Editor's note: The Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese Modernisation, adopted at the Third Plenary Session of the Twentieth Central Committee of the CPC, stresses the need to improve the system of two-way convergence between administrative and criminal penalties. The system of two-way convergence of administrative and criminal penalties (hereinafter referred to as "convergence of execution and punishment") includes both forward and reverse convergence. The linkage between administrative and criminal penalties is particularly important in the tax-related field. Crimes against tax collection and management are typical administrative offences, which require administrative qualification before discussing criminal offences and misdemeanours. Therefore, it is of great significance to fight for a favourable characterisation in administrative procedures such as tax audit to prevent the risk of criminal liability. In this paper, from the analysis of the connotation of the system of linkage between the execution and punishment, we analyse the significance of administrative risk prevention and control of taxation in the prevention of criminal risk for the reference of the readers.

I. What is meant by the link between execution and punishment?

The convergence of administrative law enforcement and criminal justice, or the convergence of administrative law enforcement and criminal justice, consists of the forward convergence of administrative law enforcement authorities transferring suspected criminal cases to judicial authorities, and the reverse convergence of judicial authorities transferring administrative penalty cases to administrative law enforcement authorities, with the aim of avoiding the phenomena of substituting punishment for punishment, failing to prosecute the guilty, and downgrading the treatment of the guilty. Since the 18th CPC National Congress, the CPC Central Committee, with Comrade Xi Jinping at its core, has attached great importance to improving the mechanism of "convergence of the two laws" and put forward a series of requirements. The Third and Fourth Plenary Sessions of the 18th CPC Central Committee made a clear deployment, and the Opinions of the CPC Central Committee on Strengthening the Legal Supervision of Procuratorial Organs in the New Era further put forward clear requirements for the reverse convergence, stressing that "the procuratorial organs should improve the system of referring criminal suspects who have been decided not to be prosecuted to the competent organs concerned to be subjected to administrative penalties, governmental punishments, or other sanctions according to law". ". This year, the Third Plenary Session of the Twentieth Central Committee emphasised: "Improving the system of two-way convergence between administrative and criminal penalties."

The Criminal Procedure Law amended in 2018 and the Administrative Punishment Law amended in 2021 also made clear the need to strengthen the two-way convergence of administrative law enforcement and criminal justice, and the Supreme People's Procuratorate also formulated a series of normative documents specifically or in conjunction with the relevant departments.2023 In July 2023, the Supreme People's Procuratorate issued the Opinions on Promoting the Two-Way Convergence of the Execution of Penalties and the Supervision of Administrative Violations Building a System for Convergence between Procuratorial Supervision and Administrative Law Enforcement (hereinafter referred to as the "Opinions"), which provided guidelines for the working mechanism for the convergence of execution and punishment in terms of internal division of labour and organisational safeguards, and clearly put forward that the work of forward convergence would be led by the criminal prosecution department for ordinary crimes, while the work of reverse convergence would be led by the administrative prosecution department. In order to ensure the effectiveness of the operation of the system of convergence of execution and punishment, localities have also actively explored the form of convergence of execution and punishment, and according to the Opinions have introduced corresponding implementation measures and established and improved the coordination and linkage mechanism between judicial and administrative organs, such as Linyi, Shandong Province, which has formulated the Measures for the Coordination of the Reverse Convergence of Execution and Punishment and set up a case handling team specifically responsible for the work of convergence of the reverse convergence of execution and punishment and has formulated the Measures for the Strengthening of Necessity Examination and Implementation of the Complex and Simplified The Opinions on Strengthening the Review of Necessity, Implementing Simplification and Complexity, and Carrying Out Typological Handling of Cases Involving the Reverse Convergence of Executions and Sentences (for Trial Implementation) have been formulated to improve the precision of the review, so as to achieve a high level of quality and efficiency in the handling of cases involving the convergence of executions and sentences.

II. How does the system of convergence between the executive and the criminal operate in tax-related cases?

(i) Positive articulation

According to the “Provisions on the Transfer of Suspected Criminal Cases by Administrative Law Enforcement Agencies” (Order No. 310 of the State Council of the People's Republic of China) and other regulations, during the process of investigating and handling violations of the law in accordance with the law, the tax authorities shall find out the amount involved in the facts of the violation, the circumstances of the facts of the violation, and the consequences caused by the facts of the violation. According to the provisions of the Criminal Law on crimes such as crimes of disrupting the socialist market economic order and the Supreme People's Court and the Supreme People's Procuratorate Judicial Interpretation on Crimes of Undermining the Socialist Market Economic Order and Other Crimes as well as the provisions of the Supreme People's Procuratorate and the Ministry of Public Security on the Recourse Standards for Cases of Economic Crimes, etc., the suspected cases shall be transferred to the public security authorities within the period of time in accordance with the stipulated procedures if they are suspected of constituting a criminal offence and are required to be investigated for criminal liability according to the law. In practice, the transfer of tax-related crimes usually exists in two ways: one is the transfer of suspected criminal clues, the tax authorities will be more obvious tax-related illegal clues but not yet reached the criminal filing standards of key cases, through the transfer of criminal clues to the public security organs to intervene in advance; the other is suspected of criminal case transfer, case inspection through the end of the case, the tax authorities found that the target of the investigation of the clues of fraudulent invoices or violations of law is suspected of constitutes a crime, and the referral is made after submitting the decision of referral to the hearing committee of major tax cases for hearing. In particular, for the offence of tax evasion, the Criminal Law and the relevant judicial interpretations clearly stipulate that "if, before the public security organs open a case and after the tax authorities have issued a notice of recovery in accordance with the law, the tax authorities make up the full amount of the tax payable, pay the late fees and fully comply with the decision on the administrative penalties made by the tax authorities within the stipulated period of time or within the period of time for which the deferment or instalment of payment has been approved, the criminal responsibility shall not be pursued ".

(ii) Reverse articulation

After the tax authorities have referred a suspected criminal case to the public security authorities, if the public security authorities consider that there are no criminal facts or that the criminal facts are so minor that criminal liability need not be pursued, and no case is to be filed in accordance with the law, it will be returned to the tax authorities, which will make a decision on how to handle the case. In addition, according to Article 21 of the Interpretation of the Supreme People's Court of the Supreme People's Procuratorate on Several Issues Concerning the Application of Law to the Handling of Criminal Cases of Endangering Tax Collection and Administration (Fa Shi [2024] No. 4), for the implementation of the relevant acts stipulated in the Interpretation that the relevant acts are not prosecuted or exempted from criminal punishment, and that need to be subject to administrative penalties, administrative disciplinary actions, or other sanctions, shall be transferred to the relevant competent authorities in accordance with the law for handling and the relevant The competent organ shall promptly notify the people's procuratorate or the people's court of the results of the processing.

III. Correct understanding of the procedure for the convergence of execution and punishment, and the significance of tax administrative risk prevention and control in the prevention of criminal risks

According to the Provisions on the Referral of Suspected Criminal Cases by Administrative Law Enforcement Organs, the factors to be considered for referral by administrative law enforcement organs include the amount, circumstances and consequences, etc. In tax-related crimes, the relevant laws and regulations only specify the amount of the standard for prosecution, and there are no relevant provisions on the circumstances and consequences to be prosecuted. Taking the case of false invoicing as an example, Law Interpretation [2024] No. 4 stipulates that "if the amount of tax is more than 100,000 yuan, the amount of false VAT invoices, other invoices used to fraudulently obtain export tax refunds and tax deductions shall be convicted and punished in accordance with Article 205 of the Criminal Law", i.e., the amount of the recourse standard has been clarified, but there are no relevant provisions on the circumstances, consequences, etc.. However, there is no relevant provision for the circumstances, consequences, etc. In addition, the current laws and regulations, judicial interpretations, etc. do not directly specify the constitutive elements of false invoicing, such as whether to consider the subjective state, the loss of tax, etc., so that some of the false invoicing cases are transferred with or without some controversy. In this case, enterprises and individuals should communicate with the tax authorities in a timely manner, from the facts of the case, the application of the law and other levels to fight for the facts do not constitute false invoicing or found to be a violation of the law is slight, for example, for the recipient party, can be combined with the facts of the case and strive to deal with the acquisition of bona fide within the framework of the law to reduce the possibility of the administrative risk of being transformed into a criminal risk through the favourable characterisation of the administrative level.

If the perpetrator is unable to block the criminal risk from the forward linkage level, then the improvement and implementation of the reverse linkage is crucial to the final qualitative treatment of the perpetrator. For tax-related cases, the reverse articulation is conducive to preventing the phenomenon of "punishment is not equivalent", when administrative penalties have been sufficient to punish the effect of illegal acts, the judicial organs of the perpetrator is no longer criminal law conviction and sentencing is the embodiment of the modesty of the criminal law, but also for the protection of the perpetrators of the legitimate rights and interests of the perpetrators, and it is also an effective way to realise the combination of punishment and education. It is also an effective way to realise the combination of punishment and education.

If the public security organs and procuratorial organs consider that the behaviour of the perpetrator does not constitute the offence of false invoicing of VAT but constitutes the offence of tax evasion, what will be the result? As a recent case discussed more: in November 2022, a city tax authorities in the investigation of a trading company found that it may be suspected of the offence of false VAT invoices, so the case was transferred to the public security organs to file a case, because the case has exceeded the period of recourse, the procuratorial organs made a decision not to prosecute, and then the procuratorial organs of the same company and the same facts of the legal representative of the same enterprise and legal representative of the same facts in order to prosecute the offence of tax evasion, the first instance verdict that the company and the legal representative constitute the offence of tax evasion. The first instance judgement ruled that the company and the legal representative constituted the offence of tax evasion. Due to the incomplete information of the case, let's not explore which offence should be constituted by the behaviour of the company and the legal representative. According to Paragraph 4 of Article 201 of the Criminal Law and the judicial interpretation, if the perpetrator has evaded the payment of tax, and the tax authority has not issued a notice of recovery, the criminal liability shall not be investigated according to the law. From the perspective of reverse articulation, if the procuratorate believes that the perpetrator constitutes the offence of tax evasion, it should first return the case to the tax authorities, and the tax authorities will decide whether to issue a notice of recovery. If the tax authorities carry out the recovery, and the perpetrator neither pays the tax, late payment fees and fines, nor files the necessary statements, defences and applications for a hearing, the tax authorities will transfer the case in accordance with the legal procedures, which is consistent with the original intention of the offence of tax evasion and also with the provisions of the offence of tax evasion. This is not only in line with the original intention of the offence provision, but also realises the legal effect of the system of convergence between execution and punishment, and at the same time achieves the social effect of protecting private enterprises and the real economy.

In practice, there are also cases in which the prosecuting authority prosecuted for the offence of false VAT invoices and the court changed the sentence to tax evasion, such as the judgement of Anhui Higher People's Court (2022) No. 204 of Anhui Criminal Final and the judgement of Guangzhou Haizhu District People's Court (2020) No. 1428 of Guangdong 0105 Criminal Initial. The question that arises from this is whether the court can directly change the sentence to tax evasion before the administrative treatment by the tax authorities? We believe that, consistent with the above reverse articulation system, the case should first be returned to the tax authorities, and if the tax authorities issue a recovery notice and make an administrative penalty decision in accordance with the regulations, the party concerned will not be held criminally liable if he or she pays back the tax payable and the late fee, and if he or she has already borne the administrative penalties; otherwise, the tax authorities will transfer the case to the judicial authorities and re-initiate the criminal procedure.

IV. Summary

From the system design level, the legislature, judiciary and law enforcement agencies attach great importance to the system of convergence of execution and punishment, and in July 2023, the Supreme Prosecutor's Office issued the Opinions on Promoting the Two-Way Convergence of Execution and Punishment and Supervision of Administrative Violations and Constructing a System of Convergence between Procuratorial Supervision and Administrative Law Enforcement, and localities have also successively issued more detailed implementation measures and explored locally tailored paths of realisation, which create a good legislative environment and law enforcement environment for the improvement and implementation of the system of convergence of execution and punishment. This has created a favourable legislative and law-enforcement environment for the improvement and implementation of the system of convergence between enforcement and punishment. At the practical level, both forward and reverse convergence can have an impact on the final qualitative treatment of the perpetrator. Therefore, when taxpayers face tax audits, they should actively and timely communicate with the tax authorities, restore the facts of the case based on the evidence and transaction background, and strive for a good qualification from the level of factual determination and legal application, so as to control the risk at the administrative level and prevent and control the transformation of criminal risk.