Editor's Note: The reverse-invoicing system for agricultural product purchase invoices was designed to address the practical difficulty faced by farmers who cannot issue VAT invoices on their own. Today, as the Golden Tax System and big data risk control platforms continue to evolve, when the same individual's name appears frequently and in large amounts on the agricultural product purchase invoices of multiple enterprises, the system will automatically flag it and push it for investigation. This article analyzes the legal characterization of such conduct through a case study, focusing on the remediation path of re-issuing invoices, outlining the specific procedural rules and key proof points for establishing the qualifications of self-producing farmers, in order to provide agricultural product procurement enterprises with practical guidance on risk management and compliance.

01  Introduction

Recently, the author received a consultation from a primary agricultural product processing enterprise. The company's main business activity is purchasing agricultural products such as rice from nearby farmers and selling them after primary processing. A notice from the local tax bureau indicated that a batch of its agricultural product purchase invoices for the year 2024 had been flagged for tax risk, with a note indicating suspicion of false transactions on the part of the sellers listed on the invoices. Upon further disclosure by tax officials, the risk alert was triggered because the names of the sellers on the invoices appeared repeatedly on the agricultural product purchase invoices of multiple different enterprises within the same period, and the cumulative quantities and amounts of the agricultural products involved were far beyond the normal range. The system therefore inferred that the sellers were not self-producing farmers but rather resellers, and the enterprise was required to reverse its corresponding input VAT credits.

This case is a typical example of tax big data empowering risk warning and enabling precise ex-ante supervision. In recent years, tax authorities have been continuously building big data risk control platforms based on the Golden Tax System, enabling batch risk identification and early warning of taxpayers' invoice issuance information. Such investigations often produce a cascading effect: after handling the first batch of problematic invoices, tax authorities may further retrieve supplier invoices from other batches of the enterprise and continue screening invoices with similar characteristics, causing the pressure to pay back taxes to multiply. Against the backdrop of normalized big data risk control, enterprises should pay close attention to such warnings. So how should the relevant conduct be legally characterized? And how should an enterprise respond after being flagged — is there a remediation path? These questions are analyzed below.

02  Why Agricultural Product Purchase Invoices Must Not Be Issued to Intermediaries

Under China's VAT regulations, agricultural producers selling self-produced agricultural products are exempt from VAT. Enterprises that purchase such agricultural products may issue agricultural product purchase invoices in reverse and deduct input VAT by multiplying the amount on the invoice by a deduction rate of 9%. It should be noted that the applicable prerequisite for a purchase invoice is that the buyer purchases primary agricultural products directly from individuals engaged in agricultural production. In other words, the defining characteristic of an agricultural producer is "self-production and self-sale."

In agricultural product distribution practice, aggregating goods through intermediaries (brokers, grain dealers) is a common commercial practice. However, the nature of an intermediary's business — purchasing agricultural products externally and reselling them — makes the intermediary a VAT-taxable entity, not a tax-exempt entity. When an enterprise pays an intermediary for goods, it should require the intermediary to issue either a general VAT invoice or a special VAT invoice; the enterprise must not issue agricultural product purchase invoices in the name of the intermediary. The tax big data risk identification system operates on precisely this rule: once a seller's name appears concentrated on a large number of agricultural product purchase invoices in a short period, and the cumulative amount far exceeds the reasonable production capacity of an ordinary farmer, the system will automatically trigger a risk alert.

When facing a tax investigation, enterprises are most worried about whether agricultural product purchase invoices issued in the name of an intermediary would be deemed falsely issued, thereby triggering administrative or even criminal liability. In such cases, the enterprise actually paid the intermediary, the intermediary actually delivered the agricultural products, and the downstream procurement business genuinely occurred — there is no factual basis for "issuing invoices without goods." An enterprise issuing purchase invoices in the name of an intermediary, when the true agricultural producers are the farmers behind the intermediary, means the seller named on the invoice does not match the actual party. In legal terms, this constitutes improperly issued invoices — i.e., a real transaction exists, but the invoice information is incorrect. Such conduct should be subject to administrative treatment (reversal of input VAT credits) rather than criminal prosecution.

Therefore, for enterprises flagged with risk, it is advisable to seize the window of opportunity, proactively communicate with tax authorities, conduct a self-review as required, and re-issue invoices in accordance with applicable regulations, in order to reclaim the right to deduct input VAT. What is the legal rationale and procedural path for re-issuing invoices? This is analyzed below.

03  The Logic and Specific Methods for Re-Issuing Invoices

Purchase invoices are self-issued by the buyer, which is essentially a self-invoicing act by the enterprise. When the original invoice was issued to the wrong party but the true agricultural producer's identity can be identified, canceling the original invoice and re-issuing a purchase invoice in the name of the true farmer constitutes a lawful correction of invoice information and has a clear legal basis. At present, the State Taxation Administration has not issued a unified special operating procedure for re-issuing agricultural product purchase invoices. In practice, enterprises may proceed step by step as follows:

Step 1: Systematically compile original transaction vouchers. Collect all materials that can prove the authenticity of the procurement — including purchase contracts, warehousing records, weighing records, bank payment records — as the factual basis for the re-issuance application. Simultaneously, clearly explain to the tax authority that the enterprise's purpose was not to fraudulently claim tax, but was based on a misunderstanding of the applicable rules for purchase invoices.

Step 2: Locate the true farmers and obtain their cooperation. This is the core prerequisite for re-issuance. The intermediary must provide the list of farmers from whom the goods were actually sourced, along with their identity information; the farmers must be willing to cooperate by providing their ID documents, land ownership certificates, and settlement information; and the settlement amounts must correspond to the amounts recorded on the purchase invoices.

Step 3: Submit a written re-issuance application to the competent tax authority. The application should explain how the original purchase invoice came to be issued to the wrong party, attach identity materials of the true farmers and transaction evidence, and request the tax authority to review and approve the invoice correction.

Step 4: Process the original invoices. For invoices within the same declaration period, apply for direct voiding; for invoices that have crossed a declaration period, apply through the electronic tax bureau system for a red-letter offset document to write off the original invoice amount to zero.

For paper agricultural product purchase invoices, under Article 26 of the Detailed Rules for the Implementation of the Measures for the Administration of Invoices, if discovered within the same month and the conditions for voiding are met, void the original invoice and re-issue; if discovered across months or the conditions for voiding are not met, first issue a red-letter invoice and then re-issue a blue-letter invoice. For electronic invoices (including digital electronic invoices), pursuant to Article 27 of the Detailed Rules and Article 8 of the State Taxation Administration's Announcement on the Promotion and Application of Fully Digitalized Electronic Invoices (State Taxation Administration Announcement [2024] No. 11), generally, a digital electronic invoice whose purpose has not been confirmed or which has not been recorded in accounts may be directly offset in red by the invoice issuer; one whose purpose has been confirmed or which has been recorded in accounts requires confirmation by the counterparty before red offsetting. However, for agricultural product purchase digital electronic invoices, regardless of whether the purpose has been confirmed or the invoice has been recorded, red offsetting may be done directly by the invoice issuer without requiring the farmer's confirmation. This rule was made with the recognition that agricultural product purchase invoices involve a large number of farmers; requiring confirmation from each individual farmer would make the red-offsetting process impractical, so tax authorities have granted the invoice issuer independent red-offsetting authority.

Step 5: Re-issue a compliant purchase invoice in the name of the true farmer. The success or failure of the re-issuance largely depends on whether the true farmer's status as an "agricultural producer" and the "self-produced" nature of the goods can be sufficiently demonstrated. When reviewing a re-issuance application, tax authorities will not accept a mere ID card as sufficient proof that the supplier is a self-producing farmer. The completeness of supporting materials directly determines the success rate of the re-issuance application and whether it can withstand subsequent tax inspections. Enterprises should focus on preparing the following types of materials:

First, proof of land ownership. Land contract and management rights certificates, rural land ownership registration certificates, or written statements issued by the village collective economic organization regarding cultivated land use are the core documents proving that the farmer has a lawful basis for engaging in agricultural production. The ownership relationship between the land and the farmer may be outright ownership, contracted, leased, or cooperative cultivation, but corresponding written proof must exist.

Second, proof of cultivation and production processes. Vouchers for the farmer's purchases of agricultural inputs (seeds, fertilizers, pesticides, etc.) during cultivation, as well as planting situation statements issued by the village committee, are important materials that indirectly corroborate the actual occurrence of agricultural production activities. Such proof does not need to be precise to the level of each mu per season, but must logically form a mutually corroborating closed loop with the land area and yield.

Third, verification of yield reasonableness per mu. Particular attention should be paid to whether the quantity of agricultural products sold by the farmer to the enterprise falls within the normal yield range, given the farmland area the farmer claims to hold. The formula for calculating the maximum reasonable supply is: Land area (mu) × Maximum normal yield per mu (jin/mu) × Number of growing seasons. For example, rice in Northeast China typically yields 800 to 1,000 jin per mu. If a farmer holds 30 mu of land but claims to have sold 200,000 jin of rice to the enterprise, that figure objectively exceeds the actual production capacity by several times. Similarly, if a vegetable grower holds 5 mu of greenhouses but claims an annual supply of several dozen tons, this would need to be verified against local varieties, planting cycles, and other factors.

Fourth, a self-produced goods declaration. Based on the above materials, the farmer may provide a written self-produced agricultural product sales declaration stating the farmer's ID information, the location and area of the land held, the varieties planted and the yield for the year, the quantity and settlement unit price of the goods sold to the enterprise, confirmed by the farmer's own signature.

Step 6: Declare input VAT credit in the current period in accordance with the law. After obtaining a compliant purchase invoice, truthfully declare the corresponding input VAT in the current VAT return, and retain all materials related to the re-issuance for future inspection.

Notes on Cross-Period Red Offsetting: Under current regulations, there is no fixed time limit on issuing red-letter invoices. The Yunnan Provincial Tax Bureau clarified in a 12366 reply that "the seller issues red-letter special VAT invoices based on the Information Form for Issuing Red-Letter Special VAT Invoices verified by the tax authority's system, issued as negative output tax in the new system, and there is no time limit for issuing red-letter invoices." Therefore, whether for paper invoices or digital electronic invoices, an invoice erroneously issued in 2024 may be offset in red in 2026.

If the original invoice was a digital electronic invoice, after the enterprise discovers in 2026 that an agricultural product purchase digital electronic invoice was incorrectly issued in 2024, the enterprise may directly initiate the red-offsetting process itself and contact the true farmer to re-issue. In addition, cross-month red offsetting has a practical implication: when a red-letter digital electronic invoice is issued in the same month as the blue-letter digital electronic invoice, the electronic invoice service platform will simultaneously increase the remaining invoice quota; however, when a red-letter digital electronic invoice is issued in a subsequent month, the electronic invoice service platform will not increase the remaining invoice quota. Red-offsetting a 2024 invoice in 2026 constitutes a cross-year red offset, and the enterprise's invoice quota will not be restored due to the red offset — this should be noted in subsequent invoicing arrangements.

If the 2024 invoice had already been used for input VAT deduction, and the error is discovered and red-offset in 2026, the input VAT must be simultaneously reversed. The recipient should transfer the already-deducted tax amount out of the current period's input VAT and, after receiving the red-letter digital electronic invoice, keep it together with related vouchers as accounting records. Regarding the deduction period for the new invoice, when the enterprise applies to deduct input VAT using the compliant agricultural product purchase invoice, it should do so in the current period in which the invoice is obtained (i.e., the period in which the re-issuance is successfully completed). In other words, the input VAT on the blue-letter invoice re-issued after successful re-issuance in 2026 should be declared and deducted in the current period of 2026.

In summary, after the enterprise completes the red offset and re-issuance in 2026, it should process the input VAT reversal in the current period's VAT return, and recalculate the input VAT credit based on the amount of the correctly re-issued invoice. Without re-issuance, the enterprise faces the prospect of input VAT reversal + back taxes + late payment surcharges. The tax improperly deducted in 2024 will be completely lost through back tax payment, and from the current period of 2026 onwards, there will be no additional input VAT available for deduction. After successful re-issuance, the enterprise obtains compliant input VAT in the current period of 2026, which can be used to offset the current output VAT. If the current output VAT is insufficient, excess input may form retained credits to be carried forward for future use. This means that through re-issuance, the enterprise can convert a tax amount that would otherwise be entirely lost into input VAT deductible in future periods, thereby "recouping" a tax benefit for the enterprise. As for late payment surcharges, it is advisable to use the good-faith acquisition defense as a supplementary argument, thoroughly preparing proof of genuine transactions and proof of lack of subjective wrongful intent during communications, and retaining a professional tax attorney to assist in making the argument, in order to seek a waiver of late payment surcharges.

04  Conclusion

Once an enterprise triggers a risk alert for agricultural product purchase invoices, it should promptly initiate a response procedure. In practice, some grassroots tax officials may informally decline re-issuance requests on grounds such as "complex operations" or "unclear procedures." It should be made clear that re-issuance is a legitimate right to which taxpayers are entitled by law. When necessary, enterprises may retain professional tax attorneys to intervene and communicate with tax authorities through formal channels, seeking a reasonable outcome.

In the past, many enterprises paid little attention to the identity of the invoice recipient, choosing to consolidate invoicing through intermediaries for convenience. Today, higher-level tax authorities, leveraging big data systems to precisely identify risks, are compelling enterprises to move toward compliance. Enterprises should be vigilant against good-faith situations of being misled by intermediaries, and avoid falling into a passive position due to information asymmetry. For enterprises that have already been flagged, it is advisable to actively cooperate with the tax authority's risk investigation, while proactively seeking re-issuance remedies within the bounds permitted by law, and seizing the processing window in the first phase. If your enterprise is currently facing tax risk warnings, risk investigations, or administrative actions related to agricultural product purchase invoices, it is advisable to promptly engage the professional expertise of a tax attorney, who can provide targeted analysis and response strategies to protect the enterprise's legitimate rights and interests to the greatest extent possible.