Editor's Note: In order to meet the invoice requirements for tax rebates or the purpose of isolating risks, many foreign trade enterprises have adopted the structure of associated domestic and foreign trade enterprises, i.e., the same controller or the subject of the relationship between the control of the domestic and foreign trade companies. However, due to the part of the domestic trade enterprises are not involved in the flow of goods, capital payments and other businesses, in the “shell” status, superimposed on the domestic and foreign trade enterprises associated relationship, the tax authorities are prone to deny the reasonableness of the existence of the domestic trade enterprises, will be the domestic trade company input false openings and tax fraud associated. In the following article, we will start from the rationality of related domestic and foreign trade structure and the risk of tax fraud that can be easily ignored, and discuss how to define the boundary between “false invoicing” and “tax fraud” in the case of real export transactions and remittance collection regulations.

I. Introduction: the domestic company is suspected of false opening, the associated relationship triggered the overall tax fraud challenge

Case 1: Zhang and Li are husband and wife, Li operates a domestic trade company, responsible for the acquisition of fruits; Zhang operates a foreign trade company, mainly engaged in the export of fruits.2023 spring, Zhang's foreign trade company signed a large amount of fruit procurement contracts with foreigners, the order contains a large number of apples, oranges and other fruits, a total of more than 15 million dollars to obtain a tax rebate. This large transaction triggered a tax warning due to the surge in the amount of tax refund applied in a short period of time.

After investigation, the foreign trade links of the contract, foreign exchange are real, and no money back, but the domestic trade links, Li Mou acquisition of fruit uniformly in the name of “scalper” issued invoices for the acquisition of agricultural products, and will be packaging, fruit cleaning and loading and unloading of non-refundable costs and fill in the amount of invoices, inflated invoices, suspected of the crime of fraudulent invoicing. As the actual control of the domestic and foreign trade companies are husband and wife, the tax authorities believe that the purpose of the domestic trade company false invoicing of agricultural products is tax fraud, the case is now overall tax fraud to the judicial authorities.

Case 2: Wang actually controls A Hardware Products Co., Ltd, mainly engaged in metal parts processing and trade, in order to expand the export trade business and isolate the risk of tax rebates, Wang separately set up B Import and Export Co. The two companies share the same industrial park plant, the financial personnel there is a cross-posting situation. 2022 September, company B and a Middle East trading company signed a large amount of fasteners export contract, involving bolts, nuts and other products. company B on the transaction of the cumulative total of 6,240,000 yuan of tax refunds. The tax system shows that the average tax refund amount of the enterprise in previous years was RMB 2 million/year, and the abnormal amount of this tax refund triggered an early warning.

After investigation, Company A purchased 304 stainless steel raw materials amounted to 35% higher than the market price, and the upstream escape lost, the corresponding invoices show anomalies, Company A declared that the consumption of raw materials and the number of finished products there is a 20% difference between the actual production capacity of the workshop can not match the number of invoices. In addition, the bank water shows that company A and the upstream suppliers have frequent financial transactions, the upstream received payment, regular transfer to Wang's personal account. The tax authorities determined that Wang Mou is the same controller of the domestic and foreign trade enterprises, the domestic trade enterprises under his control input invoices were falsely opened, and at the same time applied for export tax rebates, resulting in the loss of national export tax refunds, which constitutes tax fraud as a whole. The case was finally transferred to the judicial authorities on suspicion of export tax fraud.

Question introduction: We observed that in the case of export tax rebate, the associated internal and external trade structure is extremely common, and because of the associated relationship between the internal and external trade enterprises, the tax authorities are prone to deny the reasonableness of the existence of the internal trade enterprises, “penetration” of the internal trade enterprises, the internal trade company input invoicing fraud and tax fraud associated. Why is this structure favored by export enterprises, why is there a need? When the domestic and foreign trade enterprises have a real relationship, if the domestic trade enterprises have input false opening behavior, and can be roughly identified as a tax fraud as a whole? In the following article, we will start from the rationality of the related domestic and foreign trade structure and the risk of tax fraud that can be easily ignored, and discuss how to define the boundary between “false invoicing” and “tax fraud” in the case of real export transactions and remittance compliance.

Ⅱ.Business Model Analysis: Considerations and Hidden Risks of Affiliated Domestic-Foreign Company Structure

(Ⅰ) Under the business involving agricultural products, only domestic trade enterprises can obtain qualified tax rebate invoices.

The invoice policy for agricultural products has its special characteristics. The source invoices of agricultural products are generally agricultural products purchase invoices, but according to the “Notice of the Ministry of Finance and the State Administration of Taxation on the Policies of Value-added Tax and Consumption Tax on Exported Goods and Services” (Cai Shui [2012] No. 39), the eleventh item of the first paragraph of the first item of the first paragraph of the first paragraph of the sixth article of the notice, the foreign trade enterprises can't get tax rebate if they get the agricultural products purchase invoices applying to the exemption of value-added tax policy. Therefore, in order to solve this problem, it is necessary to set up the domestic trade enterprises to legally convert the invoice type. Specifically, the domestic trade enterprise first acquires agricultural products from farmers and issues its own invoice for the acquisition of agricultural products, then the domestic trade enterprise signs a sales contract with the foreign trade enterprise and issues a special VAT invoice, and the foreign trade enterprise declares an export tax rebate by virtue of the special VAT invoice.

(Ⅱ) In general business, the establishment of a domestic trading enterprise is mostly for the purpose of establishing a risk “firewall”.

In non-agricultural business, the establishment of domestic trade enterprises is also of great significance in isolating risks. If there is no domestic trade enterprise link, foreign trade enterprises directly apply for export tax rebate with VAT invoices issued by upstream suppliers, and if the invoice itself has defects or the upstream escapes and loses contact, the tax authorities directly determine that foreign trade enterprises constitute a higher risk of tax fraud. According to the rules established by the Announcement of the State Administration of Taxation on Relevant Issues Concerning VAT Specialized Invoice Issued by Taxpayers Externally (Announcement No. 39 of 2014 of the State Administration of Taxation), the responsibility cutting mechanism can be formed at the legal level by constructing the transaction chain of “supplier→domestic trade enterprise→foreign trade enterprise”. Even if the domestic trade enterprises have the problem of false invoicing of their own input items, as long as the VAT invoices issued to the downstream foreign trade enterprises comply with the three requirements stipulated in Announcement No. 39 - i.e., the transaction is real, the flow of funds is compliant, and the goods are in line with the invoices - the invoices will still have the legal offsetting Effectiveness. Under this structure, the domestic trade enterprise essentially assumes the risk buffer function, so that the input invoices obtained by the foreign trade enterprise are not implicated in the compliance of the upstream supply chain.

(Ⅲ) Risk warning: Unblocked tax fraud risk in the structure of the related relationship

However, the “firewall” mechanism constructed through the establishment of domestic trade enterprises is not an absolute safety barrier. In practice, domestic and foreign trade enterprises are often due to equity control, kinship of the actual controller or personnel/property mixing and the formation of substantive connections, such affiliation is prone to trigger the tax authorities to the authenticity of the transaction and the commercial reasonableness of the question, directly penetrate the form of the transaction to directly negate the legal isolation effect of the “firewall”. For example, if the domestic trade enterprises to the associated foreign trade enterprises sales of goods, its pricing or capacity to match the degree of significant deviation from the market norms, even if the form to meet the requirements of the “three streams of consistency”, may still be recognized as inflated costs, fraudulent tax refunds in disguise. Under such circumstances, the input false opening behavior of domestic trade enterprises will be regarded as an integral arrangement serving the purpose of tax fraud by foreign trade enterprises, leading to the failure of the risk isolation mechanism and ultimately triggering the pursuit of responsibility for the whole chain of tax fraud.

Ⅲ. Crime analysis: false invoicing or tax fraud suspected?

(Ⅰ) The existence of a relationship is not necessarily related to the falsity of the related transaction or the false invoicing.

First of all, it should be clear that the related transactions are not prohibited by law, and what is prohibited by law is the existence of the related relationship, the transaction price deviates from the normal market price, thus eroding the tax base. In other words, the relationship does not constitute a presumption that the transaction lacks commercial substance, the invoice is false, the tax authorities still need to return to the substantive evidence to determine whether the transaction lacks commercial reasonableness, whether the transaction price is in violation of the principle of independent transactions.

In practice, the commercial substance of the judgment needs to be compared to the same period of similar non-affiliated transaction prices or industry profit margins, analyze whether the transaction price significantly deviates from the market level, to confirm the authenticity of the flow of goods, to review the inter-enterprise capital exchanges to form a return path, or the existence of abnormal transfers without a reasonable commercial purpose. If the tax authorities can not provide evidence to prove the lack of commercial substance of the transactions between domestic and foreign trade enterprises, even if there is a real controller of the same or cross-posting of personnel and other related features, still can not directly negate the substance of the transaction, and even more can not be based on the independent false opening behavior of the domestic trade enterprises and foreign trade enterprises with subjective intent of tax fraud forcibly associated.

(Ⅱ) The transaction of domestic and foreign trade companies has commercial substance, and the corresponding invoice is true and flawless.

On the basis of the real occurrence of the transactions of domestic and foreign trade enterprises, even if there is a related relationship, the domestic and foreign trade company is still an independent legal person subject in the civil law, and the assumption of its legal responsibility should strictly follow the principle of commercial appearance, and in the absence of legal reasons, it should not “penetrate” the independent status of the company, and make adjustments to the tax law for the normal purchase and sale behavior. This view of liability-cutting is not a fluent one.

This view of liability cutting is not a consensus at the theoretical level, but a substantive rule with a clear legal basis. For example, Article No. 39 of 2014 stipulates that “taxpayers evading tax by inflating VAT input tax amount, but issuing VAT special invoices externally does not fall into the category of externally issued VAT special invoices if it is also in line with the following circumstances: i. the taxpayer sold goods to the recipient taxpayer, or provided VAT taxable labor services or taxable services; ii. the taxpayer collected goods sold, or taxpayers received goods sold, or taxpayers received VAT services; iii. the taxpayer collected goods sold, and taxpayers collected goods sold, and taxpayers collected goods sold, and taxpayers collected goods sold. The taxpayer has received the payment for the goods sold, taxable labor services provided or taxable services provided, or has obtained the vouchers for claiming the payment for the sales; C. The contents of the special VAT invoice issued by the taxpayer to the taxpayer of the recipient party in accordance with the regulations are in line with the goods sold, the taxable labor services provided or the taxable services provided, and the special VAT invoice is legally obtained by the taxpayer and issued in its own name. ” That is to say, if the transaction between the invoicing party and the recipient has the core elements such as real goods delivery, funds payment compliance, and consistency between the invoice record and the content of the contract, the VAT invoice obtained by the recipient has the effect of deduction according to law. At this time, even if the upstream input of the domestic trade enterprise has the problem of false invoicing, the defect only affects the domestic trade enterprise's own VAT deduction chain. Under this logic, the false opening of the input items of the domestic trade enterprises and the export tax refund of the foreign trade enterprises belong to different legal behaviors, and there is no inevitable causal relationship between the two, and the tax authorities need to evaluate them separately based on the principle of “self-responsibility”, so as to avoid expanding the scope of the recourse due to the correlation relationship.

(Ⅲ) Application for tax refund with real invoices does not constitute crime, and only the domestic trade company is responsible for the false opening According to the provisions of Paragraph 1 of Article 7 of the Interpretation of the Supreme People's Court of the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering the Administration of Tax Levies (Legal Interpretation [2024] No. 4), the declaration of export tax rebate is only made by using the invoices of “false invoicing, illegal purchasing, or obtaining by other unlawful means” to conform to the constituent elements of the crime of cheating export tax rebate under Article 204 of the Criminal Law, the constitutive elements of the crime of cheating export tax rebate. According to the Circular of the Ministry of Finance and the State Administration of Taxation on the Policies of Value-added Tax and Consumption Tax on Exported Goods and Services (Cai Shui [2012] No. 39), the invoices for “declaring export tax refund” refer to the VAT special invoices directly obtained by the foreign trade enterprises, while the purchase invoices of imported agricultural products and VAT special invoices obtained by the domestic trade enterprises are not used for “declaring export tax refund”. The purchase invoices of input agricultural products and VAT special invoices obtained by domestic trade enterprises are not used for “declaring export tax refund”, which cannot directly constitute tax fraud and the legitimacy of VAT special invoices obtained by foreign trade enterprises must be separately evaluated.

As mentioned above, even if the domestic and foreign trade enterprises are related, on the basis that the transactions of the domestic and foreign trade enterprises have commercial substance, the invoices for such transactions belong to the category of “legally obtained” in accordance with the law, and the behavior of the foreign trade enterprises in declaring tax rebates on the basis of real transactions does not have the characteristic of “deceptive means” and does not conform to the law. The behavior of foreign trade enterprises declaring tax refund on the basis of real transaction does not have the characteristic of “deceptive means”, and does not conform to the application conditions of Paragraph 1 of Article 7 of the Legal Interpretation [2024] No.4.

At the same time, the foreign trade link in the export contract is real and effective, the goods actually leave the country and the collection and remittance of the rules, has met the “taxed goods really exported” export tax rebate substantive conditions, the direct loss of national tax from the domestic trade enterprises false input invoices resulting in underpayment of value-added tax, rather than foreign trade enterprises based on the real export of the legitimate tax rebate. If the tax authorities cannot prove that the foreign trade enterprise knows or should know that the domestic trade enterprise has false invoicing behavior, then its subjective lack of tax fraud intention, objectively did not implement the fictitious export, forged documents and other means of deception, should not be punished for tax fraud.

To sum up, in the case that the substance of foreign trade transactions is real, the form of bills is legal and the export is in compliance, the domestic trade enterprises should be independently investigated for the legal responsibility of false opening of the input, the foreign trade enterprises enjoy the right to export tax rebate according to law, and the responsibility of the two should be strictly differentiated, so as to avoid expanding the scope of joint and several criminal liability due to the related relationship.

Ⅳ.The effective strategy of foreign trade enterprises to prevent tax risk

As mentioned above, the core of preventing the risk of false opening of domestic trade enterprises from escalating into tax fraud by foreign trade enterprises lies in the authenticity of the transactions between domestic and foreign trade enterprises. In practice, some foreign trade enterprises for simple operation, directly from the foreign trade enterprises directly to the upstream suppliers to pay the payment, the goods are also directly transported to the terminal or port, the domestic and foreign trade enterprises also do not have any contract of sale and purchase, the domestic trade company did not participate in any flow of goods, capital payments and other links, easy to be considered as no commercial substance and reasonable legal status of the “shell companies “In this case, the domestic trade company is not involved in the flow of goods and the payment of funds. In this case, the acquisition behavior of the domestic trade enterprise may be recognized as false invoicing due to the inauthenticity of the subject of the transaction, and the domestic and foreign trade enterprises will be recognized as false invoicing and tax fraud because of the inconsistency of the three streams. Therefore, the construction of a compliant firewall structure not only requires the completeness of formal elements, but also ensures the reasonableness and necessity of each transaction from the perspective of business substance. At the practical level, the effectiveness of risk isolation can be built from the following aspects:

First, the structure of independent, that is, through the domestic and foreign trade enterprises operating premises, staffing and financial accounting system to be supported by the differences, to avoid falling into the property, personnel highly mixed predicament, to avoid the characterization of related transactions;

Second, the price is reasonable, the domestic trade enterprises purchase and sale price differentials must be consistent with the industry's normal profit level. If the domestic trade enterprises to significantly deviate from the market price of the way to downstream foreign trade enterprises to sell goods, even if the form to meet the elements of Notice 39, may still be recognized as false opening, resulting in the failure of the risk isolation mechanism;

Third, the transaction process is clear and logical, the domestic trade company must participate in the delivery of goods, capital payment process. Specifically, first, at the level of goods delivery, must retain a complete inventory documents, logistics vouchers and quality inspection records to ensure that the authenticity of the transaction can be traced. It is worth noting that the current instructions for delivery, warehouse receipt delivery because it is easy to trigger the tax authorities to question, under the conditions, it is recommended that the domestic trade enterprises to participate in freight transportation, washing, warehousing, to increase the credibility of the transaction; Secondly, at the level of the flow of funds, should be through the domestic and foreign trade companies to complete the settlement of the public account, to avoid the foreign trade company directly with the supplier to produce contacts; Thirdly, at the level of bill management. Third, at the level of invoice management, we must ensure that the invoicing and contractual agreements, the actual delivery of goods completely match, to eliminate the “separation of votes and goods” operation.