Editor’s Note: Recently, Criminal Trial Reference (Total Issue 147), compiled by the Criminal Tribunal of the Supreme People’s Court (SPC), has been officially published and distributed by the People’s Court Press. Case No. 1668 People v. Pan Moumou et al. (Tax Evasion) included in this book is a typical case of tax evasion through false invoicing and invoice alteration by petrochemical companies. The book clearly states that altering the product names on input and output invoices through false issuance to evade consumption tax in the production link does not constitute the crime of falsely issuing special VAT invoices, and shall be punished as the crime of tax evasion.

Editor’s Note: In December 2025, among the three tax-related illegal cases of platform enterprises publicly exposed in a concentrated manner by the State Taxation Administration, the case of fraudulent issuance of special value-added tax (VAT) invoices by Shaanxi YunMendi Company attracted widespread attention. The limited information disclosed by the authorities outlines the characteristics of false invoicing by shell companies. However, for a platform enterprise that had legally obtained the online freight qualification, whether its operation was completely divorced from real business remains to be carefully examined.At a time when the judicial interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate (the “Two Supreme Courts”) have narrowed the scope of the crime of false invoicing and emphasized the principle of the unity of subjectivity and objectivity, the judicial characterization of the YunMendi case will not only determine the fate of the involved enterprise and hundreds of downstream invoice-receiving enterprises, but also exert a profound impact on the development of the online freight industry. This article calls for a rational view of the “invoice economy”, advocates prudent distinction between real business and illegal operations, and leaves sufficient room for the standardized development of emerging business formats.

Editor's Note
In the article Legal Consequences of Non-compliant Document Filing and Recordation Under the New Export Tax Refund (Exemption) Rules, we analyzed issues related to document filing and recordation in conjunction with the new regulations. This article traces the origin of the provisions governing "fake self-operation with genuine agency" by referencing the judicial interpretation on tax-related crimes issued by the Supreme People's Court and the Supreme People's Procuratorate (hereinafter referred to as the "Two Highs"), the Implementation Regulations of the Value-Added Tax Law, and the enterprise income tax (EIT) filing rules. It further analyzes the impacts of the new regulations on this practice for readers' reference.

Editor's Note: Two years have passed since the release of the Interpretation of the Supreme People's Court and the Supreme People's Procuratoracy on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration (Fa Shi [2024] No. 4). During these two years, the Supreme People's Court has updated the National Unified Training Textbook for Judges, published typical cases on punishing crimes endangering tax collection and administration, issued a Reply to suggestions from People's Congress deputies regarding clarifying the nature of the act of "falsely crediting input tax" with falsely issued special VAT invoices, and judges from the Fourth Criminal Division have written the Understanding and Application of the new judicial interpretation. Judicial authorities nationwide, during investigation, prosecution, and trial stages, have fully implemented the spirit of the new judicial interpretation, shifting the conviction standards for crimes endangering tax collection and administration. Notably, they have fully clarified the boundary between the crime of falsely issuing special VAT invoices and the crime of tax evasion, forming an intertwined system of top-level legislative design, academic theory, and judicial practice for distinguishing criminality from non-criminality and one crime from another. This has played a significant role in safeguarding the application of the principle of suiting punishment to crime and protecting the development of private enterprises. The author attempts to summarize the relationship and boundary between the crime of falsely issuing special VAT invoices, the crime of tax evasion, and the crime of falsely issuing ordinary invoices for readers' reference.

Editor’s Note: On March 5, Premier Li Qiang of the State Council delivered the Government Work Report at the Fourth Session of the 14th National People’s Congress. Regarding the continued deepening of reforms in key areas, the report outlined multiple tasks for fiscal and tax system reform. Among them, three core tax-related priorities—regulating tax-related behaviors in investment promotion, improving the local tax system, and advancing consumption tax reform—both align with past regulatory orientations and clarify the direction of tax collection, administration, and reform for 2026. These priorities carry strong guiding significance for the tax-related practices of local governments and market entities. This article interprets the three tax-related priorities by combining policy backgrounds and regulatory developments, providing practical guidance for enterprises to respond.

Editor's Note:Against the backdrop of deepening global tax transparency, the automatic exchange of financial account information for tax purposes is entering a new phase of development. In 2023, the Organisation for Economic Co-operation and Development (OECD) released a revised version of the Common Reporting Standard (CRS), commonly referred to as CRS 2.0. The updated framework introduces significant adjustments to the scope of reportable assets, reporting financial institutions, and due diligence requirements.

Editor's Note:Export tax rebates are an important tax incentive implemented by the state to encourage exports and enhance the international competitiveness of domestic products. However, in practice, some export enterprises are denied export tax refund (or exemption) treatment because their upstream suppliers trigger the tax authority’s “letter inquiry” (函调) mechanism, and the reply to such inquiry is deemed “abnormal.” As a result, the tax authority may require the enterprise to treat the export as deemed domestic sales, and to pay value-added tax (VAT) and related surcharges accordingly.
Through case analysis, this article examines the different outcomes of the inquiry mechanism and the varying risk implications. It also proposes response strategies for export enterprises to safeguard their legitimate rights and interests.
I. Case Introduction: A Single “Abnormal Inquiry Notice” Puts an Enterprise in a Tax Reassessment Dilemma
On September 28, 2025, an export enterprise received a Notice of Tax Matters issued by its competent tax authority. The notice stated that certain export goods of the enterprise were determined not to be eligible for export tax refund (or exemption). The company was required to declare and pay the relevant VAT and surcharges within 10 days of receiving the notice. Failure to comply within the deadline would result in handling in accordance with the provisions of the Tax Collection and Administration Law of the People’s Republic of China.
Upon verification, the root cause of this determination was that the tax authority had sent an inquiry letter to the tax authority supervising the upstream supplier, a furniture company. The reply stated that the invoices involved fell under circumstances where tax refund (or exemption) should not be granted, specifically:
1.The VAT special invoices under investigation were false or forged;
2.The supplier claimed to sell self-produced goods, but its production equipment and tools were incapable of producing such goods.
The legal basis cited was Article 5(9) of the Announcement of the State Administration of Taxation on Issues Concerning the Administrative Measures for VAT and Consumption Tax on Exported Goods and Services (SAT Announcement No. 12 of 2013).
According to this provision, if the competent tax authority of the exporter determines that the supplier’s production equipment and tools are incapable of producing the allegedly self-produced goods, the related export goods shall not qualify for export tax refund (or exemption) and instead shall be subject to VAT as domestic sales. On this basis, the tax authority required the enterprise to make supplementary tax payments.
This case reflects a growing regulatory trend in export tax rebate administration: risks originating in the upstream supply chain may be transmitted downstream to foreign trade enterprises. “Problematic invoices” or negative findings regarding the production capacity of upstream suppliers may place otherwise compliant trading companies at risk of tax reassessment or even legal liability.
II. Different Inquiry Reply Outcomes Lead to Different Risk Levels
During export tax rebate review, the “letter inquiry” mechanism is an important regulatory tool used by tax authorities. When suspicious export transactions are identified, the tax authority at the place of tax refund sends an inquiry letter to the tax authority supervising the upstream production enterprise to verify the authenticity of production, transactions, and transportation.
According to the Operational Guidelines for Export Tax Refund (Exemption) Administration of Tax Authorities Nationwide (Version 2.0) (SAT Document No. 48 [2018]), the tax authority receiving the inquiry may issue four types of replies, each leading to different consequences:
1. “Normal Business”
If the business is verified to be legitimate, the reply will state “normal business.”
Upon receiving such a reply and considering other verification results, the tax authority at the place of refund may process the export tax refund (or exemption) in accordance with regulations.
2. “Verification Not Yet Completed”
If the verification cannot be completed within 60 days, the reply will state “verification not yet completed.”
In this case, the tax authority handling the refund will temporarily suspend the refund process until a follow-up reply is issued.
3. “Circumstances Where Refund (Exemption) Should Not Be Granted”
If tax-related violations or crimes are identified, the reply will indicate “circumstances where refund (or exemption) should not be granted.”
In such cases:
Export tax refunds shall not be granted if not yet processed;
Refunds already granted must be recovered;
If the transaction should be subject to VAT, it shall be treated as domestic sales;
If suspected tax fraud is involved, administrative or criminal liability may be pursued.
4. “Suspension of Refund Processing”
If suspected tax violations exist but are not yet confirmed, the reply may state “refund processing suspended.”
In this situation:
The tax authority temporarily halts the refund process;
If refunds have already been approved, other pending refunds of the enterprise may also be temporarily withheld;
The enterprise may provide guarantees for the difference where necessary;
Once the suspicion is cleared, refunds may proceed or guarantees may be released; if violations are confirmed, legal action will follow.
In practice, if the upstream manufacturer fails to cooperate with the investigation, has deregistered, or cannot be contacted, the export enterprise may face long-term suspension or even permanent denial of refunds. More seriously, if the inquiry reveals suspected illegal activities such as issuing false VAT invoices, the administrative and criminal risks may be transmitted directly to the foreign trade enterprise. In such cases, the tax authority may refer the matter to inspection departments, potentially leading to administrative penalties or criminal proceedings.
III. Response Strategies for Export Enterprises Facing Inquiry Risks
When confronted with a tax authority’s inquiry regarding export tax refunds, enterprises should formulate response strategies from three perspectives: facts, law, and principles, in order to effectively mitigate risks and safeguard their legitimate rights and interests.
1. Fact-Finding: Ensuring Transaction Authenticity and Document Consistency
In communications with tax authorities, enterprises should proactively explain the specific operational process of the business, including the background, purpose, and commercial rationale of the transaction. For special trade arrangements or complex business models, detailed explanations can help tax authorities understand the substance of the transaction, thereby reducing risks arising from misunderstandings or information asymmetry.
On the one hand, enterprises should conduct a comprehensive review of documents based on each customs declaration, ensuring their completeness and authenticity. These documents include, but are not limited to:
Contracts
Invoices
Packing lists
Bills of lading
Export customs declarations
Export tax refund declaration forms
Information across these documents—such as product names, quantities, amounts, and specifications—should be consistent to avoid triggering inquiries.
On the other hand, enterprises should organize evidence according to each transaction. This involves documenting the entire process of each export transaction, including procurement, production, sales, transportation, customs clearance, and tax refund claims. By aligning supporting evidence with the transaction process, enterprises can clearly demonstrate the authenticity of each transaction.
2. Legal Arguments: Upholding the Principles of “Favoring the Taxpayer” and “Presumption of Innocence”
Tax authorities should not determine tax fraud solely based on internal inquiry replies.
Although inquiry replies may contain conclusions such as “the invoice is falsely issued,” these conclusions merely provide investigative leads. The tax refund authority cannot rely solely on such replies to determine that false invoicing occurred or that export tax refund fraud has been committed.
The fundamental requirement for export tax refunds is the actual export of genuine goods. If, after review, the tax authority cannot produce evidence overturning the materials submitted by the enterprise, it should, based on the principle favoring the taxpayer, recognize that the enterprise’s materials are complete and authentic and grant the export tax refund.
In practice, responding tax authorities often face tight deadlines and difficulties verifying upstream production enterprises. To avoid state tax losses and mitigate responsibility, they may adopt overly stringent standards when issuing replies. However, such practices may undermine taxpayer rights and violate the principle of presumption of honesty for taxpayers.
3. Principle of Protection of Legitimate Expectations: Addressing “Repeated Inquiries” and Changing Conclusions
Under administrative law, if an administrative counterpart reasonably relies on an administrative authority’s prior act and takes action based on that reliance, and the authority later revokes or changes the act causing losses, compensation should be provided.
The principle of protection of legitimate expectations is particularly relevant in cases of repeated inquiries. Once a tax authority has approved a refund, taxpayers have sufficient reason to trust that the authority’s verification and investigation were adequate and that their refund claim complied with export tax refund regulations.
If the responding authority initially replies “normal business” after verification, but later changes the conclusion to “circumstances where refund should not be granted,” such conduct may violate the principle of protection of legitimate expectations.
Conclusion
When facing the risk of “deemed domestic sales” triggered by abnormal inquiry replies, export enterprises may respond from three angles: fact clarification, legal defense, and protection of legitimate expectations.
By strengthening factual foundations—ensuring transaction authenticity and document consistency—enterprises can establish credible evidence. Through legal defenses emphasizing the principle favoring taxpayers, they can challenge overly rigid administrative conclusions. By invoking the principle of legitimate expectation, they can resist arbitrary changes in administrative actions.
At the same time, enterprises should strengthen supply chain risk management and carefully select trading partners to reduce the likelihood of inquiry risks arising at the source.

Editor's Note: Recently, a WFOE company under the red-chip structure of a listed company in the US stock market was required to pay a withholding tax of more than 547 million yuan at a rate of 10% when paying dividends to Hong Kong companies, which triggered a heated discussion. According to the tax agreement between China and Hong Kong, if a Hong Kong resident enterprise holds more than 25% of the shares of a mainland resident enterprise and the Hong Kong company meets the conditions of "beneficial owner", the withholding tax paid by the mainland company to it can be applied at a preferential tax rate of 5%, and if it does not meet the conditions, the withholding tax of 10% is required. Setting up a holding company in Hong Kong is the mainstream model for the structural design of enterprises listed overseas in China, and an accurate grasp of the conditions of beneficial owners is related to the overall tax burden of the structure. Based on the above cases, this paper analyzes the conditions for determining the beneficial owner, and interprets the influence of the latest development of "Pillar II" on the red chip structure.


1. Case: Not meeting the conditions of 5% preferential tax rate, and being required to pay back withholding tax of more than 547 million yuan.
According to the financial report issued by the company, WFOE, a red-chip company, received a notice from the tax authorities that the applicable tax rate for profit dividends paid to Hong Kong companies should be adjusted to 10% instead of the original preferential tax rate of 5%, and accordingly the withholding tax should be paid back to 547.9 million yuan.
Like most technology companies listed in Hong Kong and US stocks, the company adopts the red-chip VIE structure, with Cayman as the main body of listing, and the China resident company WFOE is controlled by the Hong Kong company and the mainland operating company is controlled by the WFOE agreement. In terms of dividend distribution, according to the Arrangement between the Mainland and the Hong Kong Special Administrative Region on Avoidance of Double Taxation and Prevention of Tax Evasion on Income, if a Hong Kong company directly holds more than 25% of the shares of a mainland company and the Hong Kong company meets the conditions of beneficial owner, the withholding tax deducted by the mainland company at the time of dividend payment can enjoy a preferential tax rate of 5%. In practice, the condition of shareholding ratio is easy to achieve, and the key point lies in the identification of beneficial owners. If it does not meet the identification conditions of beneficial owners, it will face the problem of paying back taxes.
II. Accurately understand and grasp the conditions for the identification of beneficial owners
The preferential treatment of dividends, interest and royalties in tax treaties basically involves the identification of beneficial owners. In order to standardize the application of the concept of "beneficial owner" in terms of tax treaties, the State Administration of Taxation has successively promulgated the Notice of State Taxation Administration of The People's Republic of China on How to Understand and Identify the "beneficial owner" in tax treaties (Guo Shui Han [2009] No.601, which has been repealed) and the Announcement of State Taxation Administration of The People's Republic of China on Identifying the "beneficial owner" in tax treaties (State Taxation Administration of The People's Republic of China Announcement No.30, 2012, which has been repealed). In February 2018, the State Administration of Taxation issued the Announcement of State Taxation Administration of The People's Republic of China on Issues Concerning Beneficiary Owners in Tax Treaties (State Taxation Administration of The People's Republic of China Announcement No.9 of 2018), drawing on the achievements of the Sixth Action Plan of "Tax Base Erosion and Profit Transfer" (BEPS), improving the rigidity of the criteria for judging Beneficiary Owners, and taking more effective precautions against arrangements with high risk of abusing the agreements. According to the provisions of Announcement No.9, the "beneficial owner" refers to the person who has the ownership and control over the income or the rights or property based on the income. The judgment of beneficial owner includes safe harbor rule, penetration rule and identification of unfavorable factors.
The identification of unfavorable factors needs to be comprehensively analyzed around factors such as acquired control rights, substantive business activities and actual tax rate. Taking a case published in China Tax News as an example, the tax bureau of Longhua District, Shenzhen inspected the domestic manufacturing enterprise Company A's declaration of enjoying the dividend agreement treatment by source withholding, and found that the non-resident shareholder Company B, which holds 100% of its shares, does not constitute substantive production and business activities, does not meet the conditions of "beneficial owner" and should not enjoy the dividend provisions of the agreement treatment. The tax authorities believe that from the perspective of substantive business activities, although Company B has leased office space locally, there are only three employees, and two of them are shared with Company C, an overseas headquarters, with no fixed assets and no substantive research and development or business activities; From the perspective of decision-making power, Company B has no independent decision-making power on dividend distribution; Judging from the matching between income and functional risk, Company B is nominally engaged in investment holding activities, but there is no corresponding business process, division of labor and use of funds. All its income comes from dividends distributed by subsidiaries in China, and important decisions such as orders, technology, production and operation of its subsidiaries in China are directly controlled by headquarters company C. Company B does not bear the investment risks related to dividend income, and most of the dividends are paid to headquarters company C by means of "borrowing" in a short period of time, and its "investment holding". According to the tax avoidance purpose test, the income tax rate of the region where Company B is located is 5.5%, and the dividends obtained from overseas companies holding more than 10% of the shares are tax-free. The actual tax burden of Company B is significantly lower than that of China. In the end, Company A paid back the withholding enterprise income tax of more than 3 million yuan and the corresponding late payment fee.
Therefore, the holding company that intends to enjoy the preferential agreement should focus on the actual operating conditions, and the establishment and business development of the company should have reasonable commercial purposes, such as conforming to industry practices and enterprise development strategies, which can bring practical benefits such as improving management efficiency and enhancing market competitiveness; Have real economic activities, such as office space, personnel, assets and related management systems that match the business.
In addition, due to the convenience of financing and cross-border payment in some overseas countries or regions, some shareholding companies also play the function of financing, forming a cross-border fund pool to carry out frequent capital circulation, and the operation of this model is easy to be judged as having unfavorable factors in the identification of beneficial owners. "Applicants are obliged to pay more than 50% of the income to the residents of third countries (regions) within 12 months after receiving the income." Obligation "includes agreed obligations and payment facts that have been formed without agreed obligations. Therefore, for the holding companies that play the role of fund pool, in addition to substantive operation, they should also pay attention to the limitation of transfer ratio and strengthen the control of dividend distribution funds by holding companies.
III. Compliance Risk of Holding Company under Pillar II Global Minimum Tax Rule
According to the China Tax News, on January 5, 2026, the Organization for Economic Cooperation and Development (OECD) issued an important guide to the collection and management of Pillar II, and finally finalized the implementation of a "parallel" package of measures, that is, the OECD's global minimum tax scheme is compatible with the US global minimum tax system, putting an end to the international community's efforts to launch the global minimum tax scheme for more than four years. Pillar 2 aims to solve the problem that multinational corporations evade taxes by using international tax havens and the disparity in tax burden among countries, and based on this purpose, a global minimum income tax system of 15% is established. The effective tax rate of multinational corporations that reach the threshold in each tax jurisdiction is at least 15%, and if it is lower than 15%, a supplementary tax will be levied on low-tax income.
In May 2025, the Hong Kong Legislative Council passed the Tax (Amendment) Ordinance 2024, which implemented the global minimum tax and introduced the minimum supplementary tax in Hong Kong. According to the regulations, in the four fiscal years immediately preceding the current fiscal year, multinational groups with annual operating income of 750 million euros or more in at least two fiscal years are required to pay at least 15% of the global minimum tax on the profits generated in each jurisdiction where they operate. Under the minimum supplementary tax rule in Hong Kong, the Hong Kong government can give priority to collecting supplementary tax on the covered multinational group entities with an effective tax rate of less than 15% in Hong Kong. At present, most of China's overseas listed companies set up shareholding companies in Hong Kong, and some companies carry out actual business in order to enjoy the agreed treatment more in compliance. Although the nominal profit tax rate in Hong Kong is 16.5%, the effective tax rate may be lower than 15% after the tax preferential policies are superimposed, and they may face the risk of paying supplementary tax.
IV. Summary
According to the Administrative Measures on non-resident taxpayer's Enjoyment of Agreed Treatment (State Taxation Administration of The People's Republic of China Announcement No.35, 2019), non-resident taxpayer's enjoyment of agreed treatment is handled by "self-judgment, declaration of enjoyment, and retention of relevant information for future reference", which also puts forward higher tax compliance requirements for the shareholding companies and dividend distribution companies in the investment structure. In view of the applicable judgment of "beneficial owner", we can seek professional support and reach a tax advance ruling. For example, a company in Fujian plans to distribute dividends to overseas parent companies, pays attention to the possible preferential treatment in tax treaties, puts forward an application for tax advance ruling on dividend distribution and enjoys preferential tax rates in tax treaties, and finally reaches a tax advance ruling on the identity judgment of beneficial owners and enjoys preferential tax treaties, and obtains the Opinion on Tax Advance Ruling issued by the tax authorities. In addition, multinational enterprises should also pay attention to the latest progress of the "two pillars", clarify the system design and reporting requirements, accurately calculate the tax burden, and adjust and optimize the structure.