Editor’s Note：With the full implementation and in-depth operation of Golden Tax Phase IV, China’s tax administration has achieved a fundamental transformation from tax administration by invoices to tax governance by data, marking a new stage of data-driven tax governance, data penetration, and all-dimensional intelligent supervision. Relying on cross-departmental data interconnection and the collection of all tax-related information, combined with precise risk control models built on big data and artificial intelligence, tax authorities have achieved a leapfrog upgrade in their ability to monitor, verify, and issue early warnings for enterprise tax risks. Tax early warning indicators, as quantitative criteria for risk prompts, serve as the core basis for tax authorities to identify tax-related risks and push risk alerts, and also an important reference for taxpayers to conduct self-inspections and proactively prevent potential tax risks. This paper sorts out the common types of tax early warning indicators in practice, analyzes the causes of tax risks, and provides professional references for taxpayers to carry out tax compliance reviews.

I. Technological Upgrades Enhance Early Warning Efficiency; Enterprises’ Compliance Gaps Become the Main Cause of Risks

(I) Upgraded Tax Administration Technologies Support Efficient Operation of Tax Early Warnings

The sharp improvement in the sensitivity and accuracy of current tax early warnings is fundamentally supported by disruptive advances in tax administration technologies. Compared with the traditional manual tax administration model, it has three core supporting conditions:

1. Full implementation of invoice electronization. Fully electronic invoices realize full-element, full-cycle, and real-time uploading, breaking the information silos and data lag of paper invoices. Every invoicing and deduction behavior of enterprises is recorded in real time, with no omissions or delays in manual verification.
2. Unblocked cross-departmental data sharing channels. Tax authorities have achieved data interconnection with market supervision, medical insurance, housing and urban-rural development, water and electricity, customs, banks, and other departments, fully collecting information on enterprises’ capital flow, goods flow, business flow, energy consumption flow, etc., forming a comprehensive data supervision network.
3. Intelligent algorithms replacing manual screening. Traditional manual verification can only conduct sampling inspections and rely on empirical judgments, while big data risk control models can perform all-weather real-time calculation, cross-comparison, and dynamic early warning. They are more sensitive in identifying data anomalies and more responsive in taking action, and even minor tax-related violations can quickly trigger early warnings.

(II) Internal Reasons for Enterprises Frequent Triggering of Tax Early Warnings

The frequent occurrence of tax risk prompts for enterprises is not merely due to stricter tax supervision, but more importantly, enterprises’ inadequate adaptation to supervision and cognitive biases. The core issues are concentrated in four aspects:

1. Disconnection between business model iteration and tax administration rules. The rapid development of new business forms and models such as platform economy, flexible employment, pharmaceutical CSO enterprises, and reverse invoicing in renewable resources has broken the traditional tax administration framework in terms of transaction scenarios, profit models, and invoice chains of enterprises, leading to mismatches between business substance, regulatory requirements, tax declaration data, and invoice data, thus triggering indicator anomalies.
2. Asynchrony between tax policy updates and enterprise implementation. Tax preferential policies, pre-tax deduction standards, invoice issuing rules, industry-specific tax administration requirements, etc., are constantly updated and adjusted. Enterprise personnel fail to learn and adapt in a timely manner, resulting in problems such as illegal pre-tax deductions, misapplication of tax rates, and untruthful tax declarations, which directly touch the red lines of tax early warnings.
3. Biases in long-term and short-term compliance cognition. Some enterprises pursue the minimization of tax burden in the short term, ignoring the logical consistency of long-term data. They focus on current declaration rather than cross-period data matching, and on single-tax payment rather than all-dimensional data matching, and artificially adjust income, costs, expenses, etc., triggering indicator anomalies.
4. Misunderstandings in enterprises’ own compliance understanding. Some enterprises equate tax early warnings with "accidental anomalies", ignoring the business and tax logic behind the indicators. They only focus on the compliance of accounting treatment while neglecting business authenticity, and lack sufficient cognition of general indicator matching and industry-specific indicator requirements, thus leading to frequent risk prompts.

II. Content of Tax Early Warning Indicators: The "Risk Red Lines" Enterprises Must Know

(I) Core Tax Early Warning Indicators and Main Risk Orientations

1. General Early Warning Indicators General early warning indicators monitor the overall operation and tax matching of enterprises in an all-round way from six dimensions: income, cost, expense, profit, assets, and data matching.

• Income indicators focus on the change in main business income; abnormal data usually indicates understated income or overstated costs.
• Cost indicators focus on the consumption of raw materials and changes in main business costs, which can identify off-book sales, illegal cost adjustment, and expansion of pre-tax deduction scope.
• Expense indicators mainly monitor main business expenses, period expenses, cost-expense ratio, and cost-expense profit ratio, verify itemized deductions such as wages, employee benefits, and business entertainment expenses, and prevent overstated expenses, illegal pre-tax deductions, and failure to make tax adjustments as required.
• Profit indicators identify overstated cost carry-over and unrecorded or understated income through profit changes, and monitor the compliance of loss offset and non-operating income and expenses.
• Asset indicators identify risks such as concealed income, overstated costs, and illegal depreciation provision around asset turnover, receivables and payables , depreciation provision, and asset-liability ratio.
• Proportional analysis indicators identify hidden income and overstated costs and expenses behind data deviations through multi-dimensional data cross-verification.

1. Tax-Specific Early Warning Indicators Tax-specific indicators are set according to the tax administration characteristics of each tax type and can accurately identify single-tax tax-related risks.

• Value-Added Tax (VAT): Focus on monitoring tax burden rate, input deduction, input-output ratio, and input-output matching. Abnormalities may involve falsely offsetting input tax, understating output tax, misapplying tax rates, etc.
• Enterprise Income Tax: Focus on tax burden rate, change in taxable income, income tax contribution rate, etc. Low indicators mostly indicate risks such as understated income, overstated costs, and profit adjustment. Foreign-invested enterprises and foreign enterprises also need to monitor capital and related-party transactions to prevent illegal deductions, improper enjoyment of preferences, and profit transfer.
• Stamp Duty and Resource Tax: Check untruthful declaration and misapplication of tax rates through tax burden changes and synchronous growth coefficients.
• Real Estate Tax: Focus on verifying the matching of tax source information and declaration authenticity to prevent failure to declare and pay tax as required.

(II) Risk Characteristics and Typical Manifestations of Tax Early Warnings in Key Industries

1. Pharmaceutical Industry The pharmaceutical industry often triggers the following tax risks due to its long industrial chain and complex expense structure:

• Concentrated individual businesses and maximum-limit invoicing. A large number of individual businesses with highly consistent registration information, no actual business premises or business records, issue consulting, promotion, and conference fee invoices to the same pharmaceutical enterprise in batches, with almost all households issuing at the maximum limit and close to the tax exemption threshold, which is a typical form of overstated expenses and false invoicing in the pharmaceutical industry.
• Serious deviation between input and output item names. Pharmaceutical circulation enterprises without production qualifications have abnormal jumps from input of chemical raw materials and traditional Chinese medicinal materials to output of finished medicines and medical devices, which completely violates normal production and operation logic and is essentially a fictitious purchase and sales chain for falsely offsetting input VAT.
• Abnormally high proportion of promotion, consulting, and conference fees. The proportion of market promotion fees, consulting fees, conference fees, etc., in sales revenue far exceeds the reasonable industry level, without supporting materials such as real promotion plans, conference minutes, and travel vouchers, which are actually used to embezzle funds for rebates and kickbacks.
• Illegal issuance of agricultural product purchase invoices. Enterprises issue agricultural product purchase invoices beyond the scope and amount, without real farmer identity information, transportation documents, and warehousing acceptance records, and falsely offset input VAT through falsely issued purchase invoices.

1. Petrochemical Industry Tax-related risks in the petrochemical industry focus on invoice and income control, with core early warning scenarios as follows:

• Mismatch between fuel dispenser data and declared income. Tax authorities conduct penetrating verification through background data of tax-controlled fuel dispensers, and the total sales of fuel dispensers are far greater than the income declared by enterprises, mostly due to private account receipts and unrecorded uninvoiced income of gas stations, which is a direct early warning signal of concealed income.
• Altered-name sales of refined oil products. Enterprises evade consumption tax on refined oil products by changing product names, a typical illegal early warning in the industry.
• Abnormally low proportion of uninvoiced income. The proportion of uninvoiced income for gas stations facing individual consumers should be relatively high. If an enterprise declares zero or extremely low uninvoiced income, it obviously violates industry operation rules and has the risk of concealing income.
• Inverted purchase and sales volume of refined oil products. There is a logical contradiction between the data of opening inventory, current purchase, closing inventory, and current sales volume of the enterprise, without reasonable loss and inventory basis, mostly accompanied by the act of falsely issuing refined oil invoices without goods.

1. Coal Industry Coal enterprises often involve the following tax-related risks:

• Mismatch between production, sales, inventory and weighbridge, transportation data. Tax authorities verify the actual sales volume by combining third-party data such as weighbridge slips and truck transportation trajectories, and find that the book-declared sales volume of enterprises is far lower than the actual production and sales volume, resulting in understated sales volume and concealed income.
• Abnormally low resource tax burden rate. The resource tax burden of enterprises is far lower than the regional industry average, mostly by understating sales volume, low-price sales to related parties, illegally adjusting the conversion rate of washed coal, etc., to artificially reduce the tax base of resource tax.
• Abnormally high proportion of falsely listed transportation expenses. The proportion of transportation and handling fees in sales costs is relatively fixed in the coal industry. If the proportion is abnormally high, it is basically determined that the enterprise falsely issues transportation invoices and overstates costs.
• "Two ends outside" sales business. Purchase and sales are separated from local supervision, making it difficult to verify business authenticity, and prone to false invoicing, concealed income, illegal input tax deduction, and other risks.

1. Renewable Resources Industry Due to source invoice problems, the renewable resources industry faces high risks of false invoicing and applicable risks of the VAT refund upon collection policy in the process of resource recovery and recycling. The main manifestations are:

• False invoicing and false deduction of waste materials invoices. Enterprises obtain special VAT invoices through fictitious transactions for illegal input tax deduction, which is the core risk early warning of the industry.
• Mismatch between energy consumption output and declared income. The unit water and electricity energy consumption of renewable processing enterprises is highly correlated with output and income. Tax authorities can reversely calculate the actual production capacity based on energy consumption data and find the problem of concealed income where the declared income of enterprises is seriously inconsistent with the actual output.
• Abnormally low VAT burden rate. Due to a large number of false input deductions and concealed sales income, the VAT burden of enterprises is long-term below the reasonable industry range, and even abnormally large remaining deductible tax occurs continuously.

1. Real Estate Industry The real estate industry mainly has the following tax-related risks due to its long development cycle, multiple tax types, and complex liquidation processes:

• Long-term hanging of advance receipts without income carry-over. Enterprise projects have been delivered for use, but pre-sale house payments, deposits, sincerity money, etc., are still long-term hung in the advance receipt account, delaying income carry-over to defer the payment of VAT, land appreciation tax (LAT), enterprise income tax, etc.
• Excessively high unit construction and installation cost. The construction and installation project fees and infrastructure fees of enterprises far exceed the regional cost standards of similar projects in the same period, and the development cost is raised by falsely issuing construction and installation invoices and falsely listing supporting facility fees to reduce LAT and enterprise income tax.
• Excessive difference between LAT liquidation income and online signing, VAT data. There is an obvious deviation between liquidation income and online signing and filing data of the housing management department and VAT declaration data, mostly because enterprises conceal taxable income such as parking spaces, storage rooms, and decoration funds, and split revenue to underpay taxes.
• Low-price related-party sales of parking spaces and shops. The purchase price of parking spaces and shops by related parties is significantly lower than the market average price of similar products in the same period without justifiable reasons, which is an act of transferring profits and underpaying taxes.

III. Practical Suggestions for Enterprise Tax Compliance Under Golden Tax Phase IV

(I) Establish a Regular Pre-emptive Self-Inspection Mechanism

Enterprises should establish a regular self-inspection mechanism combined with the industry-specific early warning characteristics, conduct cross-comparison of core data such as income, cost, expense, tax burden, invoices, and capital flow, and focus on verifying the rationality of income changes, proportionality of costs and expenses, compliance of tax burden rates, matching degree of input and output items, rationality of expense proportion, etc. Abnormalities should be investigated and corrected in a timely manner. Conduct penetrating verification on high-frequency risk points of the industry, e.g., pharmaceutical enterprises verify the business authenticity of promotion fees and the compliance of invoicing by individual businesses; coal enterprises match production, sales, inventory with third-party transportation and weighbridge data; real estate enterprises standardize the carry-over of advance receipts and the accounting of construction and installation costs. At the same time, focus on business authenticity to avoid early warning risks from the source.

(II) Immediate and Graded Response After Triggering Early Warnings

After receiving a tax early warning prompt, enterprises should immediately start targeted verification instead of responding passively or adjusting accounts arbitrarily. First, investigate the causes of anomalies item by item against the early warning indicators, and distinguish reasonable commercial differences from tax compliance issues:

• For normal indicator fluctuations caused by business models, seasonal operations, and industry particularities, sort out complete business materials, financial vouchers, and transaction records, form a clear and standardized written explanation, feed back reasonable explanations to tax authorities in a timely manner, and cooperate with the verification.
• For compliance problems such as declaration errors, policy understanding deviations, and improper accounting treatment, carry out rectification work such as data correction, tax adjustment, and supplementary declaration, keep rectification records and tax payment vouchers, and take the initiative to eliminate potential risks.Maintain smooth communication with tax authorities throughout the process, submit materials in strict accordance with requirements, and ensure a standardized response process and complete evidence chain.

(III) Professional Handling of High-Risk Matters

If an enterprise has received a formal tax verification notice, is facing tax assessment or tax inspection, or is involved in high-risk matters such as false invoicing and tax evasion, and it is difficult for internal finance and taxation personnel to handle effectively, it is necessary to hire a professional team in a timely manner. With the practical experience and compliance service capabilities of professional institutions, comprehensively sort out tax-related risk points, improve the evidence chain, optimize risk handling plans, assist enterprises in communication and consultation with tax authorities, accurately rectify existing compliance problems, effectively resolve risks such as tax assessment and tax inspection, and avoid small risks escalating into administrative penalties or even criminal liabilities. At the same time, rely on professional forces to build a long-term tax compliance system to achieve early identification, prevention, and resolution of risks.

IV. Conclusion

Under Golden Tax Phase IV, tax early warning has become a "compulsory course" rather than an "optional choice" for enterprise operation and management. For enterprises, tax early warning is not "regulatory pressure" but "compliance guidance". Early investigation of tax-related risks and standardization of operation processes through early warnings can not only effectively avoid tax-related penalties and reduce operation risks, but also improve internal finance and taxation management and enhance market competitiveness. Enterprises should abandon the thinking of "passive response", establish the concept of "active compliance", take tax early warning indicators as the starting point, build a full-process and cross-departmental tax compliance management system, and achieve risk control, compliant operation, and stable development. In the era of digital tax supervision, only by adhering to the bottom line of compliance can enterprises achieve steady and long-term development in the fierce market competition and realize long-term sustainable development.