Editor's Note: This year, the tax policy of the renewable resources industry has undergone significant changes, and on 24 April, the State Administration of Taxation (SAT) introduced the policy of "reverse invoicing", under which recycling enterprises meeting the conditions can obtain invoices from natural person sellers of end-of-life products ("sellers") and then make corresponding VAT deductions and pre-deductions before enterprise income tax (EIT). The State Administration of Taxation (SAT) introduced the "reverse invoicing" policy, under which recycling enterprises meeting the conditions can obtain invoices from natural person sellers of end-of-life products (hereinafter referred to as "sellers"), and then carry out the corresponding VAT deduction and EIT pre-deduction. At present, the policy has been implemented for 5 months, and while the "reverse invoicing" policy has solved the pain point of "the first ticket" in the renewable resources industry, there are some issues that need to be clarified in the process of its practice. In this paper, four representative issues are selected for analysis, aiming to help enterprises in the renewable resources recycling industry apply the "reverse invoicing" policy more accurately and improve tax compliance.

In March 2024, the State Council issued the Action Programme for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-in (Guo Fa [2024] No. 7), which explicitly proposed the promotion of the practice of "reverse invoicing" by resource recycling enterprises to sellers of end-of-life products to natural persons. Based on the policy guidance and the long-standing difficulties in the recycling business, the State Administration of Taxation ("SAT") issued the "Announcement on Matters Relating to Reverse Invoicing by Resource Recycling Enterprises to Sellers of End-of-Life Products to Natural Persons" ("Announcement of the State Administration of Taxation") on 24th April this year (SAT Announcement No. 5 of 2024, hereinafter referred to as the "Announcement No. 5"). (SAT Announcement No. 5 of 2024, hereinafter referred to as "Announcement No. 5"), which makes specific provisions on the subject of applying the policy of "reverse invoicing", invoicing requirements, taxation and supervision requirements, etc. This means that renewable resources recycling enterprises can issue invoices on their own since 29 April 2024, which solves the problem of difficulties in obtaining invoices from natural persons selling scrap products. This solves the problem of renewable resources recycling enterprises having difficulties in obtaining invoices at source. The policy has been implemented for five months, and due to the difference in the implementation calibre or the difference in the understanding of the policy between the tax authorities and the enterprises, in practice, the recycling enterprises have raised a number of practical questions on the application of the "reverse invoicing" policy that need to be answered urgently.

I.  What if the seller sells end-of-life products to several recycling companies and the "reverse invoicing" sales have reached $5 million?

According to Circular No. 5, the seller includes both the natural person who sells his/her own used end-of-life products and the natural person who sells the acquired end-of-life products, and the natural person shall meet the condition that the cumulative sales (excluding VAT) of "reverse invoicing" for a period of not more than 12 consecutive months does not exceed 5 million yuan (here, "reverse invoicing" cumulative sales include sales from multiple resource recycling enterprises to the same natural person). The cumulative sales of "reverse invoicing" includes the sales of "reverse invoicing" from multiple resource recycling enterprises to the same natural person). A common situation in practice is that a seller sells end-of-life products to multiple recycling enterprises, and when its "reverse invoicing" sales approach or reach the 5 million yuan limit, there is a dispute over how the recycling enterprises should recognise their sales and resolve the invoicing issue. For example, the seller first to A recycling enterprise sales of scrap iron and steel excluding tax sales of 4.8 million yuan, A recycling enterprise "reverse invoicing", the same month A and B recycling enterprises and C recycling enterprises have sold excluding tax sales of 1 million, 500,000 yuan of scrap iron and steel, B recycling enterprises and C recycling enterprises are still able to "Reverse invoicing"? In this regard, there are different views: 1. B enterprises can "reverse invoicing", C enterprises no longer "reverse invoicing"; 2. B enterprises only 200,000 yuan of its business "reverse invoicing Enterprise B only "reverse invoices" $200,000 of its business, and Enterprise C no longer "reverse invoices"; 3. Both Enterprise B and Enterprise C can "reverse invoice".

Combined with Announcement No. 5, the second view is more in line with the provision that "the natural person shall meet the condition that the cumulative sales (excluding VAT) of "reverse invoicing" for no more than 12 consecutive months shall not exceed 5 million yuan". At this time, for Enterprise B, before Enterprise B's "reverse invoicing", the natural person's "reverse invoicing" sales were 4.8 million yuan, and did not reach the limit of 5 million yuan, if Enterprise B's 200,000 yuan for the purchase of business in the "reverse invoicing". If Enterprise B "reverse invoices" the 200,000 RMB of the purchase business, it may face the problem of not being able to obtain the remaining part of the invoice and not being able to make VAT deduction and deduction before enterprise income tax.

For enterprise C, if enterprise B has already carried out "reverse invoicing", then the natural person "reverse invoicing" sales have reached the limit of 5 million yuan, it can no longer "reverse invoicing "The seller should be guided to register as a business entity in accordance with the law and issue its own invoices in accordance with the regulations. In practice, Enterprise C may not be able to know whether the monthly sales of the natural person exceeds 100,000 yuan or the sales for 12 months exceeds 5 million yuan. At present, some tax authorities have responded to this issue: after the tax authorities find that the seller's monthly sales of "reverse invoicing" exceeds 100,000 yuan, they will send reminders (the subsequent system implements the "reverse invoicing" system) to all the enterprises that issue invoices to the seller. A reminder will be issued to all resource recycling enterprises (the subsequent system will realise "one-person" collection and automatic reminder), requesting the recycling enterprises to make VAT and surtax declarations on behalf of the sellers according to the amount of their respective "reverse invoicing" in that month, and to pay the tax on behalf of the sellers in accordance with the regulations. The "one-person" collection function mentioned therein enables a natural person to collect and enquire about the information of the purchasing enterprise, sales revenue, declaration information and tax paid by a natural person involving reverse invoicing within a tax year.

II. Can a recycling company "reverse invoice" a seller with a sole proprietorship for the sale of end-of-life products?

For the name of the individual business scope for the sale of waste materials of the natural person seller, in practice, part of the region clear, it is engaged in the sale of end-of-life products should be all in the name of the individual industrial and commercial enterprises to external sales and invoicing, in order to avoid the enterprise to split the income of false invoicing, tax evasion and other situations. However, if the business scope of individual households and the sale of end-of-life products have nothing to do, such as engaged in the sale of tobacco and alcohol, food sales (excluding the sale of waste materials), we believe that the natural person seller of end-of-life product sales business, the recycling enterprise can be "reverse invoicing" to it. On the one hand, whether the seller is selling in the name of an individual, the recycling enterprise "reverse invoicing", or the seller is selling in the name of a self-employed person and invoicing, it is necessary to declare and pay the relevant taxes and fees, and it can realise tax collection and management of the seller. On the other hand, individual households are small and dispersed, which makes the collection and management of taxes difficult, while "reverse invoicing" by recycling enterprises directly to individual sellers is not only more favourable for them to obtain invoices at source, but also improves the efficiency of the collection and management of taxes.

III. How should the seller's cost be calculated for the payment of personal income tax based on business income?

According to the provisions of Circular No. 5, the seller is required to settle the operating income by 31 March of the following year, and the operating income shall be the taxable income of the seller after deducting the costs, expenses and losses from the total income of the seller in each taxable year, and the tax rate ranging from 5 per cent to 35 per cent shall be applied to the excessively progressive tax rate. At this time, how costs, expenses and losses are recognised and what documents are used to prove them has become a common concern for sellers. On 2 August this year, the State Administration of Taxation (SAT) made it clear in the policy column of "reverse invoicing" of resource recycling enterprises on the 12366 tax service platform that sellers with annual sales of not more than 5 million yuan (excluding value-added tax (VAT)) can obtain taxable income from their business operations by applying for a tax certificate from the competent tax authority in the place where the business is operated and managed. For sellers of "reverse invoicing" with annual sales of more than 5 million yuan (excluding VAT), if they are unable to obtain complete and accurate cost and expense information and cannot correctly calculate their annual taxable income when they apply for the remittance of their operating income to the competent tax authorities of the place where they manage their business, the competent tax authorities may, within a certain period of time, adopt the method of levying the approved taxable income rate, with reference to the Circular of the Ministry of Finance, the State Administration of Taxation on the Issuance of "Provisions Concerning the Individual Income Tax for Individuals Who Are Wholly Owned by Individuals and Partnership Investors (Cai Shui [2000] No. 91), the taxable income rate applicable to the "commercial" industry shall be determined at a lower rate (5 per cent).

The above response has taken into account the actual development of the recycling industry and clarified the costing issue of concern to sellers. However, another problem that exists at present is that, assuming that the sales of a natural person for a period of not more than 12 consecutive months are calculated on the basis of the maximum limit of RMB 5 million yuan, if the taxable income is determined in accordance with the approved levy, the amount of individual income tax is calculated to be RMB 39,500 yuan. During the economic downturn and taking into account the different profit levels of sellers in different regions, the tax burden may be relatively heavy for some sellers. In this case, the seller may need to accurately calculate the costs, expenses and losses in order to calculate the tax payable based on the actual taxable income. When the seller is unable to accurately calculate or provide the corresponding documents, it may choose to refuse the "reverse invoicing" of the recycling enterprise, which will affect the actual effect of the "reverse invoicing".

IV. Should end-of-life vehicle recycling and dismantling enterprises "reverse invoicing" to vehicle owners or "reverse invoicing" to "scalpers"?

In practice, it is common for natural person vehicle owners to sell their vehicles to "scalpers", who sell them to recycling enterprises, or to entrust "scalpers" to handle the sale of end-of-life vehicles by paying a handling fee. The recycling enterprise will pay the owner of the vehicle directly or pay the "scalper" first, and then the "scalper" will pay the owner of the vehicle. In the above process, the end-of-life car sales process by the "scalper" operation, the owner himself is not involved, so this situation recycling enterprises should be "reverse invoicing" to whom there is controversy. One view is that the dismantling enterprise should "reverse invoicing" to the owner himself, because the owner as the owner of the end-of-life car, whether formally or substantively is the real sale of end-of-life vehicles of natural persons, from the point of view of ensuring the authenticity of the business as well as end-of-life car regulation, recycling enterprises should be issued to the owner himself. Another view is that the recycling enterprise should "reverse invoicing" to the "scalper", this view is mainly based on the recycling enterprise will be paid to the "scalper" situation, but this processing This view is mainly based on the recycling enterprise will pay the money to the "scalper" situation, but this treatment of the risk is the payee, invoicing and "end-of-life motor vehicle recycling certificate" on the motor vehicle owner is not consistent. And in this case, the "scalper" belongs to the natural person who sells the purchased end-of-life products in Notice No. 5, and also needs to bear a higher personal income tax according to the business income, thus there exists the "scalper" in the name of the company to collect the money of end-of-life vehicles and issue invoices to the recycling enterprise. The actual owner of the vehicle is still the owner and not the company, and there is a risk that this method will be recognised as false invoicing and tax evasion.

V. Conclusion

From the perspective of improving the legislation, it is foreseeable that the relevant departments may introduce more detailed practice regulations on the application of policies that are common to the industry in the future, and at the same time update the invoicing system in accordance with the policy practice and tax collection and management, so as to maximise the assistance to recycling enterprises as well as sellers in applying the "reverse invoicing" policy. For recycling enterprises, the application of the "reverse invoicing" policy will be more detailed. For recycling enterprises, the first step in applying the "reverse invoicing" policy is to ensure the authenticity of the business and establish a sound system for monitoring the transaction process, especially for categories with special qualification requirements such as waste lead storage batteries and dismantling of used cars, so as to accurately identify the risk points of each transaction node, and to improve tax compliance while lowering the economic cost; Moreover, from the practice of "reverse invoicing" in the field of agricultural products and other areas, recycling enterprises should also pay attention to the possible false invoicing problems in the process of "reverse invoicing" to avoid the risk of administrative and criminal tax liabilities. For sellers, if they agree to the application of "reverse invoicing" by recycling enterprises when selling end-of-life products, they should accurately grasp the tax collection and management requirements under "reverse invoicing", and handle the personal income tax remittance and related tax matters in a timely manner within the prescribed period. Avoiding the risk of tax recovery, late payment charges and even fines.