Editor's Note: Where the issuer and recipient of VAT special invoices fall under the jurisdiction of tax authorities in different regions, the tax authority at the issuer's location, after determining that the issuer falsely issued invoices, will often send a Notice of Confirmed False Invoicing to the tax authority at the recipient's location, or directly issue a Tax Treatment Decision against the issuer finding false invoicing. The recipient's local tax authority may then require the recipient enterprise to reverse input VAT credits, pay additional tax, and undergo an investigation. May the recipient enterprise directly apply for administrative reconsideration of either document issued by the issuer's tax authority? Two rulings delivered by the same collegial panel of the Liaoning High People's Court reached different conclusions, and one was later selected as a typical case by the Supreme People's Court. Drawing on these two cases, this article analyzes the rules governing whether each type of document is subject to administrative reconsideration and offers practical response strategies.

01 Case Background

In (2025) Liao Xing Shen No. 1205, after a district tax authority in Dalian determined that an invoice-issuing enterprise within its jurisdiction had falsely issued invoices, it sent a Notice of Confirmed False Invoicing to the tax authority at the location of a recipient company in Tangshan. Believing that the notice materially affected its right to claim input VAT credits, the Tangshan company applied to the Dalian Municipal Tax Service of the State Taxation Administration for administrative reconsideration. Its application was rejected, and it lost at both first and second instance. On 2 February 2026, the Liaoning High People's Court held that the Notice of Confirmed False Invoicing was an internal interregional tax-assistance document, used only within the tax authorities and not directly served externally, and therefore fell outside the scope of administrative reconsideration. It accordingly dismissed the petition for retrial.

In (2025) Liao Xing Zai No. 19, an inspection bureau under the Dalian Municipal Tax Service issued a Tax Treatment Decision against an energy company, the invoice issuer, in November 2020. It determined that all 2,063 VAT special invoices issued by the company between June 2019 and September 2020 had been falsely issued, including 412 invoices received by a Hebei company. In November 2023, the Hebei company applied to the Dalian Municipal Tax Service for administrative reconsideration, seeking revocation of the decision. The application was likewise rejected on the grounds that the company was not the direct addressee of the administrative action and had no legal interest, and it also lost at first and second instance. After retrying the case, however, the Liaoning High People's Court issued an administrative judgment on 10 October 2025, holding that the recipient enterprise had a legal interest in the upstream Tax Treatment Decision finding false invoicing and therefore had standing to apply for administrative reconsideration. It quashed the earlier judgments and the decision refusing to accept the application, and ordered the Dalian Municipal Tax Service to accept the reconsideration application in accordance with law within five days after the judgment took effect.

On 31 March 2026, the case, titled "Hebei Logistics Company v. Municipal Tax Service, Case Concerning a Decision on an Application for Administrative Reconsideration - Putting the Principle that 'the Rule of Law Is the Best Business Environment' into Practice Through Judicial Supervision," was selected for the second batch of Typical Cases of People's Courts Serving the Full Revitalization of Northeast China in the New Era, released by the Supreme People's Court. In explaining the case's significance, the SPC expressly stated that the case had opened an avenue of relief for enterprises' tax rights and interests and provided important guidance for similar cases.

Both rulings were delivered by the same collegial panel less than four months apart, yet one rejected review while the other required acceptance. The difference does not reflect a stricter or more lenient judicial standard, but the distinct legal nature of the two documents. The recipient separately sought administrative reconsideration of the Notice of Confirmed False Invoicing and the Tax Treatment Decision issued by the tax authority at the invoice issuer's location; the courts gave different answers as to whether the reconsideration authority should accept and examine the applications. In fact, the two rulings are mutually reinforcing. While dismissing the retrial petition in the first case, the court specifically noted that the applicant "may seek relief in accordance with law against a tax treatment or penalty decision that has external legal effect." This directly accords with the second case's recognition that a recipient enterprise has a legal interest in an upstream decision finding false invoicing.

02 A Notice of Confirmed False Invoicing Is Generally Not Subject to Reconsideration, Except Where It Acquires External Legal Effect

Why is a Notice of Confirmed False Invoicing generally not subject to administrative reconsideration? The reasoning in (2025) Liao Xing Shen No. 1205 rests on its nature as an internal tax-assistance document. Under Articles 9 and 15 of the Measures for the Administration of Invoice Assistance in Tax Violation Cases (Trial) (Shui Zong Fa [2013] No. 66), the requesting tax authority issues the notice on a "one taxpayer, one letter" basis and sends it, together with an assistance request, to the requested tax authority, which must then open an inspection case in accordance with the Working Rules for Tax Inspection. The notice is therefore merely an internal document used to transmit case leads between tax authorities in different regions. It is neither directly served on the recipient enterprise nor does it itself impose an obligation to pay additional tax. Any liability ultimately borne by the recipient enterprise depends on the separate tax treatment or penalty decision issued after the local tax authority opens and conducts its investigation. Under Article 1(2)(5) of the Interpretation of the Supreme People's Court on the Application of the Administrative Litigation Law of the People's Republic of China, an act that produces no external legal effect is not actionable; by the same logic, it is not subject to administrative reconsideration. For this reason, the ruling also cited an entry in the People's Courts Case Database, Engineering Technology Company v. Baoying County State Tax Bureau, Case Concerning a Decision Refusing to Accept an Application for Administrative Reconsideration (Database No. 2024-12-3-016-012). Its holding states that an internal notice commissioning case assistance between administrative authorities, together with the attached lead materials, is a procedural act that has no actual impact on the lawful rights and interests of the administrative addressee and therefore falls outside the scope of administrative reconsideration and administrative litigation.

However, the conclusion that such a notice is "not subject to reconsideration" is not absolute. The Baoying case itself contains the analytical logic for determining when an internal act acquires external effect. The court found that the downstream inspection bureau had treated the notice only as a lead and had made its treatment decision after conducting an independent investigation, including obtaining accounting records and interviewing personnel. It therefore concluded that the notice had not acquired external effect and was not independently reviewable. This approach was further confirmed at the SPC level. In a Q&A session during the third Administrative Adjudication Lecture of 2025 (13th overall), held on 31 March 2025, the SPC stated: "Where an action is brought against a Notice of Confirmed False Invoicing issued by a tax authority, and the requested authority uses it only as a lead in a tax violation case so that the notice produces no external legal effect, the action falls outside the scope of administrative litigation. If, however, the requested authority uses the notice as the principal basis for a tax treatment or penalty decision and the notice has acquired external legal effect, the court should determine, in light of factors such as the directness and economy of the remedy, whether to include it within the scope of review. ... If the court finds that the notice, though procedural in form, has independent significance and materially affects the parties' rights and obligations, and that it would be objectively difficult or manifestly unfair for the recipient enterprise to seek relief against the treatment or penalty decision, the recipient enterprise may also be granted a right to relief so as to effectively protect its lawful rights and interests."

For recipient enterprises, this means that when an inspection is triggered by a Notice of Confirmed False Invoicing, the primary forum for defense is initially the local tax inspection process. On the one hand, the enterprise should fully substantiate the authenticity of the transaction during the statement, defense, and hearing stages, and seek administrative reconsideration or bring administrative litigation against any local treatment or penalty decision. On the other hand, it should examine whether the local tax authority made the notice the principal basis for its conclusion without conducting an independent investigation. If so, the enterprise may argue that the notice has acquired external legal effect and seek relief against the notice itself. This gives rise to a further question: may the recipient enterprise apply for administrative reconsideration of the Tax Treatment Decision issued by the upstream tax authority against the invoice issuer?

03 A Recipient Enterprise Has Standing to Seek Reconsideration of an Upstream Tax Treatment Decision Finding False Invoicing

Unlike a Notice of Confirmed False Invoicing, which circulates only internally among tax authorities, an upstream Tax Treatment Decision is an administrative act with external legal effect. The answer to whether a recipient enterprise may seek reconsideration of such a decision is therefore clearer. The significance of the judgment in (2025) Liao Xing Zai No. 19 lies in its systematic explanation of why a recipient enterprise, although not the direct addressee, has standing to apply for administrative reconsideration. Its framework for identifying a legal interest has significance beyond the individual case.

First, an interested party is not limited to the direct addressee of an administrative act. Under Article 10 of the Administrative Reconsideration Law, Article 28(2) of the Regulations for the Implementation of the Administrative Reconsideration Law, and Article 24 of the Rules on Tax Administrative Reconsideration, any citizen, legal person, or other organization having a legal interest in the challenged administrative act is an "interested party" and likewise has standing to apply for administrative reconsideration. An administrative act may affect not only the rights and interests of its direct addressee but also those of other parties. A recipient enterprise may therefore establish standing in its capacity as an interested party.

Second, the judgment distilled four requirements for establishing a legal interest: (1) the applicant must assert a right or a right-like interest rather than a merely reflexive interest; (2) the interest must belong to the applicant, not another person, and must not be a public interest; (3) the possibility of harm to that interest must necessarily exist or be foreseeable rather than speculative; and (4) the asserted interest must be protected by administrative law, rather than falling outside the purpose of the relevant legislation. For a recipient enterprise, once the upstream authority finds false invoicing, the invoices it holds become non-compliant documents. Because obtaining replacement invoices is often difficult in practice, additional tax and late-payment surcharges are foreseeable and may even be inevitable. Moreover, Article 1 of the Tax Collection and Administration Law expressly identifies the protection of taxpayers' lawful rights and interests as a legislative purpose. All four requirements are therefore satisfied.

Third, the judgment further confirmed this conclusion by reference to the third-party participation system. If the invoice issuer were to apply for administrative reconsideration, the recipient enterprise, because its interests are closely tied to the outcome and its participation would assist in ascertaining the facts, would be entitled to join the proceedings as a third party. It follows that the recipient enterprise plainly has a legal interest in the disputed treatment decision and may naturally apply for reconsideration in its own name.

Fourth, regarding the burden of proof, the judgment referred to the holding of Heng Development Co. v. Government, an administrative enforcement case included in the People's Courts Case Database (Database No. 2023-12-3-003-003). It held that, at the application stage, the burden of proving a legal interest is only preliminary and prima facie; the standard applicable to substantive review must not be transposed to the threshold for acceptance. A recipient enterprise discharges this burden where it provides preliminary evidence that the upstream finding covers invoices received by it and that the local tax authority has already summoned it for discussions concerning additional tax.

Particularly noteworthy is the retrial judgment's correction of the original second-instance court's view. Relying on the Announcement of the State Taxation Administration on Issues Concerning Taxpayers' Issuance of VAT Special Invoices (STA Announcement No. 39 of 2014), the second-instance court had reasoned that the invoices obtained by the recipient were "not necessarily unusable as vouchers for input VAT deduction," and that the treatment decision therefore had no actual effect on the recipient. The retrial judgment, however, held that once the upstream authority had determined that all 2,063 invoices were falsely issued, the invoices held by the recipient could no longer serve as lawful deduction vouchers. If the recipient wished to argue that its invoices satisfied Announcement No. 39 and did not constitute false invoicing, it had to do so - and could do so only - in reconsideration proceedings directed against that treatment decision. Announcement No. 39 therefore cannot justify closing the avenue of relief; rather, it demonstrates why the recipient enterprise needs the reconsideration procedure to assert its rights.

It should be noted that judicial views in such cases were divided for a long time, but the line of authority recognizing recipient enterprises' standing has become increasingly clear. In a dedicated Q&A during the second Administrative Adjudication Lecture on 26 April 2024, the SPC explained that a tax treatment decision may have an actual effect on the rights and obligations of the recipient enterprise; the enterprise therefore has a legal interest in the decision and is entitled to seek administrative reconsideration. Only in the exceptional situation where sufficient evidence establishes that the recipient satisfies Announcement No. 39 and the treatment decision truly has no actual effect on it will the recipient lack standing. The Q&A also emphasized that standing to apply for administrative reconsideration should not be construed narrowly in practice. The system's advantages of "low cost, high efficiency, and broad accessibility" should be fully utilized so that administrative reconsideration becomes the principal channel for resolving administrative disputes. The judgment in (2025) Liao Xing Zai No. 19 gives effect to this approach. Its selection as an SPC typical case also indicates that the judicial direction on this issue is converging and provides important guidance for similar cases.

04 The Necessity and Practical Effectiveness of Granting Recipient Enterprises Standing to Challenge Upstream Decisions

One possible view is that, because a recipient enterprise may already seek reconsideration or bring litigation against a downstream tax authority's additional-tax decision, an adequate avenue of relief exists and there is no need to grant standing to challenge the upstream treatment decision. The judgment in (2025) Liao Xing Zai No. 19 did more than confirm standing. It rejected this reasoning on three grounds and further explained that recognizing the recipient enterprise as an interested party entitled to seek administrative reconsideration of an upstream tax authority's decision finding false issuance of VAT special invoices is both necessary and practically effective.

First, the constraint created by the presumptive validity of administrative acts. Once an administrative act is issued, it is presumed lawful and valid unless it is seriously and manifestly unlawful, and no authority, organization, or individual may deny its effect without following statutory procedures. When the downstream tax authority makes its own decision, it will ordinarily be bound by the prior upstream decision. Even if it verifies that the transaction was genuine, the downstream authority remains constrained by the upstream characterization and can, at most, find that the invoice was obtained in good faith; the obligation to pay additional tax remains essentially unchanged. The upstream treatment decision occupies a dominant and foundational position in the overall dispute and is the administrative act that directly and critically affects the recipient enterprise's rights and obligations. No remedy is more direct, convenient, or effective than reconsideration of that decision itself. The recipient enterprise's standing should therefore be recognized.

Second, the route of inherited illegality is unavailable. To protect parties' rights and resolve disputes substantively, the doctrine of presumptive validity may, under certain conditions, be qualified: where two successive administrative acts are related, a court may allow the illegality of the earlier act to carry over to the later act. Three conditions must be met: (1) the two related acts are sequential and linked through procedural coordination, a prerequisite relationship, or an enforcement-basis relationship; (2) the earlier act is no longer open to challenge, making inherited illegality the party's only avenue of relief; and (3) the party's substantive rights and interests genuinely require protection. In cases of this kind, however, when reviewing the downstream decision, the court examines the upstream finding only from the perspective of evidentiary effect and under the standard of serious and manifest illegality. Moreover, the upstream treatment decision remains independently challengeable. The prerequisites for inherited illegality are therefore absent. Institutionally, it is not feasible to expect the upstream finding to be overturned incidentally in proceedings against the downstream decision.

Third, the harm is direct and final. A falsely issued invoice generally may not be used as a lawful and valid tax-deduction voucher. Once the upstream finding of false invoicing is made, the recipient enterprise's loss of the right to deduct arises automatically by operation of law and is final; it does not await the downstream authority's specific additional-tax decision. Without a right to seek reconsideration of the upstream treatment decision, the recipient enterprise would have no effective remedy. Even if the downstream authority provisionally treats the case as a good-faith acquisition, it cannot overturn the conclusion that the invoice was falsely issued. Reconsideration of the upstream treatment decision is therefore an effective remedy necessary to protect the enterprise's rights, and its standing should be recognized.

In sum, once the upstream tax authority determines that the invoice issuer falsely issued invoices, the invoices held by the recipient enterprise immediately cease to qualify as lawful deduction vouchers. If the recipient enterprise can seek relief only against the downstream additional-tax decision, it cannot fundamentally challenge the legality of the false-invoicing finding, and its rights cannot be adequately protected. Because the upstream treatment decision occupies a dominant and foundational position in the dispute, granting the recipient enterprise standing to seek reconsideration is indispensable to effective legal relief.

Conclusion: The two cases clarify the avenues of relief available to recipient enterprises in interregional false-invoicing cases. Where an inspection is triggered by a Notice of Confirmed False Invoicing, the enterprise should fully present its case and defend the authenticity of the transaction in the local tax inspection process, while monitoring whether the local authority treats the notice as the principal basis for its decision without an independent investigation, so as to preserve an argument that the notice has acquired external legal effect. Where the enterprise learns that the upstream authority has issued a treatment decision finding false invoicing, it may rely on the rules established in the judgment in (2025) Liao Xing Zai No. 19 and the SPC's Q&A, and apply for administrative reconsideration to the upstream reconsideration authority as an interested party. Particular attention should be paid to the time limit for administrative reconsideration, which runs from the date on which the enterprise becomes aware of the administrative act. Because recipient enterprises often learn of the upstream document only when summoned by the local tax authority, they should preserve evidence of the date of awareness, file the application promptly, and prepare preliminary materials sufficient to show a legal interest, such as evidence that the upstream finding covers invoices received by them. Beyond procedural remedies, enterprises should also make full use of substantive rules to mitigate losses. When confronted with such risks, an enterprise should seek assistance from professional tax counsel at an early stage, identify the administrative acts subject to reconsideration or litigation, and exercise its rights promptly and professionally to safeguard its lawful rights and interests.