Recently, a number of medical device enterprises have not only been subject to tax recovery and late payment fees, but also administrative penalties and lower tax ratings due to concealment of income, false listing of expenditures and other illegal acts, triggering a series of tax risks. Serious cases will face criminal sanctions. In view of this, this paper will take the pharmaceutical enterprises tax evasion, false opening as a starting point, through the case form to summarize the pharmaceutical enterprises tax evasion, false opening of common situations, and legal risk analysis, in order to provide suggestions for pharmaceutical enterprises to prevent tax risks.

I. Observations on actual cases: common types of tax evasion and false billing in medical enterprises

(I) Tax evasion by concealing income and listing false costs and expenses

1. Sales of products or provision of services without recognizing revenue and invoicing

According to the public information on administrative penalties issued by the Jiangsu Provincial Tax Bureau, the tax authorities found that a medical device company in Yangzhou did not recognize revenues, issue invoices, or make tax declarations for the payment of goods totaling more than RMB 1.38 million during the period of 2020-2022 by accessing the enterprise's bank flow, accounts receivable ledger, bookkeeping vouchers, tax returns and financial statements, which resulted in the underpayment of value-added tax (VAT), enterprise income tax, urban construction tax, education and construction tax, enterprise construction tax, and education and construction tax, as well as the underpayment of tax. income tax, urban construction tax, education surcharge and local education surcharge of more than 820,000 RMB. The tax authorities determined that the violation was tax evasion and imposed a fine of 60% of the underpaid tax.

The enterprise received the payment for the goods through the enterprise bank account, but did not recognize the revenue in accordance with the accounting standards, nor issued invoices and made tax declaration in accordance with the tax law. In fact, as far as VAT is concerned, even if the enterprise does not meet the conditions for recognizing revenue in accounting, according to Article 19 of the Provisional Regulations on Value-added Tax (VAT), "The time of occurrence of VAT payment obligation: (a) When a taxable sales act occurs, it is the day when the sales payment is received or the receipt of the vouchers requesting the sales payment is obtained; and if the invoice is issued first, it is the day of the issuance of the invoice. " Therefore, the enterprise generates the VAT tax obligation on the day when it receives the sales payment or obtains the sales receipt, which should be reported in the "Uninvoiced Income" in the VAT return.

As far as the enterprise income tax is concerned, the recognition of enterprise sales revenue should follow the principle of accrual system and the principle of substance over form, and the revenue should be recognized in accordance with the "Circular of the State Administration of Taxation on Several Issues Concerning the Confirmation of Enterprise Income Tax Revenue" (GuoShuiHuan [2008] No. 875). Need to remind the majority of pharmaceutical enterprises to note that the accounting income guidelines and tax law to recognize income between the provisions of the tax differences exist, the relevant financial personnel should make adjustments to avoid the policy is not familiar with the omission of payment, underpayment of taxes.

2. Taking private accounts, "internal and external two sets of accounts", not listed in the books of account, understating the way to conceal sales income

According to the indictment of Huang Mou tax evasion case (eight prosecutor criminal prosecution [2021] Z103), Huang Mou is the legal representative and chairman of Guangxi Hezhou Mou Mou Pharmacy Chain Co. During its operation, the pharmacy was required to open two types of accounts: one was to open a public account for the pharmacy and pay taxes to the tax bureau on the sales revenue it received, and the other was to open a bank account in Huang's personal name and deposit 25% of the pharmacy's sales revenue into the account to underpay the taxes, thereby evading the taxes. In the tax bureau of the pharmacy's tax evasion behavior to make two administrative penalties, Huang still asked the pharmacy to the above ways to continue to evade taxes, the amount is huge and accounted for more than thirty percent of the taxable amount, by Guangxi autonomous region of Hezhou City, Babu District People's Procuratorate according to the law to the crime of tax evasion prosecuted for its criminal responsibility.

Pharmaceutical enterprises through the enterprise shareholders, employees and other personnel of the personal account for the collection of a greater degree of concealment, but with the number of tax in full swing, once the personal account to receive a large amount of money, will likely be listed as anomalies in the account, by the tax authorities of the monitoring and auditing, and then found that the pharmaceutical enterprises there are private accounts to collect money, hidden income of illegal behavior.

3. through the current and expense accounts, false costs

A pharmaceutical company in Yangzhou fictionalized the purchase object and cost through the current account - accounts payable, resulting in underpayment of enterprise income tax of more than 400,000 yuan, the tax authorities to recover the enterprise income tax and impose a fine of 60%.

There is also a pharmaceutical company that utilizes the administrative expense account to falsely list the salary of employees who have left the company, and the tax authorities recovered the income tax of the year and imposed a fine of 60%.

Tax authorities often use the levy management software, tax-related information, big data management platform and other analytical tools, the enterprise declaration data, tax-related information, such as the risk of suspicion of comprehensive analysis of enterprise financial data, analysis and comparison of sales, operating profits, corporate income tax payments, whether there is a sales expense ratio, accounts payable and other anomalies, so as to study and judge the existence of the suspicion of evasion of taxes in the pharmaceutical enterprises.

(II) Inflating consulting and meeting expenses through false invoicing

Since the "two-invoice system" reform, the past to take the illegal mode of lengthening the sales link to extract funds has been blocked, some pharmaceutical companies will look to the pharmaceutical consulting services company. Pharmaceutical manufacturing companies through the acceptance of such pharmaceutical companies to the false opening of the consulting, conference service fee invoices to false costs and to extract funds for bribery.

Recently, there have been a large number of pharmaceutical companies have been investigated. For example, the actual controller of a pharmaceutical manufacturing company in Zhejiang set up a pharmaceutical consulting services company, forged contracts, fictitious transactions, and falsely issued invoices for a pharmaceutical manufacturing company in Zhejiang, in order to achieve the unlawful purpose of underpayment of enterprise income tax. The tax authorities determined that the pharmaceutical manufacturing company accepted the false invoices for the pre-tax cost of the behavior of tax evasion and imposed a fine of 0.5 times of the underpaid tax. Common false invoicing to extract funds by means of:

1. Chinese herbal medicine, raw material medicine procurement false filling of agricultural products purchase invoices;

2.Let cso, csp and other enterprises falsely open invoices for consulting fees, meeting fees and so on;

3. the use of investment park policy, grafting the business to the park enterprises to reduce costs, or the risk of separation of tickets and goods;

4. registered shell enterprises, individual, individual households violence false invoicing.

In fact, the behavior of false invoicing also violates the provisions of the "invoice management approach", thus constituting a legal competition. Then, in the end, "false invoicing" or "tax evasion", need to comprehensively analyze the specific case. According to Article 29 of the Administrative Penalty Law, "no two penalties for the same thing", the illegal behavior of false invoicing and false costing of pharmaceutical enterprises violates both Article 21 of the Invoice Management Measures and Article 63 of the Tax Collection and Administration Law, and shall be punished in accordance with the provisions of the higher fine. According to Article 36 of the Measures for the Administration of Invoice, the maximum penalty for the violation of false invoicing is 500,000 RMB, while according to Article 63 of the Tax Collection and Administration Law, tax evasion can be punished with a fine of 0.5-5 times of the underpaid tax. Generally speaking, characterizing a pharmaceutical company as a tax evader for using false invoices to inflate costs, the amount of the fine will be higher than the amount of the top penalty for false invoicing. However, if the act of false invoicing constitutes a crime, it should be referred to the public security for suspected false invoicing crimes.

(III) Summary

When the objective results caused by the tax evasion behavior of the above pharmaceutical enterprises reach a certain amount and proportion, it may lead to the crime of tax evasion, and the relevant person in charge may face up to 7 years of imprisonment. In addition, it may also constitute the crime of false VAT invoicing or false invoicing. Next, the author will analyze the constituent elements of tax evasion and false invoicing, as well as their administrative and criminal risks, so as to provide guidelines for pharmaceutical enterprises to solve criminal risks.

II. Constituent Elements of Tax Evasion and False Expenditures and Their Administrative and Criminal Risks 

(I) Constituent elements of tax evasion and its risks

1. Tax evasion in administrative law

According to Article 63 of the Law on Administration of Tax Collection, "A taxpayer who forges, alters, conceals or destroys without authorization the books of account and bookkeeping vouchers, or overstates the expenditure or does not list or understates the income on the books of account, or who refuses to make a declaration after being notified to make a declaration by the tax authorities or makes a false tax declaration, and who does not pay or underpays the tax payable, is a tax evader. Where a taxpayer evades tax, the tax authorities shall recover the unpaid or underpaid tax, late payment fees, and impose a fine of not less than 50% and not more than five times the unpaid or underpaid tax; where a crime is constituted, criminal liability shall be investigated in accordance with the law."

According to the above provisions, the article stipulates four means of tax evasion, a result, the specific administrative responsibility to be borne and the connection with criminal responsibility. From the objective aspect, the tax law positively enumerates the means of tax evasion, i.e., firstly, "adopting the means of counterfeiting, altering, concealing, or destroying the account books and vouchers without authorization"; secondly, "over-listing the expenditures on the account books, or not listing, or under-listing the income"; thirdly, "having the means to obtain the approval of the tax authorities"; and thirdly, "having the means to obtain the approval of the tax authorities". (iii) "refusing to make a declaration when notified to do so by the tax authorities"; and (iv) "making a false tax declaration". The objective result is the non-payment or underpayment of tax.

In practice, it is controversial whether tax evasion requires subjective intent. There is a view that subjective intent is not a necessary condition for tax evasion for the following reasons: First, Article 63 clearly stipulates the "means + result" of tax evasion, and does not require subjective intent; second, looking at the Law on Administration of Tax Collection, its legal liability provisions do not require the subjective state of the perpetrator when he commits an illegal act; Thirdly, according to Article 33 of the Administrative Penalty Law, "If the party concerned has sufficient evidence to prove that there is no subjective fault, no administrative penalty shall be imposed. Laws and administrative regulations provide otherwise, from its provisions", the legislature believes that in the administrative penalty, the administrative relative to take the presumption of fault principle of attribution, by the relative to prove that does not have the subjective fault.

However, the author believes that the above view is inappropriate and that subjective intent is a necessary condition to constitute tax evasion. There are three reasons: First, according to the textual interpretation of the legal provisions, it must be required that the subjective system of intentional tax evasion, such as Article 63 uses the words "forgery, alteration, concealment, unauthorized destruction", "refusal to declare", "false declarations " and other phrases, emphasizing the subjective malice of the perpetrator; secondly, tax evasion, as the administrative predecessor of tax evasion, must do a good job of convergence between execution and punishment, and must adhere to the principle of subject-objective unity; thirdly, according to the reply of the State Administration of Taxation to the reply of the Supreme People's Procuratorate, "Reply of the General Office of the State Administration of Taxation on the Qualification of Relevant Tax-Related Behavior of Hohhot City Changlong Food Co. State Tax Office Letter [2007] No. 513 clarifies that tax evasion should have a subjective purpose. In addition, the State Administration of Taxation has also made it clear in its replies to a number of cases that the tax authorities must prove that the taxpayer has a subjective intent. For example, the Approval of the State Administration of Taxation on the Review Opinions on the Tax Evasion Case of Beijing Julingyan Plastics Company Limited (Tax General Letter [2016] No. 274).

2. Tax evasion in criminal law

Article 201 of the current Criminal Law stipulates, "If a taxpayer adopts deception or concealment means to make a false tax declaration or fails to make a declaration, and avoids payment of tax in a larger amount and accounting for more than 10% of the taxable amount, he shall be sentenced to fixed-term imprisonment of not more than 3 years or detention, and punished by a fine; if the amount is huge and accounts for more than 30% of the taxable amount, he shall be sentenced to fixed-term imprisonment of not less than 3 but not more than 7 years, and punished by a fine. The amount is huge and accounts for more than 30% of the taxable amount. If a withholding agent adopts the means listed in the preceding paragraph and fails to pay or underpays the tax withheld or collected, and the amount is large, it shall be punished in accordance with the provisions of the preceding paragraph. If the acts of the preceding two paragraphs are committed repeatedly without being dealt with, the amount shall be calculated in accordance with the cumulative amount. If there is an act in the first paragraph, and after the tax authorities have issued a notice of recovery according to law, the tax payable is paid up, late fees are paid, and administrative penalties have been imposed, criminal liability shall not be pursued; however, except for those who have been subjected to criminal penalties within five years for evading payment of tax or who have been subjected to administrative penalties by the tax authorities for more than two times."

The crime of tax evasion is an administrative offense, and the constituent elements of tax evasion are basically the same as the aforementioned tax evasion. It is worth noting that the crime of tax evasion provides for a special provision that the first-time offenders of the crime of tax evasion shall not be held criminally liable, i.e., the taxpayer shall not be held criminally liable for the taxpayer's re-payment of the tax after the tax authorities have issued a notice of recovery according to the law, which is more conducive to safeguarding the realization of the State's right of tax collection and is in line with the criminal policy of leniency.

(II) The constituent elements of false opening and its risks

1. False invoicing in administrative law

Article 21 of the Measures for the Administration of Invoices stipulates that "invoices shall be issued in accordance with the prescribed time limit, order and columns, all of which shall be issued at one time in a truthful manner and stamped with the special seal for invoices. Any unit or individual shall not have the following false invoicing behavior: (a) for others, for their own invoices that do not correspond to the actual business situation; (b) let others for their own invoices that do not correspond to the actual business situation; (c) introduce others to issue invoices that do not correspond to the actual business situation." As can be seen, the tax law on false invoicing behavior, are emphasized "with the actual operation of the business situation does not match". The first paragraph states that the invoicing party violates the law; the second paragraph states that the invoiced party violates the law, and the third article states that the introducing party violates the law.

Article 35 stipulates: "Any false invoicing in violation of the provisions of these Measures shall be subject to confiscation of the illegal income by the tax authorities; if the amount of false invoicing is less than 10,000 yuan, a fine of less than 50,000 yuan may be imposed; if the amount of false invoicing is more than 10,000 yuan, a fine of 50,000 yuan shall be imposed, and a fine of 500,000 yuan shall be imposed; if the violation constitutes a crime, the person concerned shall be held criminally liable in accordance with the law. Those who illegally issue invoices on behalf of others shall be punished in accordance with the preceding paragraph."

According to the above provisions, as long as the invoice issued by the perpetrator does not match the actual business situation and violates the formal elements required by the tax law, it is false invoicing. For example, the name, quantity, tax rate, unit price and other elements of the invoice issued by the pharmaceutical enterprises are inconsistent with the actual situation, can constitute false invoicing on the tax law, and administrative penalties shall be imposed on them.

2. False invoicing in criminal law

 A fine of not more than five hundred thousand yuan; where the amount of tax falsely invoiced is huge or there are other particularly serious circumstances, the offender shall be sentenced to fixed-term imprisonment of not less than ten years or life imprisonment, and shall also be sentenced to a fine of not less than fifty thousand yuan but not more than five hundred thousand yuan or confiscation of property. False issuance of VAT invoices or false issuance of other invoices used to fraudulently obtain export tax refunds or tax credits refers to those who have committed one of the behaviors of false issuance for others, false issuance for oneself, letting others falsely issue invoices for oneself, or introducing others to falsely issue invoices."

One of Article 205: "If the circumstances are serious, a person who falsely opens other invoices other than those stipulated in Article 205 of this Law shall be sentenced to fixed-term imprisonment of not more than two years, detention or control, and shall be punished by a fine; if the circumstances are particularly serious, the person shall be sentenced to fixed-term imprisonment of not less than two years but not more than seven years, and shall be punished by a fine."

It must be pointed out that the current judicial interpretation and judicial practice, basically recognized the false opening of the Department of the purpose of the crime, the result of the crime. That is, to constitute the criminal law of false invoicing crime, need to strictly apply the principle of subject-object consistency, objectively with the behavior of false invoicing, subjectively with the intent to fraudulently offset tax, and actually caused the loss of national VAT, in order to constitute the crime of false invoicing. As long as one of the constituent elements is not satisfied, the false invoicing crime cannot be convicted and sentenced.

Therefore, it does not mean that the four types of behaviors of false invoicing committed by the perpetrator constitute the crime of false invoicing, but also comprehensively consider the subjective purpose of the perpetrator and whether it causes the loss of national tax. At the same time, on the identification of false invoicing, there is a relationship between the tax law and the criminal law in terms of antecedent law and antecedent law. According to the principle of the unity of the legal order, the behavior of legally issuing invoices in tax law may not constitute the crime of false invoicing in criminal law. For example, the State Administration of Taxation (SAT) has issued a number of documents in the form of normative documents to exclude certain behaviors from false invoicing in a reverse manner. According to the Announcement of the State Administration of Taxation on Relevant Issues Concerning the External Issuance of Special VAT Invoices by Taxpayers (State Administration of Taxation Announcement No. 39 of 2014), the act of dependent invoicing does not fall into the category of false invoicing in terms of tax law, and therefore cannot constitute the crime of false invoicing in terms of criminal law.

III. risk response: strive to tax evasion, false opening tax risks in the administrative stage

Pharmaceutical enterprises in the occurrence of the above tax evasion, false opening behavior, by the tax authorities to file an audit, should be timely to resolve the risk in the administrative stage.

As far as tax evasion is concerned, first of all, actively communicate with the tax authorities to prove that there is no tax evasion intention, and even if the result of underpayment of tax is caused objectively, it is not in line with the constitutive elements of tax evasion under the tax law. Secondly, even if it constitutes tax evasion under the tax law, the pharmaceutical enterprise should actively pay the tax due and late fees after the tax authority has issued a recovery notice according to the law, so as to prevent the risk of administrative penalties from being transformed into the risk of criminal sanctions. Finally, if a pharmaceutical enterprise is a repeat offender and has been criminally punished for tax evasion within five years or has been administratively punished by the tax authorities for more than two times, it should actively communicate with the procuratorate for a decision not to prosecute.

As far as false invoicing is concerned, pharmaceutical enterprises are more likely to be administratively penalized by the tax authorities once they issue invoices that are inconsistent with their actual operations. As mentioned before, the subjective and objective aspects of the crime of false invoicing need to be argued. Therefore, pharmaceutical enterprises should communicate with the tax authorities in a timely manner during the administrative stage to explain the legality of their invoicing in order to prevent being transferred to the public security.