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CSO fraudulent opening cases erupt in many places, triggering tax administrative and criminal risks for pharmaceutical companies

Editor's Note: In the past, the pharmaceutical industry, the business model of drug sales for the layers of distribution, due to the long business chain, to a certain extent, played the role of risk isolation, invoice risk transfer to the pharmaceutical companies less likely. After the "two-invoice system", pharmaceutical companies can only issue two invoices to medical institutions, the original business model is difficult, a large number of distributors have changed their identity to CSO and other promotional service providers, the business model has changed accordingly to the drug promotion model, the business chain is greatly shortened, even if the pharmaceutical companies really purchased promotional services, promotional service providers do not know the behavior of false invoicing. Even if the pharmaceutical company really purchased the promotion service, the behavior of false invoicing of the service provider is not aware of, but also very easy to be implicated by the promotion service provider. Since this year, CSO false invoicing cases have broken out in many places, what kind of tax-related risks will pharmaceutical enterprises face and how should they respond? This article is intended to reveal and provide brief response ideas for pharmaceutical enterprises.

I. Industry Watch: CSO fraudulent invoicing of promotional services erupts in many places

(i) Inner Mongolia: CCTV exposure of the promotion of service providers to pharmaceutical companies fraudulent invoices 6 billion yuan.

Recently, CCTV's "Today's Law" aired the 6 billion yuan case of CSO's false invoicing. Anhui distributors colluded with Ulaanbaatar drug agents, and since the nationwide implementation of the "two-invoice system" in 2018, registered a large number of shell CSO companies in Ulaanbaatar, and fraudulently issued invoices for promotional services to 22 pharmaceutical companies across the country, with an amount of up to 6 billion yuan, and a number of pharmaceutical companies involved in the case were recovered taxes and fined.

The public security investigation of cephalosporin drugs, for example, pharmaceutical companies will sell drugs at a price of 92 yuan to dealers, dealers plus transportation costs sold to medical institutions, and then dealers use their registered CSO to the pharmaceutical companies to fraudulently open the invoices of research and other promotional services, pharmaceutical companies will be the money to the CSO, dealers and then extracted out to the hospital leadership, the doctor to transport benefits.

(ii) Liaoning Province: Promotional service providers registered shell companies to a number of pharmaceutical companies false invoicing of more than 480 million yuan.

In May this year, "Procurator Daily" published "shell companies become to the pharmaceutical representatives rebate channel" article, the article pointed out that in late 2017, Zhang set up a pharmaceutical company in Liaoning province and access to a number of pharmaceutical enterprises in the pharmaceutical sales agency, and then through the identity of the staff registered more than a hundred shell companies. Zhang used the shell company and a number of pharmaceutical enterprises signed a false contract, through the way of false invoicing from the pharmaceutical enterprises to extract funds to a number of pharmaceutical representatives after the rebate, the amount of false opening up to 480 million yuan. At the time of publication, the case had entered the trial stage.

(iii) Guangxi: CSO's false invoices to 13 downstream pharmaceutical companies were transferred to the judicial authorities.

According to the tax administrative penalty letter made public by the Tax Bureau of Guangxi Autonomous Region in March this year, a CSO was established in January 2018, and its de facto controller, Yan Mou, helped pharmaceutical enterprises to contact the distribution company and medical institutions, and the pharmaceutical enterprises sold the drugs to the distribution company, and the distribution company sold the drugs to the medical institutions contacted by Yan Mou; the payments for the drugs were transferred from the medical institutions to the distribution company, and the distribution company transferred the money to the pharmaceutical The pharmaceutical company sells the drugs to the distribution company, and the distribution company then sells the drugs to the medical institutions contacted by Yan Mou. Yan calculated the sales commission according to the quantity of drugs sold, signed a consulting and promotion service contract with the pharmaceutical enterprise as a CSO, and issued a promotion service invoice to the pharmaceutical enterprise, which paid the sales commission to Yan accordingly. Guilin Taxation Bureau imposed a fine of 100,000 RMB on the CSO for the fraudulent issuance of ordinary VAT invoices and transferred it to the judicial authorities in accordance with the law.

(iv) Case summaries

The first three cases reflect the specific mode of false invoicing by CSOs in the pharmaceutical industry after the "two-invoice system", i.e., CSOs signing false promotion service contracts with pharmaceutical enterprises, issuing promotion service invoices to them to extract funds, and then ultimately using the extracted funds for "sales with gold". The specific pattern of CSO is that CSO signs a false promotion service contract with pharmaceutical enterprises to issue promotion service invoices to them to extract funds, and then the funds extracted are eventually used for "sales with gold". For the CSO invoicing party, once the tax authorities and judicial authorities find out that it has not provided real services for the pharmaceutical enterprise, the criminal risk of false invoicing is very great, if the false invoicing is VAT special invoices, it will face the highest criminal responsibility of life imprisonment, and if the false invoicing is VAT ordinary invoices, it will face the highest criminal responsibility of 7 years' imprisonment. However, the tax-related risks faced by the invoiced parties of pharmaceutical enterprises will be different according to their actual situation.

II. What kind of tax risks do pharmaceutical companies face?

(i) Tax exposure to tax adjustments

The Announcement of the State Administration of Taxation on Issues Concerning Taxpayers' Falsely-Invoiced VAT Special Invoice Levy and Compensated Taxes (Announcement of the State Administration of Taxation No. 33 of 2012) stipulates that "taxpayers obtaining falsely-issued VAT special invoices shall not be allowed to use them as legal and valid tax deduction vouchers for VAT to offset their input taxes", and Article 12 of Measures for the Administration of Vouchers for Pre-tax Deduction of Enterprise Income Tax stipulates that "enterprises obtaining  falsely-issued  and other non-compliant invoices  shall not be used as pre-tax deduction vouchers. Article 12 of the Measures for the Administration of Vouchers stipulates that "enterprises obtaining ...... falsely issued ...... and other non-compliant invoices ...... shall not be used as pre-tax deduction vouchers ".

According to this provision, if the CSO falsely issued special VAT invoices to the pharmaceutical enterprise, the pharmaceutical enterprise will face the risk of not being allowed to make VAT input tax credit and pre-tax deduction. Accordingly, the competent tax authority of the pharmaceutical enterprise may require the pharmaceutical enterprise to transfer input tax, pay urban construction tax and surcharge, enterprise income tax, and impose a late payment fee of five ten thousandths of one percent per day. If the CSO has falsely issued ordinary VAT invoices to the pharmaceutical enterprise, it is also exposed to the tax risk of enterprise income tax adjustment and late payment fee.

(ii) Tax risk of exposure to administrative penalties

Article 1 of the Circular of the State Administration of Taxation on the Handling of Issues Concerning Taxpayers Obtaining Fraudulently Issued Special VAT Invoices (GuoShuiFa [1997] No. 134) stipulates that, "If the party to whom the invoice is issued makes use of other people's fraudulently issued special invoices and declares them to the tax authorities to set off the tax for tax evasion, he or she shall, in accordance with the Law on the Administration of Tax Collection and the relevant provisions, pursue the recovery of tax, and impose a fine less than five times of the amount of the tax evaded. The Tax Collection and Administration Law stipulates in Article 63 that "Where a taxpayer steals tax, the tax authorities shall recover the unpaid or underpaid tax and late payment fees, and impose a fine of not less than fifty percent and not more than five times of the unpaid or underpaid tax If a crime is constituted, criminal liability shall be investigated in accordance with the law."

According to this provision, if a pharmaceutical enterprise has the subjective intention of using CSO to make false invoices for offsetting inputs and making false expenses for tax evasion, its competent tax authority may determine that it constitutes tax evasion, and in addition to the aforesaid tax adjustments, the pharmaceutical enterprise faces the tax risk of non-payment and underpayment of tax by a fine of 0.5 to 5 times. It is worth noting that, in the practice of tax enforcement, some tax authorities believe that subjective intent is not a constituent element of tax evasion, and as long as they have received the "Letter of Concurrence on Tax Violation Cases" and "Notification of Confirmed False Openings" from the competent tax authorities of CSOs, they will determine that the behavior of the pharmaceutical enterprise in obtaining the false promotional service invoices for offsetting the inputs and listing the false expenses constitutes tax evasion.

(iii) Exposure to criminal offenses

1. Exposure to the criminal risk of tax evasion offenses

Article 201 of the Criminal Law stipulates that "a taxpayer who adopts deception or concealment means to make a false tax declaration ...... and evades payment of taxes in a larger amount and accounting for more than ten percent of the amount of tax due ...... in a huge amount If the amount of tax evaded is large and accounts for more than thirty percent of the taxable amount, the taxpayer shall be sentenced to fixed-term imprisonment of not less than three years and not more than seven years, and shall be punished with a fine". Article 1, paragraph 1, subparagraph 1 of the Interpretation provides that "If a taxpayer makes a false tax declaration with one of the following circumstances, the taxpayer shall be deemed to have "cheated or concealed means" as stipulated in Article 201, paragraph 1 of the Criminal Law: (3) making false expenditures, offsetting the input tax amount or making false declarations of special additional deductions". Article 52 of the Provisions of the Supreme People's Procuratorate and the Ministry of Public Security on the Criteria for Filing Criminal Cases under the Jurisdiction of the Public Security Organs (II) (hereinafter referred to as the "Filing Criteria") stipulates that, "Any person who evades payment of taxes and is suspected of any of the following circumstances shall be investigated and pursued. One of the following circumstances shall be prosecuted: (1) the taxpayer adopts deception or concealment means to make false tax declaration ...... and evades payment of tax, the amount of which is more than 100,000 yuan and accounts for more than 10% of the total amount of tax payable for each type of tax, and does not make up for the tax payable, does not pay the late payment penalty or does not accept the administrative penalty after the tax authorities have issued a notice of recovery according to law.". administrative penalties".

Pharmaceutical enterprises that underpay VAT, urban construction tax and enterprise income tax by offsetting inputs through the invoices falsely issued by CSOs and listing expenses falsely, resulting in a total amount of underpayment of VAT, urban construction tax and enterprise income tax amounting to RMB 100,000 and accounting for 10% of the total amount of tax payable to the tax authorities for all taxes, and that fail to make up for the tax due, pay late payment fees or accept administrative penalties even after the tax authorities have issued a notice to recover the tax, are facing the risk of being transferred by tax authorities to the Public Security Bureau. The risk of public security. It should be noted that if the tax is paid up, the late payment fee is paid and the administrative penalty is accepted after the public security authorities have filed a case, it does not affect the judicial authorities' ability to pursue the criminal liability of the pharmaceutical enterprise for the offense of tax evasion.

2. Facing the criminal risk of the crime of false VAT invoices or false invoices

Article 205 of the Criminal Law stipulates that "Fraudulent issuance of VAT invoices ...... shall be sentenced to more than ten years of fixed-term imprisonment or life imprisonment", and one of Article 205 stipulates that "Fraudulent issuance of invoices other than those stipulated in Article 205 of this Law other invoices ...... where the circumstances are particularly serious, shall be sentenced to fixed-term imprisonment of not less than two years and not more than seven years", and Article 10(1) of the Judicial Interpretations of the Two Higher Education Authorities stipulates that "Anyone who has one of the following circumstances shall be deemed to have committed the acts stipulated in the first paragraph of Article 205 of the Criminal Law 'Fraudulent VAT invoicing ......': (1) Without actual business, issuing VAT invoices", and Article 12 stipulates that "with one of the following circumstances, it shall be recognized as as 'falsely issuing invoices other than those stipulated in Article 205 of the Criminal Law' as stipulated in the first paragraph of Article 205 of the Criminal Law: (2) issuing invoices for others, for oneself, letting others issue invoices for oneself, or introducing others, without having any actual business", and Article 56 of the Criteria for the Establishment of Cases stipulates that. "Fraudulently issuing VAT invoices with a tax amount of more than 100,000 yuan or causing the loss of state tax amounting to more than 50,000 yuan", and Article 57 stipulates that "Fraudulently issuing invoices other than those stipulated in Article 205 of the Criminal Law with a cumulative amount of more than 500,000 yuan or issuing more than 100 invoices with a face value of more than 300,000 yuan". above 300,000 yuan", that is, meeting the criteria for filing a case for prosecution.

Once the judicial authorities found out that no actual business had occurred between the pharmaceutical company and the CSO, the pharmaceutical company colluded with the CSO to obtain the CSO to issue VAT invoices for promotional services for the pharmaceutical company, which constituted the false invoicing behavior of "letting other people make false invoices for themselves". If the tax amount of the VAT invoice that the pharmaceutical company let the CSO issue for itself reaches RMB 100,000 or the loss of tax amount reaches RMB 50,000, the pharmaceutical company meets the aforementioned criminal filing standards and faces the criminal risk of being investigated for the crime of false VAT invoice, and at the same time, faces different sentences according to the difference of the tax amount of the false invoices or the amount of the tax that cannot be recovered. If a pharmaceutical company allows a CSO to issue ordinary VAT invoices for itself, and the total amount of the invoices is more than 500,000 RMB, or the amount of the invoices is more than 100 and the face value of the invoices is more than 300,000 RMB, it faces the criminal risk of being investigated for the crime of false invoicing, and may be subject to a seven-year imprisonment sentence in the case of a serious situation.

It should be noted that in such cases, there is an imaginative competing relationship between tax evasion and the crime of false opening, and the responsibility is usually pursued in accordance with the crime of false opening.

III. How can pharmaceutical companies prevent and respond?

In recent years, the anti-corruption storm in the pharmaceutical industry has continued to intensify. When the judiciary and the Discipline Inspection Commission investigate the cases of bribe-taking by doctors, it is easy to implicate CSOs through the investigation of the source of bribe funds, and the business chain between CSOs and pharmaceutical enterprises is very short, and the risk of pharmaceutical enterprises to be implicated by CSOs has increased drastically, and the pharmaceutical enterprises should do a good job of taking precautions in advance, and cautiously identifying and appropriately responding to the tax risks.

1.Improvement of internal control system and careful selection of extension services business.

Subject to the characteristics of the buyer's market in the pharmaceutical industry and the impact of the "two-invoice system", pharmaceuticals need to promote the introduction of service providers, promotion to medical institutions, which belongs to the survival of the pharmaceutical enterprises, business development necessary components, tax authorities, the judiciary found that the logic of the pharmaceutical enterprises to obtain fraudulent invoices is not to negate the promotion of the business model, but the promotion of Service providers do not really do promotional services for pharmaceutical companies, and pharmaceutical companies are limited by their own ability to promote service providers can not promote each of the service providers to supervise the service, field verification, often by the promotion of the service provider's deception, in the promotion of the service provider was found to exist in the act of false invoicing by the implication of this, so how to select the promotion of the pharmaceutical companies service providers is particularly important, the need to promote the service provider's authenticity, operating qualifications, business qualifications, and the promotion of the internal control system through a comprehensive internal control system is essential. Therefore, it is particularly important for pharmaceutical companies to select promotion service providers, and it is urgent to conduct an all-round assessment of the authenticity of the promotion service providers, their business qualifications, affiliation, and business capability through a perfect internal control system, so as to ensure that the promotion service providers are not shell companies, and at the same time, they have the corresponding promotion capability.

In this regard, three suggestions are provided for pharmaceutical companies: first, prevent and control risks by improving internal systems, such as the development of the "Marketing Activities Management System", "Internal Audit System", "Anti-commercial Bribery Management System" and other internal management systems to provide for the process of selecting promotional service providers; second, in the selection of promotional service providers, in addition to adopting the referee network, the tax administrative penalties, such as network verification, you can also take a Secondly, when selecting the promotion service provider, in addition to adopting network verification methods such as the adjudication documents website and tax administrative penalties, it can also adopt on-site visits to check the business premises, personnel and scale to determine whether there is any breach of trust and whether the promotion service provider is legally compliant; and thirdly, it has signed a Letter of Commitment for Anti-commercial Bribery with the promotion service provider and has established a risk segregation mechanism with the counterparty.

2. Solid promotion of business information and active communication with tax authorities to avoid the expansion of tax risks.

As we can observe in the aforementioned case, one of the reasons why the tax authorities and judicial authorities found that the promotion service provider did not really do the promotion service is that the contents of the various services for the promotion of pharmaceutical products are fictitious. Therefore, it is important for pharmaceutical companies to have solid promotion service information. It is suggested that pharmaceutical companies can require the promotion service provider to take synchronous audio and video recording to record the promotion service, record in detail the location of the academic meeting, the number of people, the sign-in sheet, and do a good job of summarizing the results of the market promotion activities after the meeting, market research reports, hospitals to develop and maintain the assessment form, and the statistics of the terminal flow of the product.

At the same time, when a pharmaceutical enterprise is subject to audit by the tax authorities, it shall provide the tax authorities with the business and financial information of the promotion service and communicate with its competent tax authorities in terms of both procedures and entities. In terms of procedure, the "Letter of Concurrence on Tax Violation" and the "Notice of Confirmed False Opening" cannot be used as conclusive instruments to characterize false opening, and the tax authorities shall open a case for inspection of the pharmaceutical enterprise, objectively and comprehensively review the business situation and evidential materials involved in the case, and correctly and independently apply the law to make a characterization. On the entity side, the pharmaceutical enterprise should comprehensively collect business and financial information to prove the authenticity of the promotion service expenditures, and actively advocate that it does not constitute the viewpoints of tax evasion, pre-tax deduction of income tax, authorized collection of income tax, and bona fide acquisition of non-payment of late payment of value-added tax based on the communication with the tax authorities, and at the same time do a good job of preventing the criminal risk, and avoiding the transformation of administrative risk to criminal risk.

3.Applying tax law principles and choosing appropriate defense strategies.

If a pharmaceutical enterprise is accused of the crime of false invoicing of VAT, it is suggested that the pharmaceutical enterprise can collect, submit and present evidence that it does not have the purpose of fraudulently offsetting tax and does not cause fraudulent loss of tax, and utilize the principles of the tax law in combination with the provisions of the judicial interpretations of the Two High Commissions to realize that the crime of false invoicing of VAT does not constitute a crime. If the pharmaceutical enterprise is accused of the crime of false invoicing, because the crime of false invoicing is a behavioral crime, once it reaches the filing standard, it can be a crime, and many cases of false invoicing are investigated and dealt with in the process, the judicial authorities failed to do a comprehensive and full investigation and evidence collection, which resulted in unclear facts and insufficient evidence, so it is recommended that the pharmaceutical enterprise take the principle of doubtfulness in favor of the defendant as the starting point, focus on the defense in the factual and evidentiary aspects, and prove that there is no joint criminal intent. Prove that there is no common criminal intent.

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Copyright@2019 Aequity.ALL rights reserved京CP备17073992号-1