of facing serious criminal liability risks. This paper takes the interpretation of the provisions of the Judicial Interpretation of the crime as an entry point, and analyzes the boundaries between law and lawlessness, crime and non-crime of tax-default enterprises in combination with cases, with a view to providing reference for the enterprises to prevent and cope with criminal risks.

I.The long-dormant crime of evading the collection of unpaid taxes

For taxpayers such as enterprises in arrears, the tax authorities may, in accordance with the provisions of the Tax Administration Law, implement compulsory measures and enforcement against taxpayers to settle taxes, and may impose administrative penalties on enterprises in arrears to penalize them for the illegal status of tax arrears. At the same time, China's criminal law does not provide for "tax delinquency", so enterprises and other taxpayers who have tax delinquency will not necessarily lead to the risk of criminal liability.

However, if the enterprise still has the ability to pay tax after defaulting on tax payment, but through various means such as transferring and concealing property, so that the tax authorities are unable to recover the tax, it will constitute the illegal behavior of "evading the recovery of tax arrears", and if the circumstances are serious, it will constitute the "crime of evading the recovery of tax arrears" as stipulated in Article 203 of the Criminal Law of China. The seriousness of the case will constitute the "crime of evading the recovery of tax arrears" as stipulated in Article 203 of the Criminal Law of China, and will be subject to criminal liability.

The amount of 100,000 yuan or more shall be sentenced to fixed-term imprisonment of not less than three years and not more than seven years, and shall also be fined not less than double and not more than five times the amount of unpaid tax".

According to the above provisions of the criminal law, the standard of incrimination for the crime of evading the collection of unpaid taxes is relatively low, only needing to reach an amount of more than 10,000 yuan to be incriminated, and the statutory penalty is high, with a maximum of seven years' fixed-term imprisonment and a fine of five times the amount of unpaid taxes. However, due to the roughness of the above provisions of the Criminal Law and the fact that the Supreme Court has never issued any judicial interpretation on the performance of specific criminal acts of the crime of evading the recovery of tax debts, it is difficult for the tax and public security departments to define clearly whether the taxpayers have the behavior of transferring and concealing property to evade the recovery of tax debts, and there is not much application of this crime and a lack of relevant cases in practice. The author used the judicial case database of the Yuan Dian Think Tank as a search tool, and searched for the crime of jeopardizing the order of tax collection and management, which showed that the number of judicial decisions on cases of first instance was 33,646, while the number of judicial decisions on cases of first instance when searching for the crime of evading the collection of unpaid taxes was only 40. The long dormancy of this crime has led to the fact that tax-defaulting enterprises often find it difficult to perceive the potential risk of criminal liability over the long term.

II. The Judicial interpretation to activate the crime of evading the collection of tax arrears

On March 18, 2024, the Supreme People's Court and the Supreme People's Procuratorate promulgated the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration, Article 6 of which specifies what constitutes the use of means to transfer or conceal property, including:

(i) Giving up due claims;

(ii) Transferring property without compensation;

(iii) Conducting a transaction at an obviously unreasonable price;

(iv) Concealing property;

(v) Failure to fulfill tax obligations and breaking away from the supervision of the tax authorities;

(vi) Transferring or hiding property by other means."

The judicial interpretations of the two high courts have clarified the crime of evading the recovery of tax debts by way of positive enumeration and underlining clauses, clarified the specific criminal behavior of the crime, and activated the application of this crime by means of judicial interpretations, which provide a clear basis for the judicial authorities to investigate and deal with this kind of cases. This means that the enterprises in the state of tax arrears in the process of continuing to maintain the production and operation of all kinds of economic activities and transactions will be subject to the test of the above six types of criminal behavior and potential charges, the potential criminal liability risk faced by them is very serious.

More importantly, the judicial interpretations of the two high courts grant the judicial authorities the power to judge and define whether a certain economic activity of a tax-defaulting enterprise constitutes a transfer of concealed property in the form of the sixth underlining provision mentioned above. Among the eight typical cases of tax-related crimes released by the two high courts at the same time as the latest judicial interpretation, there was a case of tax evasion, in which the enterprise involved was judicially recognized to have evaded the collection of tax debts by "transferring and concealing property by other means".

III.Typical Criminal Cases Involving Taxes--Beijing Catering Company's Case of Evading Recovery of Tax Arrears

Basic facts of the case

Defendants Chen Mou and Gong Mou jointly funded the establishment of Beijing Catering Company Limited (hereinafter referred to as Catering Company) in 2006, with Chen Mou as the legal representative and Gong Mou as the supervisor, and the establishment of the first branch company and the second branch company in 2007 and 2012, respectively, with Chen Mou as the person-in-charge. 2012 to 2013, Catering Company, the first branch company, and the second branch company used a total of 53 fake invoices issued by Wal-Mart and four other companies to enter their accounts, and made enterprise income tax returns to the Beijing Shunyi District National Tax Bureau. From 2012 to 2013, a catering company, the first branch company and the second branch company used the fake invoices issued by Wal-Mart and other 4 companies totaling 53 invoices in their accounts, which were deducted from the taxable income of enterprise income tax for the years 2012 and 2013 and made enterprise income tax declaration to the State Tax Bureau of Shunyi District of Beijing, China.In July 2014, the Inspection Bureau of the State Tax Bureau of Shunyi District carried out a tax audit on a catering company and then made an administrative decision to determine that the company had used the invoices not in conformity with the regulations. The company was found to have used non-compliant invoices to make expenditures, increased its taxable income for the years 2012 and 2013 by a total of more than RMB 3.69 million, and should make up for the enterprise income tax for the years 2012 to 2013 by a total of more than RMB 0.92 million, and pay the late payment fee. Defendants Chen Mou and Gong Mou, knowing that the State Taxation Bureau of Shunyi District had conducted a tax audit on a catering company, made a tax treatment decision and recovered the tax, set up Hong Mou Catering Company on the business address of the first branch company, set up Shi Mou Catering Company on the business address of the second branch company, and opened a new account for the operation of the second company to be used, and canceled the first and the second branches of the first branch company, and at the same time, a catering company also At the same time, a catering company also no longer apply for invoices, the company's account is no longer used after the freeze. Through the above ways, the company evaded the Shunyi District State Taxation Bureau from recovering the tax, and by the time of the case, more than 820,000 yuan of tax could not be recovered. After the case, a catering company paid the outstanding enterprise income tax and late fees totaling more than 1.3 million yuan.

Results

Beijing Shunyi District People's Procuratorate prosecuted a catering company, Chen Mou and Gong Mou for the crime of evading the recovery of tax arrears. The Beijing Shunyi District People's Court held that the defendant's accounting books were chaotic and irregular, and the evidence in the case did not allow it to determine the existence of reasonable expenditures actually incurred in relation to the income received, and that the amount of back taxes should be paid in accordance with the amount determined by the decision on tax treatment. The defendant unit failed to pay the tax due, and transferred or hid the property in such a way that the tax authorities were unable to recover the unpaid tax, the amount of which exceeded 10,000 RMB as stipulated in the Criminal Law, which constituted the crime of evading the recovery of unpaid tax. Beijing Shunyi District People's Court sentenced the defendant, a catering company, to a fine of RMB850,000 for the crime of evading the recovery of tax arrears; the defendants, Chen Mou and Gong Mou, were sentenced to three years' fixed-term imprisonment and three years' probation, and were also sentenced to a fine of RMB850,000 for the same crime. After the judgment of the first instance, the defendant Gong Mou filed an appeal. The Beijing Third Intermediate People's Court ruled to reject the appeal and upheld the original judgment.

Author's opinion

In this case, the enterprise involved owed more than RMB 820,000 in taxes, and the court ultimately sentenced the defendant unit to a fine of RMB 850,000, and the defendants Chen Mou and Gong Mou were each sentenced to a fine of RMB 850,000, for a total of RMB 2.55 million in criminal fines. The enterprise and the person in charge of the case in addition to bear 820,000 yuan of taxes, but also to bear more than three times the fine, can be seen to avoid the recovery of taxes owed to the crime of property punishment is very heavy. At the same time, the two defendants also face three years of imprisonment suspended for three years of execution of criminal penalties, the enterprise involved in the addition to the criminal record, the enterprise's future operations will certainly be a heavy blow.

The judicial authorities in this case will be involved in the enterprise to open a new branch to use a new account to continue to operate the behavior defined as "transfer of hidden property" to avoid the recovery of unpaid taxes criminal behavior, highlighting the power of this crime underpinning provisions. More importantly, this case shows that the enterprises in default of tax payment are not only limited to transferring and concealing the property before the point of default of tax payment, but also include the new inflow of property after the point of default of tax payment. This further confirms that as long as the enterprise exists in the state of tax arrears, any of its subsequent production and operation activities will face the test of the crime of evading the recovery of tax arrears, and the risk of criminal liability can be said to be not grim.

Ⅳ.Which businesses are subject to criminal charges for the offense of evading collection of delinquent taxes

What businesses are subject to criminal charges for the offense of evading the collection of unpaid taxes? In the author's view, it is necessary to find out through the rules of the convergence of the execution and punishment.

Risk Scenario 1: Enterprises being announced by tax authorities as tax delinquent

Enterprises facing the risk of criminal charges for tax evasion must firstly be in a state of tax arrears. To determine whether an enterprise is in tax default status can be confirmed from the tax authorities' tax default announcement enforcement activities.

Article 45(3) of the Tax Collection and Administration Law provides that "the tax authorities shall make regular announcements on the situation of taxpayers' tax arrears."

Article 3 of the Measures for Announcement of Tax Arrears (for Trial Implementation) (Order No. 44 of the State Administration of Taxation) stipulates that "Tax arrears referred to in these Measures refer to taxes that have not been paid by a taxpayer beyond the time limit stipulated in the tax laws and administrative regulations, or by a taxpayer beyond the time limit for payment of taxes determined by the tax authorities in accordance with the provisions of the tax laws and administrative regulations."

Article 4 of the Measures for the Announcement of Tax Arrears (for Trial Implementation) (State Administration of Taxation Decree No. 44) provides that "the announcing authority shall announce the taxpayer's tax arrears on a regular basis at the tax office or on the radio, television, newspapers, periodicals, the Internet and other news media."

The author suggests that, according to the tax administration rules of the tax authority's delinquent tax announcement, enterprises that have had tax disputes with the local tax authority and received tax collection documents should pay close attention to whether they are recognized as tax delinquent in real time and check whether they are subject to delinquent tax announcement through the official website of the local tax authority. Once an enterprise has been notified of tax debts by the local tax authorities, it will be at the threshold of potential criminal charges for the offense of tax evasion.

Risk Scenario 2: Continuing operation or disposing of large assets after defaulting on tax payments

Article 49 of the Tax Collection and Administration Law provides that "taxpayers owing a relatively large amount of tax shall report to the tax authorities before disposing of their real estate or large assets." According to this provision, enterprises that are notified of tax debts tend to face less risk of potential criminal charges if they fall into a state of closure, terminate their business activities, and do not engage in significant asset transactions. However, if a tax-defaulting enterprise maintains its business activities, and in the process of selling a large amount of inventory and other products, it incurs financial transactions and debt settlements, or even major asset disposal transactions, it may fall into a state of non-reporting to the tax authorities, which may induce tax inspections by the tax authorities as well as the illegal characterization of evasion of the recovery of tax debts, and elevate the risk of criminal charges.

Which tax delinquent enterprises need to fulfill the reporting obligation? Article 77 of the Implementation Rules of the Tax Collection and Administration Law stipulates that "the larger amount of tax arrears referred to in Article 49 of the Tax Collection and Administration Law refers to tax arrears of more than 50,000 yuan." That is, any enterprise that owes more than 50,000 yuan in taxes is subject to the reporting obligation. As this amount of tax arrears stipulated in the implementing rules is low, it is conceivable that the vast majority of enterprises owing taxes will face reporting obligations.

Risk Scenario 3: Enterprises are found by tax authorities to have evaded the recovery of unpaid taxes and are penalized

Article 65 of the Tax Collection and Administration Law provides that "If a taxpayer owes the tax due and takes the means of transferring or concealing property to hinder the tax authorities from recovering the tax owed, the tax authorities shall recover the tax owed, late fees and impose a fine of not less than fifty percent and not more than five times the amount of the tax owed; and if the case constitutes a crime, the tax authorities shall be held criminally liable in accordance with the law. "

According to this provision, the formation of tax enterprises, in accordance with the above provisions, the tax authorities in the recovery of tax arrears, found that the enterprise has to transfer or conceal property means to hinder the tax authorities to recover the unpaid taxes, the tax authorities have the right to impose a fine of more than 50% of the unpaid taxes, and constitutes a crime will be transferred to the investigation of criminal responsibility. Therefore, if a tax-defaulting enterprise is found by the tax authorities to have transferred and concealed its property to evade the collection of tax debts, it will be confirmed that the tax-defaulting enterprise has committed the administrative offense of evading the collection of tax debts and will be directly transferred by the tax authorities to pursue the criminal responsibility, and the risk of criminal charges it faces will be increased dramatically.

In summary, the core factors for enterprises to determine their potential risk of criminal charges include whether they have been notified of tax arrears, whether they have failed to fulfill their reporting obligations after being notified of tax arrears, and whether they have been subject to tax inspections or even penalties by the tax authorities on the basis of suspected transfer of hidden property. When an enterprise faces these risks, it should be prudent to prevent and deal with the risk of criminal liability.

Ⅴ.How Enterprises Should Prevent the Risk of Criminal Liability for the Offense of Avoiding Recovery of Unpaid Taxes

Preventing entry into tax arrears

If an enterprise wants to prevent the criminal risk of the offense of evading the recovery of tax arrears, the first thing it should do is to prevent it from entering into the state of tax arrears. In practice, there may be the following four situations for enterprises to fall into the state of tax arrears:

1. After the enterprise has filed a tax declaration, it fails to pay the tax within the tax payment deadline;

2. The enterprise applies for an extension of time to pay the tax, but fails to pay the tax after the expiration of the extension;

3. The tax authorities have made an instrument on the amount of tax to be paid to the enterprise after tax inspection, and the enterprise has not paid the tax within the period stipulated in the instrument and has not applied for an extension of time to pay the tax;

4. The tax authorities have made an instrument to the enterprise on the amount of tax payable upon approval, and the enterprise has not paid the tax within the period specified in the instrument, nor has it applied for an extension of time to pay the tax.

If an enterprise has filed a tax return within the prescribed period in accordance with the law, but it is difficult to pay the tax within the legal deadline for tax payment, it may apply to the tax authorities for an extension of time to pay the tax to extend the deadline for tax settlement and clear the tax within the extension period as far as possible. The relevant provisions are as follows:

Article 31(2) of the Law on Administration of Tax Collection provides that "If a taxpayer is unable to pay the tax by the due date due to special difficulties, the taxpayer may, with the approval of the State Taxation Bureau or the Local Taxation Bureau of a province, autonomous region or municipality directly under the Central Government, extend the payment of the tax, but the maximum period shall not exceed three months."

Article 41 of the Rules for the Implementation of the Tax Collection and Administration Law provides, "A taxpayer who has one of the following circumstances is in a special difficulty as referred to in Article 31 of the Tax Collection and Administration Law: (1) due to force majeure, which results in the taxpayer incurring a large loss and its normal production and business activities being greatly affected; (2) the current period's monetary funds, after deduction of the payable wages of the employees and the social insurance premiums, are is insufficient to pay the tax."

Article 42 of the Implementing Rules of the Tax Collection and Management Law stipulates, "If a taxpayer needs to extend the payment of tax, it shall submit an application before the expiration of the deadline for payment of tax and submit the following materials: a report on the application for extension of the payment of tax, the balance of the current period's monetary funds and the statements of all the bank deposit accounts, a balance sheet, the payable wages of the employees and social insurance premiums, and other expenditure budgets that are requested by the tax authorities. The budget of the expenditures requested by the tax authorities.

If the enterprise faces the situations mentioned in items 3 and 4 above and disagrees with the approved tax payable or the amount of tax to be paid by the tax authority, it should apply for administrative reconsideration or even administrative litigation to seek for legal remedy in a timely manner. Although the current tax administration law does not explicitly provide that the initiation of administrative reconsideration or administrative litigation can suspend the enterprise from entering into tax default status, in practice, for the enterprises initiating the legal remedial procedures, the tax authorities usually uphold the basic principle of respecting the results of review by the higher authorities and judicial authorities and the results of the judicial decisions, and make the determination of the relevant enterprises' tax defaults in a prudent manner.

Actively fulfilling reporting obligations on asset transactions

Tax-defaulted enterprises that need to continue to maintain production and operation activities often tend to neglect their reporting obligations to tax authorities. The author suggests that tax-defaulting enterprises should pay special attention to and fulfill the reporting obligation of asset disposal transactions, and report regularly and comprehensively to the tax authorities on the asset disposal transactions and daily business activities that occur after the enterprise owes tax, so as to avoid the unlawful state of not fulfilling the reporting obligation.

Administrative reconsideration and administrative litigation against penalties for evasion of recovery of tax arrears

If a tax-defaulting enterprise, in the course of its continuous operation or major asset disposal transactions, is subject to tax inspection by the tax authorities or even finds that the transaction activities of the enterprise constitute transferring and concealing property to impose penalties, the enterprise shall actively resort to administrative reconsideration and administrative litigation in response to the decision of the tax authorities on the administrative penalties, fully express its defense of the reasonableness of the transactions, safeguard its own lawful rights and interests, and strive to revoke the unlawful qualification of the enterprise by the tax authorities, and prevent the tax violation from happening. The two high courts' judicial interpretations have also made a lot of efforts to prevent the transfer of the risk of tax violation to the risk of criminal liability.

Conclusion: The judicial interpretations of the two high courts fill the blank of the crime of evading the recovery of tax debts, activate the vitality of the judicial application of the crime, and the normalized working mechanism of the eight departments of the country to fight against tax-related crimes strengthens the linkage of the tax and judicial departments to investigate taxes, and the enterprises with tax debts will face severe criminal liability risks. We suggest that relevant enterprises should pay great attention to, prudently assess and analyze a series of potential risks caused by tax debts, and assist in properly preventing and disposing of the risks of tax violations and criminal liability risks with the help of tax lawyers and other professional forces. In addition to actively and effectively defending themselves, tax-defaulting enterprises that have been charged with a crime should also try to recover as much as possible the loss of national taxes and seek leniency from the judicial authorities through effective tax compliance rectification, etc., so as to avoid irreversible loss of property and reputation to the enterprises.