Editor's Note: On March 18, 2024, the Supreme People's Court and the Supreme People's Procuratorate announced the "Judicial Interpretation on Handling Criminal Cases Endangering Tax Collection and Management and Related Legal Issues." This interpretation made significant adjustments and modifications to the application rules of tax evasion offenses. The interpretations seamlessly integrate with the provisions of the Criminal Law regarding tax evasion, resolving the long-standing mismatch between judicial interpretations and criminal law provisions, and advancing to broaden the scope and targets of combating tax evasion. The interpretation adjusts the sentencing benchmarks for tax evasion offenses, clarifies the rule of pursuing criminal responsibility after administrative actions, raises the threshold for the criminalization of withholding obligors, highlighting a policy of balancing severity and leniency in criminal matters. While providing specific and clear guidelines for judicial practices concerning tax evasion offenses, certain updates in the interpretation, such as the denominator clause for taxable amounts, leave doubts, potentially increasing the criminal liability risks for taxpayers. This article will interpret in detail the provisions of tax evasion offenses in the judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate, analyze the legal application of tax evasion offenses, aiming to provide references for enterprises to prevent and respond to criminal risks related to tax evasion.

I.Seamless Integration of the Supreme People's Court and the Supreme People's Procuratorate Interpretations with the Two Major Offenses of Tax Evasion in the Criminal Law

In studying the latest judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate, one cannot ignore the specific provisions and amendments to the Criminal Law itself. China's Criminal Law Article 201 underwent a major revision in 2009. Before 2009, Article 201 of the Criminal Law constituted the offense of tax evasion. Its first paragraph described the offense as follows: "Taxpayers employ means such as forging, altering, concealing, or unlawfully destroying account books or accounting vouchers, recording more expenses or failing to record, or underreporting income in account books, refusing to declare or submitting false tax declarations after being notified by tax authorities, and failing to pay or underpaying taxes. If the amount of tax evaded accounts for more than ten percent but less than thirty percent of the tax payable and the amount of tax evaded is between ten thousand yuan and one hundred thousand yuan, or if the taxpayer is penalized twice by tax authorities for tax evasion and then commits tax evasion again." This description of the offense aligns closely with the basic provisions of tax evasion in Article 63, Paragraph 1 of the current "Law on Tax Collection and Administration."

After the seventh amendment to the Criminal Law in 2009, Article 201 was amended to tax evasion. The first paragraph of the offense underwent a significant change, now stating: "Taxpayers employ deceptive or concealing means to submit false tax declarations or fail to declare, evading a relatively large amount of taxes amounting to more than ten percent of the tax payable." This description of the offense has been in effect to this day, without further amendments.

A comparison reveals that the Criminal Law aggregated tax evasion crimes from four types of behaviors into two categories: one involving "deceptive or concealing means to submit false tax declarations," and the other involving "failure to declare." However, the Criminal Law does not specifically define what constitutes "deceptive or concealing means to submit false tax declarations" or "failure to declare." Therefore, in judicial practice regarding tax evasion offenses, judicial authorities generally still apply the provisions of "The Supreme People's Court's Explanation on Several Specific Issues Concerning the Application of Laws in Handling Criminal Cases of Tax Evasion and Tax Evasion" (Interpretation [2002] No. 33), to define the specific criminal behaviors of tax evasion. However, the tax evasion offense described in Interpretation [2002] No. 33 is still limited to the provisions of tax evasion before the seventh amendment to the Criminal Law in 2009, leading to a mismatch between judicial interpretations and criminal law provisions since the amendment in 2009.

The latest interpretations of the Supreme People's Court and the Supreme People's Procuratorate regarding tax evasion offenses are stipulated in Articles 1 to 4, with the first article's first two paragraphs clearly interpreting the two major offenses of tax evasion specified in Article 205 of the Criminal Law. The content is as follows:

"Taxpayers engage in false tax declarations, and any of the following circumstances shall be deemed as 'deceptive or concealing means' as stipulated in Article 1 of the Criminal Law, 201, paragraph 1:

(1) Forging, altering, transferring, concealing, or unlawfully destroying account books, accounting vouchers, or other tax-related materials;

(2) Concealing or splitting income or property in the name of others through the signing of "yin-yang contracts" or other forms;

(3) Falsely listing expenditures, falsely offsetting input tax amounts, or falsely reporting special additional deductions;

(4) Providing false materials to obtain tax preferences;

(5) Fabricating false tax calculation bases;

(6) Other deceptive or concealing means adopted for non-payment or underpayment of taxes.

Any of the following circumstances shall be deemed as 'failure to declare' as stipulated in Article 1, Paragraph 1 of the Criminal Law, 201:

(1) Taxpayers who have registered with the registration authority according to law fail to declare taxes when taxable activities occur;

(2) Taxpayers who do not need to register with the registration authority according to law or who have not registered with the registration authority according to law fail to declare taxes after being notified by the tax authorities to declare taxes;

(III) Other individuals who knowingly fail to declare taxes that should be declared according to law."

It can be seen that the interpretations of the Supreme People's Court and the Supreme People's Procuratorate are rooted in the provisions of Article 205 of the Criminal Law, closely following the wording of the Criminal Law provisions for the offenses of tax evasion. This achieves seamless integration between judicial interpretations and Criminal Law provisions, providing clear judicial guidelines for the application of Criminal Law provisions on tax evasion by judicial authorities, which will inevitably enhance the effectiveness of judicial practices concerning tax evasion offenses.

II.Doubts about the Expanded Scope of the Crime of "Failure to Declare"

The author noticed that in the process of studying the provisions of the tax evasion offense in the interpretations of the Supreme People's Court and the Supreme People's Procuratorate, some viewpoints believe that there are certain problems with the provision of the offense of "failure to declare" in Article 1, Paragraph 2 of the interpretation. Specifically, equating the failure of taxpayers who have been registered with the tax authority to declare taxes directly with tax evasion, deviates from the offense of tax evasion defined in Article 63, Paragraph 1 of the "Law on Tax Collection and Administration," which requires the taxpayer to refuse to declare taxes after being notified by the tax authority. It is argued that tax evasion is a statutory offense, and its scope must be smaller than that of administrative violations. This provision in the interpretation seems to expand the scope of the crime of failure to declare beyond the scope of administrative violations for failure to declare.

The interpretation by the Supreme People's Court and the Supreme People's Procuratorate regarding whether there is an expansion of the circle of tax evasion through failure to declare needs to be judged from the perspective of judicial application. Article 64, Paragraph 2 of the Tax Collection and Administration Law stipulates, "Taxpayers who fail to declare taxes, fail to pay, or underpay taxes shall be pursued by the tax authorities for the unpaid or underpaid taxes and late fees, and shall be fined at a rate of not less than 50% and not more than five times the unpaid or underpaid taxes." Article 62 of the Tax Collection and Administration Law stipulates, "Taxpayers who fail to declare taxes and submit tax-related information within the prescribed time limit, or withholding agents who fail to submit withholding tax reports and relevant information to the tax authorities within the prescribed time limit, shall be ordered by the tax authorities to make corrections within a time limit, and may be fined up to 2,000 yuan; for serious cases, a fine of more than 2,000 yuan and less than 10,000 yuan may be imposed." According to these provisions, if a taxpayer fails to declare taxes, the tax authorities should determine that the taxpayer has committed the illegal act of "failure to declare," and may order the taxpayer to make corrections within a time limit, and directly recover taxes and impose fines. Taxpayers should not bear criminal responsibility for tax evasion; only if the tax authorities order the taxpayer to make corrections within a time limit and the taxpayer refuses to do so, does the taxpayer's illegal act transform into the act of tax evasion as stipulated in Article 63, Paragraph 1 of the Tax Collection and Administration Law, and the taxpayer will bear criminal responsibility for tax evasion.

The author believes that if we look solely at the various provisions of the Tax Collection and Administration Law itself, the above viewpoint is correct, suggesting that the interpretations by the Supreme People's Court and the Supreme People's Procuratorate do indeed raise suspicion of expanding the circle of tax evasion through failure to declare, and the previous judicial interpretation [2002] No. 33 also faces similar issues. However, there is a circulating reply from the State Administration of Taxation that is difficult to verify, seemingly completely overturning the relevant provisions of the Tax Collection and Administration Law, and apparently confirming that the new judicial interpretations do not expand the circle of criminality. This reply is contained in the "Reply of the State Administration of Taxation Office on the Provisions of the Tax Collection and Administration Law" (State Taxation Office Reply [2007] No. 647), which stipulates that "Article 64, Paragraph 2 of the Tax Collection and Administration Law only applies to taxpayers who have not handled tax registration and fail to declare taxes after the occurrence of tax obligations, resulting in unpaid or underpaid taxes." According to this provision, Article 64, Paragraph 2 of the Tax Collection and Administration Law only applies to taxpayers who have not handled tax registration, and does not apply to taxpayers such as enterprises who handle tax registration normally. Can it be indirectly inferred that the provision in Article 63, Paragraph 1 of the Tax Collection and Administration Law, which stipulates "failure to declare after being notified by the tax authorities," only applies to taxpayers who have not handled tax registration, and no longer applies to enterprises that handle tax registration normally? The author doubts this.

(The State Administration of Taxation website does not contain document No. [2007] No. 647 from the State Taxation Office)

Some opinions believe that according to the provisions of this reply, the following conclusions can be drawn: Article 63, Paragraph 1 of the Tax Collection and Administration Law, which stipulates "failure to declare after being notified by the tax authorities," only applies to taxpayers who have not handled tax registration; there is a loophole in the Tax Collection and Administration Law regarding the failure to declare by enterprises that handle tax registration normally, and no specific liability provisions are set; tax authorities can conduct tax inspections on enterprises that do not declare, and if tax evasion is found, they can be punished according to tax evasion and held criminally responsible; if specific acts of tax evasion cannot be verified but the amount and proportion of tax evasion can be verified, they can be directly referred to judicial authorities for criminal responsibility for failure to declare tax evasion.

In summary, the controversy over whether the circle of criminality has expanded fundamentally stems from issues with judicial application. Before the introduction of the new judicial interpretation, the Tax Collection and Administration Law and the old judicial interpretation could remain consistent, but these two documents could not match with the Criminal Law rules; after the introduction of the new judicial interpretation, the Criminal Law rules and the new judicial interpretation remained consistent, but neither of these could match with the Tax Collection and Administration Law. Ultimately, it is the provisions of the Tax Collection and Administration Law regarding tax evasion that seem outdated and lagging behind. The author believes that the introduction of the judicial interpretations by the Supreme People's Court and the Supreme People's Procuratorate will force progress in the revision of the Tax Collection and Administration Law. When the Tax Collection and Administration Law is revised to change tax evasion to failure to declare, clarifying the specific behaviors constituting administrative violations of failure to declare tax evasion, and achieving complete judicial application, perhaps the debate over whether the circle of criminality has expanded can be resolved.

For taxpayers such as enterprises that have handled tax registration normally, the Supreme People's Court and the Supreme People's Procuratorate have made it clear that failure to declare taxes after engaging in taxable activities constitutes the crime of tax evasion. As long as the amount of tax evasion meets the statutory proportion, they will bear criminal responsibility for tax evasion. Therefore, enterprises should pay attention to the change in criminal responsibility risks for "failure to declare," avoid the mentality of waiting for notification from the tax authorities, fulfill their declaration obligations in accordance with the law, and effectively prevent the criminal responsibility risks of tax evasion.

For individuals and other taxpayers who do not need to register or have not registered for tax, attention should be paid to the newly added "failure to declare" clause in the judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate, which states that "other situations where taxpayers knowingly fail to declare taxes as required by law also constitute failure to declare." Therefore, if individuals engage in taxable activities without declaration, although the tax authorities have not notified them to declare, if there is evidence that the taxpayers knowingly should have declared, it can be directly characterized as failure to declare tax evasion, increasing the criminal responsibility risks they face.

III. Supplementary Presentation of the Offense of "False Tax Declaration," Keeping Pace with the Times in Targeting Offenders

Compared to Judicial Interpretation [2002] No. 33, the first clause of the first article of the judicial interpretations by the Supreme People's Court and the Supreme People's Procuratorate has made seven substantive changes to the offense of tax evasion through false tax declaration, supplementing the types of offenses involving false tax declaration. The author compares the judicial interpretations with the provisions of Judicial Interpretation [2002] No. 33 and interprets them as follows.

(I) The scope of deception and concealment expanded from accounting books and records to all tax-related documents, adding the act of transferring.

According to Judicial Interpretation [2002] No. 33, forgery, alteration, concealment, and unauthorized destruction of accounting books, records, invoices, and other original documents constitute tax evasion crimes. However, besides accounting books, records, and original documents, there are other tax-related documents (such as financial statements) that may affect tax obligations. The Supreme Court and Supreme People's Procuratorate's interpretations expand the objects of forgery, alteration, concealment, and unauthorized destruction to all tax-related documents, filling legal loopholes. Additionally, since accounting books, records, and original documents are mainly prepared by corporate taxpayers, this provision previously only regulated corporate taxpayers and did not apply to individuals. Actions by individuals such as forging, altering, concealing, or destroying tax-related documents resulting in underpayment of taxes were difficult to define as false tax reporting according to the old judicial interpretation. However, after the release of the Supreme Court and Supreme People's Procuratorate's interpretations, such actions by individuals fall under the category of tax evasion. For instance, an individual engaging in stock transactions who unilaterally destroys stock transfer contracts and reports taxes at a lower price, thereby reducing tax payments, constitutes tax evasion.

Moreover, Judicial Interpretation [2002] No. 33 only listed four actions: forgery, alteration, concealment, and unauthorized destruction. However, transferring tax-related documents can also impact tax administration and result in underpaid taxes. For example, if a taxpayer stores tax-related documents in another province or even abroad, leading tax authorities unable to verify tax obligations, resulting in underpaid taxes, such actions can be criminalized after the Supreme Court and Supreme People's Procuratorate's interpretations are implemented.

(II) Supplementing the crime of concealing income and property using shadow contracts.

Judicial Interpretation [2002] No. 33 listed tax evasion behaviors using legal language without directly incorporating common concepts from daily life, leading to some common tax evasion behaviors needing legal translation into crimes. For instance, shadow contracts were previously classified as failure to list or under-report income in accounting books or as false tax reporting. This legal translation required legal interpretation, making it highly specialized and not conducive to the public's legal knowledge, education, and compliance with the law. The Supreme Court and Supreme People's Procuratorate's interpretations innovatively used common concepts, listing shadow contracts, reflecting a shift in legislative technique and the popularization of criminal law. Additionally, the inclusion of shadow contracts as a criminal offense reflects legislative attention to such behaviors, indicating that shadow contracts in transactions such as equity transfers and property transactions will become key targets for prosecution.

(III) Supplementing the crime of income and property division in another person's name.

The division of income and property among multiple parties is common in practical cases, such as in recent celebrity tax evasion cases where multiple parties and contracts were used to divide income, reducing overall tax liabilities. This behavior was previously generally treated as "false tax reporting." However, individuals often defended themselves through civil transaction autonomy, arguing that agreements between multiple parties were not illegal in form and should not be considered as providing false tax reporting materials, which did not fully comply with the definition of false tax reporting in Judicial Interpretation [2002] No. 33. The Supreme Court and Supreme People's Procuratorate's interpretations to some extent loosen the restriction of false tax reporting to "providing false tax reporting materials" in Judicial Interpretation [2002] No. 33. False tax reporting will no longer solely focus on the legal formality of tax reporting materials but will pay more attention to whether tax reporting materials correspond to the substance of transactions.

(IV) Supplementing the crime of falsely deducting input tax.

It has been observed in the practical realm that false deduction of input tax includes two types: one involves falsely receiving value-added tax invoices and falsely increasing input tax deductions, which some argue may compete with the crime of false invoicing; the other involves purchasing goods or services, obtaining value-added tax invoices in accordance with the law, confirming input tax deductions, but failing to transfer the input tax due to the goods or services being used for non-deductible input tax projects as required by law. However, the taxpayer does not transfer the input tax but still claims deductions.

The Supreme Court and Supreme People's Procuratorate's interpretations use the term "falsely deducted," while false invoicing crimes use the term "deception deduction," and the terms "falsely" and "deception" seem to express the same meaning. This ambiguity may lead to confusion and dispute regarding the distinction between "falsely deducted" in tax evasion and "deception deduction" in false invoicing. In the future judicial practice, distinguishing between the tax evasion crime of "falsely deducted input tax" and the false invoicing crime of "deception deduction input tax" may be difficult and may result in confusion and complexity in determining guilt or innocence and the number of crimes committed.

(V) Supplementing the crime of falsely reporting special additional deductions.

After the revision of the Personal Income Tax Law, special additional deductions were included as deduction items for comprehensive income and business income. Cases of individuals evading tax payments by falsely reporting special additional deductions have become increasingly common. The behaviors listed in Judicial Interpretation [2002] No. 33, such as overstating expenses in accounting books, mainly targeted corporate taxpayers inflating costs or deduction items to evade taxes on corporate income tax, land value-added tax, and other taxes, which were not applicable to individuals. With stricter personal income tax management, the supervision of reporting special additional deductions has increased, and criminalizing such behaviors aligns with the development of the times. Taxpayers receiving comprehensive income and business income should carefully declare special additional deductions to avoid triggering criminal risks.

(VI) Supplementing the crime of fabricating false tax bases and obtaining tax benefits through deception.

According to Judicial Interpretation [2002] No. 33, "false tax reporting" refers to taxpayers or withholding agents submitting false tax returns, financial statements, withholding, collection, and payment reports, or other tax-related documents to tax authorities, such as providing false applications, fabricating tax reductions, exemptions, offsets, or falsely claiming to pay taxes first and then receive refunds, etc.

Based on this provision, false tax reporting manifests in submitting false tax reporting materials, which can result in two outcomes. Firstly, it directly leads to discrepancies between the declared tax bases and the actual circumstances, thereby achieving non-payment or underpayment of taxes. Secondly, it obtains illegal benefits such as tax exemptions, refunds, etc., through false tax reporting materials, thereby achieving non-payment or underpayment of taxes, or deceiving already paid taxes. In fact, Judicial Interpretation [2002] No. 33 already covers both fabricating false tax bases and obtaining tax benefits through deception. The Supreme Court and Supreme People's Procuratorate's interpretations further enumerate and emphasize these two behaviors.

It is worth noting that the Tax Collection and Administration Law lists fabricating false tax bases in Article 64, paragraph 1, and false tax reporting and tax evasion in Article 63, paragraph 1, considering the different consequences of these behaviors. Fabricating false tax bases is a means of false tax reporting. If fabricating false tax bases does not result in state tax losses, it should be dealt with according to the provisions of Article 64, paragraph 1 of the Tax Collection and Administration Law. If it causes state tax losses, it should be handled according to the provisions of Article 63, paragraph 1 of the Tax Collection and Administration Law regarding false tax reporting and tax evasion. In criminal law, tax evasion only holds accountable for behaviors causing state tax losses. Thus, these two concepts in the Tax Collection and Administration Law are unified in the concept of false tax reporting in the Criminal Law.

(VII) Supplementing the catch-all provision for false tax reporting.

The Supreme Court and Supreme People's Procuratorate's interpretations adjusted the legislative mode of Judicial Interpretation [2002] No. 33 from a purely enumerative approach of tax evasion behaviors to a "positive enumeration + catch-all" approach, adding a catch-all provision for false tax reporting involving "other deceptive and concealment means to avoid or reduce tax payments." Various new tax evasion behaviors that cannot be included in the enumeration may be incorporated into the catch-all provision, making the means of combating tax evasion crimes by judicial authorities more flexible and further increasing the criminal liability risks of taxpayers such as enterprises.

IV. Increase in the threshold for withholding agents to be prosecuted, reducing the risk of tax evasion

The first paragraph of Article 1, Section 3 of the two judicial interpretations clarifies the elements for withholding agents to constitute the crime of tax evasion. It stipulates: "Withholding agents who adopt the methods listed in paragraphs one and two and fail to remit or underreport a significant amount of taxes already withheld or collected shall be convicted and punished according to Article 201, paragraph 1 of the Criminal Law. Withholding agents who promise to pay taxes on behalf of taxpayers should be recognized as having 'already withheld or collected taxes' when they receive income after paying taxes on behalf of taxpayers."

Compared to Judicial Interpretation [2002] No. 33, there has been a change in the establishment criteria for "already withheld or collected taxes." The provision in Judicial Interpretation [2002] No. 33 states: "Withholding agents who make a written commitment to pay taxes on behalf of taxpayers should be recognized as having 'already withheld or collected taxes'." According to the old regulations, as long as both parties in the transaction agree in writing that the withholding agent will pay the taxes, the withholding agent is deemed to have "already withheld or collected taxes," even if the withholding agent did not actually withhold the taxes. This would still expose the withholding agent to the criminal liability risks of tax evasion.

The judicial interpretations have raised the threshold for establishing "already withheld or collected taxes." It not only requires withholding agents to promise to pay taxes on behalf of taxpayers but also requires that the actual payment be made after taxes. As a result, the criminal risk for withholding agents has been reduced. Take, for example, transactions between natural persons involving equity transfers. In the equity transfer contract, both parties agree that all taxes and fees arising from the equity transfer shall be borne by the transferee, but it does not explicitly state whether the agreed-upon equity transfer price is pre-tax or post-tax. If, according to the contract, the transferee pays the entire equity transfer price to the transferor and refuses to bear the transferor's individual income tax as stipulated in the tax-bearing clause, although the transferee has made a commitment to pay the taxes, since no taxes were withheld at the time of payment, it does not meet the condition of "income after tax payment." Therefore, the transferee does not need to bear criminal liability for tax evasion. It should be noted that if the equity transfer price is explicitly agreed to be post-tax in the contract, then the transferee's refusal to pay the taxes on behalf of the transferor will be considered as "already withheld or collected taxes," thereby exposing the transferee to the criminal liability risks of tax evasion. Therefore, from the perspective of the equity transferor, in addition to stipulating the tax-bearing clause in the equity transfer contract, it is also necessary to strive to explicitly stipulate that the equity transfer price is post-tax in order to effectively constrain the transferee.

V. Clarifying the standard for "significant amount" of the penalty and unifying the sentencing standards across provinces

For a long time, there has been no nationwide regulation on the standard of "significant amount" of penalty as stipulated in Article 201 of the Criminal Law. Judicial Interpretation [2002] No. 33 did not specify the standard for "significant amount," and the standards for filing and prosecuting criminal cases formulated multiple times by the Supreme People's Procuratorate and the Ministry of Public Security did not provide any guidance on the standard of "significant amount." In order to address the issue of discretionary standards, some provincial high people's courts have issued judicial interpretations at the provincial level. For example, the High People's Court of Zhejiang Province stipulated that "significant amount" refers to an amount exceeding 250,000 yuan, while the High People's Court of Jiangxi Province stipulated that "significant amount" refers to an amount exceeding 500,000 yuan. However, the standards vary among provinces.

The latest judicial interpretations stipulate in Article 2 that "If a taxpayer evades taxes of over 100,000 yuan or over 500,000 yuan, they shall be respectively recognized as 'significant amount' and 'huge amount' as stipulated in Article 201, paragraph 1 of the Criminal Law. The criteria for determining whether withholding agents fail to remit or underreport a 'significant amount' or 'huge amount' of taxes already withheld or collected shall be based on the preceding paragraph."

This provision for the first time clearly defines the standard of "huge amount" of tax evasion as over 500,000 yuan, unifying the judicial discretion scale nationwide, enhancing the clarity and applicability of the Criminal Law, and facilitating consistency in sentencing for similar cases, marking an important advancement.

VI. Establishment of the criminal case filing rule of administrative preclusion before criminal proceedings

Whether withholding agents can apply is not clearly stipulated

The third article of the two judicial interpretations stipulates:

"Taxpayers who engage in the conduct specified in Article 201, paragraph 1 of the Criminal Law, and who, before a public security organ files a case, are issued a recovery notice by the tax authorities and fully pay the taxes due within the prescribed period or the approved deferred or installment payment period, pay late payment fees, and fully comply with the administrative penalty decisions made by the tax authorities, shall not be held criminally liable. However, those who have been criminally punished for tax evasion or have been given administrative penalties by the tax authorities two or more times within five years shall be excluded.

Taxpayers who engage in tax evasion and have not been issued a recovery notice by the tax authorities shall not be held criminally liable according to law."

The author believes that this provision has both progress and shortcomings. The progress lies in establishing the rule of administrative preclusion before criminal proceedings, while the shortcomings seem to apply only to taxpayers, ignoring the application of withholding agents.

(I) Public security organs cannot initiate criminal investigations for tax evasion before tax penalties are imposed by tax authorities

After the 2009 amendment to the Criminal Law, a new provision was added regarding administrative preclusion for tax evasion, stating that "those who engage in the conduct specified in the first paragraph, and have been issued a recovery notice by the tax authorities and have paid the taxes due, and have been subject to administrative penalties, shall not be held criminally liable." This provision adopts an "exemption-style" expression, meaning that individuals who accept punishment from tax authorities will not be pursued for criminal liability for tax evasion. However, this lacks rigidity in constraining public security organs from filing cases, and it can be easily understood that this provision does not limit the filing of cases by public security organs. Especially since the joint handling of tax cases by public security and tax authorities began in 2018, with public security and tax authorities sharing information on tax violation cases, conditions were created for public security organs to intervene in cases early, leading to some cases of "punishment after transfer." Some judicial precedents believe that the punishment by tax authorities is not a prerequisite for pursuing criminal liability for tax evasion, supporting the legality of "punishment after transfer." In practice, this effectively nullifies the administrative preclusion provision, depriving individuals of the opportunity to apply the administrative preclusion provision.

The second paragraph of Article 3 of the two judicial interpretations directly states that individuals who have not been issued a recovery notice by the tax authorities shall not be held criminally liable according to law. The author believes that the pursuit of criminal liability does not only refer to the issuance of criminal judgments against individuals but should be understood as initiating criminal proceedings against individuals. That is, if the tax authorities have not issued a recovery notice, the public security organs cannot initiate criminal investigation procedures. The judicial interpretations greatly enhance the rigidity of the administrative preclusion provision and clarify the constraints on the filing procedures of public security organs. Even if public security organs receive early tax evasion case clues, they must transfer the clues to the tax authorities for handling, rather than directly initiating criminal investigations. Otherwise, it constitutes a procedural violation.

Coincidentally, on February 27, 2024, the Supreme People's Court announced the official launch of the People's Court Case Database and included a case of tax evasion by a certain environmental engineering limited company and Mr. Li (case number: 2023-06-1-142-001). In this case, the court strictly adhered to the administrative preclusion provision, ruling the individuals innocent because they had not been punished by tax authorities. The basic facts of the case are as follows:

Basic Case Facts

Between 2003 and 2007, Hubei XYZ Environmental Engineering Co., Ltd. obtained a total income of 7,320,445.51 yuan and should have paid taxes of 803,413.14 yuan. The company had paid 357,120.63 yuan in taxes, evading a total of 446,292.51 yuan in taxes. In April 2006, the local tax bureau's inspection bureau began investigating the case based on a real-name report. Later, without notifying the company to pay taxes or imposing administrative penalties, a tax case transfer letter was issued, directly transferring the case to the public security bureau of a certain district for investigation. During the investigation, the company paid 458,069.08 yuan in taxes and paid the full amount of the fine of 450,000 yuan after the first trial retrial and judgment. On February 28, 2009, the "Seventh Amendment to the Criminal Law" came into effect.

On September 19, 2009, the first-instance court rendered a judgment. The first-instance court held that Hubei XYZ Environmental Engineering Co., Ltd. and its legal representative, Mr. Li, both committed the crime of tax evasion. Hubei XYZ Environmental Engineering Co., Ltd. and Mr. Li appealed successively to the Supreme People's Court, which instructed the Hubei Provincial Higher People's Court to retry the case due to an error in legal application.

Retrial Judgment

The Hubei Provincial Higher People's Court, upon retrial, found that the direct pursuit of criminal responsibility against Hubei XYZ Environmental Engineering Co., Ltd. and Mr. Li without administrative procedures did not comply with the relevant provisions of the "Seventh Amendment to the Criminal Law." Hubei XYZ Environmental Engineering Co., Ltd. and Mr. Li should be subject to the provisions of Article 201, paragraph 4 of the Criminal Law as amended by the "Seventh Amendment to the Criminal Law," and their criminal liability should not be pursued. Therefore, the retrial judgment of the Hubei Provincial Higher People's Court revoked the original judgment and declared Hubei XYZ Environmental Engineering Co., Ltd. and Mr. Li innocent.

(II) Clarification of the application conditions of the administrative preclusion procedure, and clarification that deferred or installment tax payments do not lead to criminal liability

There is still controversy in practice over the time limit for tax payments under the tax evasion administrative preclusion procedure. Some judicial authorities believe that only full payment of taxes within the prescribed period as required by the tax authorities' penalty decisions can exempt individuals from criminal liability. This makes it difficult for taxpayers facing financial difficulties to apply this provision.

The first paragraph of Article 3 of the two judicial interpretations specifies that the administrative preclusion procedure applies to cases where taxes are deferred or paid in installments according to law. As long as taxpayers are approved to pay taxes in installments within the deferred or installment payment period and pay the full amount of taxes and late payment fees and accept the penalty, they shall not be held criminally liable. This gives taxpayers who are willing to pay taxes but are unable to raise the necessary funds in a short period of time an opportunity to repent, which is also in line with the legislative intent of Article 201, paragraph 4 of the tax evasion crime, maximizing the institutional effect of the Criminal Law.

(III) The Lingering Issue of Withholding Agents Remains Unresolved Once Again

According to Article 201 of the Criminal Law, the provision for tax evasion by taxpayers is in the first paragraph, while the provision for tax evasion by withholding agents is in the second paragraph. However, Article 201, paragraph 4 of the Criminal Law, which introduces the administrative preclusion clause, begins with "engaging in the conduct specified in the first paragraph," seeming to apply only to tax evasion by taxpayers and not to tax evasion by withholding agents. It can be said that the Criminal Law itself leaves doubts about whether withholding agents can apply the administrative preclusion clause.

During the long process of formulating the latest judicial interpretations by the Supreme People's Court and the Supreme People's Procuratorate, the author had hoped that the new judicial interpretations would simultaneously apply to withholding agents. Unfortunately, Interpretation No. 3 of the Supreme People's Court and the Supreme People's Procuratorate only mentions taxpayers and does not mention withholding agents, resulting in the unresolved historical issue in the Criminal Law. Therefore, there is still significant controversy over whether withholding agents can apply the administrative preclusion procedure, and withholding agents still face the risk of criminal liability for tax evasion without being punished by tax authorities, as well as the risk of being investigated by public security without being punished by tax authorities.

VII. New Denominator Clauses for Taxable Amounts: Are They Disadvantageous to Taxpayers?

Article 201 of the Criminal Law retains the "amount + proportion" criterion for tax evasion, meaning that to constitute the crime of tax evasion, not only must the amount of evaded taxes reach a certain standard, but the percentage of evaded taxes to the taxable amount must also reach the statutory standard. Interpretation No. 4 of the Supreme People's Court and the Supreme People's Procuratorate defines the amounts of evaded taxes and taxable amounts, enhancing practicality and having positive significance. The provisions are as follows:

"The 'amount of evaded taxes' as stipulated in Article 1 of Article 201 of the Criminal Law refers to the total amount of various taxes that should have been paid but were not paid or underpaid by the taxpayer during the specified tax period.

The 'taxable amount' as stipulated in Article 1 of Article 201 of the Criminal Law refers to the amount of taxes that should be paid in the fiscal year according to tax laws and administrative regulations, excluding the value-added tax and tariffs collected by customs and the taxes prepaid by taxpayers according to law."

It is worth noting that the above provisions exclude the value-added tax and tariffs collected by customs as well as the taxes prepaid by taxpayers from the taxable amount. According to a superficial understanding, if the numerator remains unchanged and the denominator decreases, the quotient increases. Therefore, such exclusions would imply an increase in the percentage of evaded taxes to the taxable amount, which could have a detrimental effect on taxpayers. The author believes that the exclusion of taxes prepaid by enterprises, which are equal to the taxable amount, from the taxable amount is unreasonable and illegal because enterprises have a legal obligation to prepay taxes precisely because they are obligated to do so by tax laws and regulations. Therefore, the rationality and legality of excluding the taxes actually prepaid by enterprises from the taxable amount are insufficient.

VIII. Conclusion: How Taxpayers Can Prevent and Respond to Criminal Tax Evasion Risks After the Issuance of the Judicial Interpretations by the Supreme People's Court and the Supreme People's Procuratorate

The judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate provide clear definitions and supplements for behaviors such as "falsification of tax returns" and "non-declaration," effectively connecting with the current provisions of the Criminal Law. This will greatly improve the efficiency of tax authorities and public security organs in handling tax evasion cases, while also implying an expansion of the scope of tax evasion crackdowns. The judicial interpretations focus on behaviors such as sham contracts, tax evasion by individuals, decomposition of income and property, and fraudulent acquisition of tax benefits. The criminal tax evasion risks associated with these behaviors will further increase.

Some provisions in the judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate are more favorable to taxpayers, such as raising the threshold for withholding agents' criminal liability, establishing the rule of administrative preclusion before criminal proceedings, and unifying the standards for conviction and sentencing. Parties facing tax disputes should actively apply the relevant provisions to legally protect their rights and interests. In the face of the new situation of strict crackdowns on tax-related crimes, enterprises should strictly comply with the bottom line of tax compliance, fulfill tax obligations and withholding obligations in a timely manner according to law, and for enterprises enjoying tax benefits, they should ensure that the preferential policies comply with legal provisions. Individuals should eliminate behaviors such as sham contracts and income splitting to evade taxes, fulfill tax obligations in accordance with laws and regulations, and guard against criminal risks.

For taxpayers who have been administratively punished for violating the provisions of Articles 63 and 64 of the Tax Collection and Administration Law, they should actively communicate with tax authorities, pay the corresponding taxes, late fees, and fines in a timely manner, or apply for deferred or installment payment of taxes to the tax authorities, or initiate administrative reconsideration or administrative litigation procedures in a timely manner. They should not ignore the law enforcement actions of tax authorities, thereby avoiding the transformation of administrative responsibility into criminal liability risks.

For cases that have been transferred to public security organs, parties should quickly develop response strategies. In such cases, it is particularly important to hire professional tax lawyers to provide legal support. Tax lawyers can assist parties in conducting in-depth analysis of cases, using the weapons provided by the judicial interpretations of the Supreme People's Court and the Supreme People's Procuratorate, proposing reasonable defense opinions, and through professional legal services, help parties better cope with criminal litigation and maximize the protection of their rights and interests.