Off-the-books operation is the most common form of tax evasion by gas stations. According to the provisions of the Tax Collection and Administration Law, off-the-books operation meets the constitutive elements of tax evasion, in which the determination of the amount of tax evasion is not only a measure of administrative violation of taxpayers, but also the key to accurately determine whether the tax evasion reaches the standard of criminal filing as well as to determine the range of the statutory penalties, which has a significant impact on the rights and interests of the taxpayers and therefore there are a lot of disputes in the judiciary and the law enforcement practice. In this paper, we are going to analyze the determination of tax evasion amount by combining with real cases in the field of gas stations, and comprehensively reveal the tax-related risks of off-the-books operation and methods to deal with them.

I. Case: Determination of the amount of tax evasion for off-the-books operations of a gas station

(I) Case 1: Determination of tax evasion on the basis of the balance of output tax against inputs

1.Facts of the case

A gas station in the operation period, the defendant Wang instructed the company's financial staff to take set up two sets of internal and external accounts, in the external accounts less income or more inputs and other means of tax evasion. It was found that the supplier of oil purchased by Gas Station A between 1999 and 2002 had already declared and paid the tax on the sales income obtained from the corresponding business on schedule.

2.Court Opinion

Gas Station A adopted off-the-books operation as a means to evade tax, which was in line with the constituent elements of tax evasion. According to Item (2) of Article 1 of the Circular of the State Administration of Taxation on How to Determine the Amount of Tax Evasion and the Penalty for Payment of Back Taxes in the Event of Tax Evasion by General Taxpayers of Value-added Tax (SAT) (GuoShuiFa 〔1998〕 No. 66, hereinafter referred to as the Circular), the perpetrator should ask for the VAT invoices when he purchases the goods, but fails to ask, and does not follow the VAT levy procedures when selling the goods off the books. If the perpetrator fails to pay tax in accordance with the provisions on the collection and management of value-added tax after selling the goods, when calculating the amount of tax evaded, the amount of tax that can be declared as deduction in accordance with the provisions on the collection and management of value-added tax shall be deducted.

(II) Case 2: Determination of tax evasion based on unpaid or underpaid output taxes

1.Facts of the case

Between 2012 and 2015, Petrol Filling Station C entered into the Oil Supply Agreement with Company B, agreeing to supply diesel oil to Company B by way of direct payment from Petrol Filling Station C to Z Petrochemical Company and then selling diesel oil to Company B, as well as by way of separate settlement between Petrol Filling Station C and Company B after payment from Company B directly to Z Petrochemical Company.The aforesaid business of Petrol Filling Station C was not truly documented in its accounts nor was it subjected to The above operations of Petrol Station C were not truly recorded in the accounts and were not declared in the tax return, and there was off-the-books operation, which undercounted the VAT taxable income by RMB 13.45 million and undercounted the VAT output tax by RMB 2.28 million, resulting in underpayment of VAT by RMB 2.28 million. Accordingly, Inspection Bureau F characterized the underpayment of tax by Gas Station C by understating its income in the books of account and imposed a fine of 50% of the tax evasion amount of RMB 2.28 million, which amounted to RMB 1.14 million. Gas Station C refused to accept the fine and filed an administrative reconsideration and an administrative litigation successively.

2.Court Opinion

According to Article 63(1) of the Law on Administration of Tax Collection, Gas Station C's evasion of VAT payment by failing to record part of its taxable income in its accounts or make tax declaration constituted tax evasion. According to the provisions of Article 1 of the Circular of the State Administration of Taxation on Relevant Issues Concerning the Adjustment of the Deduction Period of VAT Deduction Vouchers (Guo Shui Han [2009] No. 617, Note: valid at that time, but now repealed), Petrol Filling Station C, due to its own fault, did not obtain the VAT invoices issued by Petro-Chemical Company Z at the time of delivery of the goods in accordance with the law. The corresponding goods were regarded as not generating input tax for offsetting output tax. At the same time, gas station C did not declare and certify the input tax credit within the legal period, and the tax authorities did not process the input tax credit according to the law, and the amount of tax evasion was recognized according to the undercounted output tax in accordance with the law.

II. How is the amount of tax evasion determined when there is an extracorporeal cycle of non-accounting at both ends?

(I) Dispute over the determination of the amount of tax evasion by double non-recording

In the above case, the gas station adopts the technique of not keeping accounts at both ends to carry out extracorporeal tax evasion. That is, the enterprise purchases raw materials and realizes sales income are not recorded in the accounts, due to the internal and external accounts are independent of each other, from the surface to see the accounts in line with the reality, it is not easy to detect the abnormal tax burden of the enterprise. According to the provisions of Article 63(1) of the Tax Collection and Management Law, there is no doubt about the characterization of this kind of behavior as tax evasion, but there is still a big controversy about whether the amount of tax evasion should be excluded from the amount of tax that can be declared as credit according to the provisions of the VAT levy and management, which reflects the problem of the understanding and application of the administrative laws and regulations and the normative documents.

Those who advocate that the input tax should be deducted believe that the provisions of Article 1(2) of the Circular should be applied, i.e., if the taxpayer's tax evasion means are off-the-books, i.e., the purchasing and selling activities are not recorded in the accounts, and the amount of VAT payable, i.e., the amount of VAT evaded, that is, the amount of tax evaded should be the balance of the output tax of the off-the-books part of the business, after deducting the amount of input tax of the sold goods in the off-the-books part of the business. The input tax on goods sold is calculated on the basis of "input tax on purchases in the off-the-books segment - input tax on inventories in the off-the-books segment".

According to the view that the amount of tax evasion should be recognized directly according to the output tax amount, Articles 8 and 9 of the Provisional Regulations on Value-added Tax (hereinafter referred to as "the Provisional Regulations") should be applied, and one of the prerequisites for the input tax to be allowed to be deducted from the output tax amount is to obtain legitimate VAT deduction vouchers from the seller. The taxpayer has not obtained the VAT invoice in accordance with law due to its tax evasion behavior, and the input tax credit which has not obtained the credit voucher shall not be deducted in accordance with law is also the due and then fruit of its illegal behavior.

(II) Analysis of the applicability of the Provisional Regulations and the Notice

From the result of the determination of the amount of tax evasion, the provisions of the Provisional Regulations and the content of the Circular seem to be contradictory, in fact, the Provisional Regulations and the Circular are provisions for tax-related violations of different natures. The Provisional Regulations stipulate the conditions for input tax credit from both positive and negative perspectives, and no input tax credit shall be deducted from output tax if it has not been obtained or if the offsetting vouchers obtained do not comply with the laws, administrative regulations or the relevant provisions of the competent tax authorities of the State Council. This provision aims to urge taxpayers to ask for and keep the offsetting vouchers when purchasing goods, and the offsetting vouchers should indicate the relevant matters in strict accordance with the relevant provisions and declare the offsetting in time, so as to realize the purpose of regulating the use of offsetting vouchers, such as VAT special invoices. It can be seen that the Provisional Regulations prohibit the deduction of input tax that should be deducted from output tax, which will make taxpayers pay more tax, and it is a method of adjustment for taxpayers violating the regulations on the use of VAT invoices, and it is a punitive provision for taxpayers who intentionally fail to obtain or neglect to keep and use VAT invoices in a non-standardized manner without the premise that the taxpayers constitute tax evasion.

The Circular is a question of how to calculate the specific amount of tax evasion when the existence of off-the-books operation and the non-accounting of both purchases and sales activities by the taxpayer has been characterized as tax evasion. According to Paragraph 1 of Article 63 of the Law on Administration of Tax Collection and Paragraph 1 of Article 3 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Laws in the Trial of Criminal Cases of Tax Evasion and Tax Countermeasures, the amount of tax evasion shall be determined by the total amount of non-payment or underpayment of each type of tax in the determined tax period. Taking into account the characteristics of the collection and payment of value-added tax (VAT), the loss of State tax due to tax evasion shall be calculated on the basis of the taxpayer's actual payment of tax. If the taxpayer pays input tax on the purchase of goods, the amount of tax evaded shall be calculated by subtracting the input tax corresponding to the goods sold and taking the balance as the specific amount of tax evasion.

In fact, VAT is actually collected by the taxpayer upstream of the flow chain from the taxpayer downstream of the flow chain on the value-added portion of the goods in the previous full chain. The downstream enterprises make input deductions in order to frame the actual tax burden as the corresponding tax of the VAT in this link. When a taxpayer engages in real purchasing behavior, whether or not it formally obtains a credit voucher, such as a VAT invoice, it essentially creates a right to a credit. Especially when the taxpayer is subject to administrative penalties and criminal treatment, the determination of the amount of tax evasion and tax loss may derogate from the rights and interests of the taxpayer, which should be treated with caution, and the fact that the taxpayer violated the invoice management regulations without obtaining invoices cannot be used as a basis for denying the existence of the real purchases by the taxpayer and the fact of obtaining the right of deduction. In the case where a criminal judgment has been issued clarifying that the amount of tax evasion should be deducted from the amount of output tax by subtracting the input tax corresponding to the part of the goods that have been sold, this spirit should be carried out in the administration of justice and law enforcement, so as to prevent the expansion of the taxpayer's liability.

In addition, even if the tax authorities' recovery of the unpaid or underpaid VAT in accordance with Article 63 of the Law on Administration of Tax Collection is interpreted as output tax, the VAT demanded by the tax authorities should not be equated with the amount of tax evasion, taking into account the principles of "equalization of penalties" and proportionality. Especially in Case 1, the VAT payable on the purchase of goods by Gas Station A was paid by its upstream Z Petrochemical Company, and Gas Station A has objectively borne the tax burden of this link and Z Petrochemical Company has declared the payment to the local tax authorities. Therefore, the VAT that Gas Station A has subjectively and intentionally evaded and objectively can evade includes only the VAT corresponding to the difference between the total amount of sales and the total amount of purchases of the gas station operated outside the accounts. VAT.

(III) Summary

In calculating the amount of tax evasion of the actor, the calculation method stipulated in Paragraph 2 of Article 1 of the Circular shall be applied, and the input tax amount paid by the actor but not yet deducted shall be deducted from the amount of tax evasion. As a matter of fact, in addition to the aforementioned situation that the upstream company has paid the input tax amount of the actor's purchasing process, the applicability of this provision of the Circular can also be strengthened if the actor is able to obtain the VAT invoice corresponding to the reissuance of the unaccounted portion of the VAT invoice after the fact, such as the Taian Tax Penalty [2022] No. 19, which also punished the enterprise involved in the case of tax evasion in accordance with the provisions of Paragraph 2 of Article 1 of the Circular.

III. Risk Tips and Response Strategies for Off-Book Operations of Gasoline Stations

(I) Another form of off-the-books operation of gas stations

In addition to the aforementioned two ends are not accounted for in the way of extracorporeal circulation, another means of off-the-books operation to hide income is sales revenue is not accounted for, but will be the cost of the product through the book accounting. Compared with the two ends out of the way, this form is more harmful, both reduce the amount of sales tax, but also accumulated a large number of retained inputs, avoiding the payment of the full amount of sales tax, while also avoiding the payment of corporate income tax through the reduction of revenue and increase in the cost of the way. Once this kind of behavior is investigated, the enterprise will inevitably have to bear the consequences of paying back the tax, charging late fees, etc., and is very likely to be recognized as tax evasion and face the risk of 50% to 5 times of the fine as administrative penalty. If the crime of tax evasion is constituted, the enterprise and the person in charge will also face the penalty of fine, fixed-term imprisonment or detention.

Under normal circumstances, gas stations incur taxable sales behavior, regardless of whether invoices are issued, are required by law to declare and pay value-added tax (VAT) and enterprise income tax (EIT), so as to match the book cost with the sales, and not to produce a large number of input tax credits and deduction vouchers surplus. However, due to the fact that some gas stations do not carry out compliance processing of "uninvoiced income", in order to "maximize the benefits" of tax credits, gas stations may, in the absence of real transactions, take the risk of fraudulently issuing VAT special invoices to downstream refineries, transportation enterprises, etc., and assist them in fraudulently offsetting the VAT. Special invoices are issued to downstream refining enterprises, transportation enterprises, etc., without real transactions, to assist them in fraudulently offsetting the VAT, from which they collect invoicing fees to make profits. There are also gas stations that make use of the surplus deduction vouchers to falsely issue ordinary VAT invoices to downstream enterprises to assist them in obtaining pre-tax deduction vouchers, which are used to inflate operating costs. Therefore, inappropriate tax treatment by taxpayers may also involve enterprises in the risk of false invoicing.

(II) Response Strategies for Tax-Related Risks of Gas Stations

At present, gas stations are facing an increasingly severe tax supervision situation because of the existence of tax evasion by means of off-the-books operation, violation of the use of tax-controlled gasoline dispensers and other means, as well as the use of surplus tickets for virtual opening by means of the separation of oil and tickets, and other behaviors. In order to prevent and resolve the related risks, gas stations should, firstly, strengthen the management of enterprise accounts, pay attention to the timeliness of tax processing and tax declaration, and obtain legal and effective deduction vouchers from the upstream enterprises in a timely manner in the current period of business development, so as to prevent tax evasion from being characterized and the amount of tax evasion from being determined in full according to the amount of sales tax and expanding the enterprise's economic loss; and leave a trace of the revenues from the sale of oil products, so as to ensure that the declarations of various incomes are legally compliant. The second is to ensure that the business is real, avoid issuing invoices for other enterprises in the absence of real transaction support, eliminate the situation of buying and selling of surplus tickets, and guard against the lowering of tax credit rating as well as the risk of other administrative and criminal liabilities; the third is that when the taxpayer is already in the middle of the tax audit procedure, it should actively cooperate with the tax authorities in verifying the business, and actively communicate with the tax authorities in the process such as grasping the hearing and other procedures. procedures to actively communicate with the tax authorities and explain that the transactions are real and legally compliant. If necessary, tax professionals can be hired to assist enterprises in risk response and to better carry out administrative reconsideration, administrative litigation and other rights relief procedures.