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Non-ferrous metal billion yuan false opening case frequently exploded, tax-related risks implicating many industry enterprises

Non-ferrous metals is one of the pillar industries to promote the development of China's national economy, China is a large country with non-ferrous metal resources, and the scale of the industry ranks steadily in the forefront of the world. However, in recent years, frequent non-ferrous metal false invoicing cases, a single case involving tax amount even more than one billion yuan, resulting in a large loss of our tax money. At the same time, the non-ferrous metal industry has long been confined to the lack of input invoices, logistics and transportation costs of bulk commodities and other issues, the industry seeks to save itself at the same time, if you do not pay attention to the prevention of tax risks, it is extremely easy to incur administrative tax inspections, which in turn suffers from administrative penalties or even criminal penalties. In view of this, this paper will start from the main tax matters of the non-ferrous metal industry, analyze the tax-related risk points of the non-ferrous metal industry, and provide suggestions for enterprises to deal with the risk.

I. China's non-ferrous metal market size is at the forefront, and the tax-related matters of enterprises in various segments are different.

(I) non-ferrous metal industry is the national foundation, and strongly promote China's economic development.

Non-ferrous metals are also known as non-ferrous metals, and iron, manganese and other ferrous metals, non-ferrous metals are usually divided into non-ferrous light metals, non-ferrous heavy metals, gold, silver and other precious metals and gallium and thallium and other rare metals, China's common non-ferrous metals, including copper, aluminum, lead, zinc, nickel, tin, antimony, mercury, magnesium and titanium, and is therefore known as the "top ten non-ferrous metals". Therefore, they are also known as the "ten non-ferrous metals". Non-ferrous metals have strong plasticity and ductility, electrical conductivity, corrosion resistance, low magnetic properties, so it can be used in aerospace, photovoltaic science and technology, chips and other high-precision fields, but also commonly used in home appliances, communication equipment, kitchen utensils and other residents of daily life, is regarded as the basic materials for the development of the national economy, so the scale of the non-ferrous metals industry is often used as a reflection of the country's overall level of industrial capacity.

China is one of the world's largest non-ferrous metal industry, the industry has been maintaining a steady growth in recent years, international influence and competitiveness is also rising. However, due to the impact of the epidemic and other factors, some enterprises are facing closure and production cuts, and the industry currently maintains a high degree of industry concentration, with a more pronounced head effect. According to the China Nonferrous Metals Industry Association published the "2022 China Nonferrous Metals Industry Economic Operation Report", the scale of China's top ten nonferrous metals reached 67.936 million tons, an increase of 4.9% according to the comparable caliber, and the number of enterprises reached 11,521, which are mainly distributed in Yunnan, Guangxi and other nonferrous metal resource-rich areas.

(II) Non-ferrous metal industry has many links, and there are differences in tax matters and applicable tax rates.

Taxes mainly involved in non-ferrous metal industry include value-added tax (VAT), enterprise income tax (EIT) and resource tax.

1. Value-added tax

The non-ferrous metal industry involves many types of enterprises, and their applicable VAT rates and policies are different, the following is an analysis for different types of non-ferrous metal enterprises:

(1) In 2016, the Ministry of Finance announced the Notice on Comprehensively Pushing Forward the Pilot Project of Business Tax to Value-added Tax and other four detailed documents, making it clear that since May 1, 2016, the four major industries, including construction, real estate, finance and living services, have been comprehensively included in the scope of the pilot project of business tax to value-added tax, which has been comprehensively pushed forward on a nationwide basis. The full conversion will have a greater impact on the following two types of enterprises:

For non-ferrous metal mining, smelting and processing of such assets accounted for a relatively large investment in enterprises, allowing VAT input deduction will save a large amount of expenditure for the enterprise, the enterprise tax burden will be eased;

For enterprises such as non-ferrous construction engineering, its change from paying business tax of 3% to paying VAT of 11% may lead to a reduction in the tax burden of the enterprise only if the enterprise is able to obtain a full amount of special VAT invoices;

(2) For enterprises purchasing and selling non-ferrous metals, the VAT rate has been changed many times. 1994 VAT reform stipulated that 17% VAT rate was applicable to the sale of goods, and in the same year, the Ministry of Finance and the State Administration of Taxation issued the Notice on Adjustment of VAT Rate on Metal Ore and Non-metallic Ore Mining and Selection Products to promote the development of non-ferrous metal industry, which stipulated that the tax rate of non-ferrous metal purchasing and selling enterprises was 13%. 2008 In 2008, the Ministry of Finance and the State Administration of Taxation issued the Notice on the VAT Rate of Metal Ore and Non-metallic Ore Mining and Selection Products, which restored the VAT rate of non-ferrous metal products from 13% to 17%, causing market fluctuations in the non-ferrous metal industry. With the deepening of China's VAT tax reform, the VAT rate was reduced to 16% in 2018 and changed to 13% in 2109, and the pressure on the tax burden was alleviated. However, the problem of insufficient VAT input invoices for non-ferrous metal purchasing and selling enterprises has long plagued the enterprises.

(3) For enterprises carrying out the purchase and sale of recycled non-ferrous metals, in 2021, the Announcement on Improving VAT Policies on Comprehensive Utilization of Resources (Announcement No. 40 of the Ministry of Finance and the State Administration of Taxation of 2021) issued by the Ministry of Finance and the State Administration of Taxation stipulated that renewable resource enterprises may choose to apply the simplified tax calculation method to calculate the payment of VAT pursuant to the 3% levy rate, but the issue of cost deduction vouchers for the enterprise income tax However, due to the problem of cost deduction vouchers for enterprise income tax, it is difficult to implement the policy.

2. Resource Tax

Resource tax is mainly for non-ferrous metal mining enterprises, and the resource tax rate ranges from 2% to 20% depending on the mining projects. In order to promote the development of non-ferrous metals in China, the state has introduced relevant tax incentives for non-ferrous metal resource tax, such as the "Comprehensive Utilization of Resources Enterprise Income Tax Preferential Catalogue (2021 Edition)", which stipulates that the qualified non-ferrous metal mineral comprehensive utilization enterprises are reduced by 90% of the total income.

3. Enterprise Income Tax

Enterprise income tax, previously part of the non-ferrous metal enterprises will choose to set up in areas or parks with financial rebates, with China's efforts in recent years to combat illegal financial rebates continue to escalate, localities have terminated the financial rebates signed with enterprises, award agreements, the rise in the corporate income tax tax burden will inevitably lead to the rise in the pressure of corporate costs.

Translated with www.DeepL.com/Translator (free version)

II. Non-ferrous metal enterprises' tax supervision posture tightened, enterprise tax risk increased abruptly

(I) The SAT carried out key actions to combat false and fraudulent tax evasion on non-ferrous metals.

The non-ferrous metal industry has always been a key area of China's tax supervision, and the Opinions on Further Deepening the Reform of Tax Levy and Administration issued by the State Administration of Taxation in 2021 pointed out that: "Focusing on the concerns of social opinion and the people, we will focus on the industries and areas such as agricultural and sideline product production and processing, the acquisition and utilization of waste materials, the purchase and sale of bulk commodities (e.g., coal, steel, copper cathode, gold), for-profit education institutions, medical cosmetology, live broadcasting platforms, intermediaries, and equity transfers of high-income people, etc., focusing on investigating and dealing with tax-related violations such as false invoicing (and accepting false invoices), concealment of income, misstatement of costs, use of "tax depressions" and related transactions for malicious tax planning, as well as the use of new business modes for tax evasion. " Among them, electrolytic copper and other bulk commodities and the acquisition and utilization of waste materials are related to the non-ferrous metal industry.

(II) The number of non-ferrous metal tax-related criminal cases is large, and the amount of money involved is huge

Through the legal databases such as "Referee Instruments Network" and other legal databases for cross-searching, with "non-ferrous metals, alloys" and "endangering tax collection and management" as the key words for screening, summarizing the tax-related criminal cases of the non-ferrous metal industry in the past ten years, the number of tax-related criminal cases is large, and the amount involved is huge. In the past ten years, there were 503 tax-related criminal cases in the non-ferrous metal industry, including 451 cases of false VAT invoices, 17 cases of false invoices and 14 cases of tax evasion. The trend of changes in the number of tax-related cases in non-ferrous metals is to increase first and then decrease, reaching a peak in 2019, and the number of judgments plummeted between 2020 and 2022 due to the epidemic and other reasons that led to the restriction of the conclusion of some cases, which affected the number of publicized adjudication documents.

Compared with other industries, the non-ferrous metals industry is one of the fields with a high number of tax-related cases, and the amount of money involved is usually huge, with obvious cross-industry characteristics. Comprehensive data above can be found, the highest number of false opening type crime cases, accounting for more than 90%, of which more than 70% of the false opening cases for non-ferrous metal enterprises false acceptance of VAT invoices issued by others, highlighting the contradiction of the non-ferrous metal industry input tax deduction is difficult.

(III) Special crackdown action on gold change tickets seriously affects the non-ferrous metal industry

Recently, some regions have carried out special crackdown actions against gold invoicing cases, and Huatax has systematically analyzed gold invoicing cases in the article "Frequent gold invoicing cases in various places, and a large number of non-ferrous metal enterprises and renewable resources enterprises have been implicated". Due to the stability of non-ferrous metals and easy melting characteristics, non-ferrous metals and gold are often fused to generate alloys with higher strength and hardness, and the alloys are the necessary raw materials for many kinds of chips and other high-precision objects. Many unscrupulous elements by forging the flow of funds, fictitious transfer of goods and other forms of VAT invoices for gold changed to alloy invoices, and finally changed to non-ferrous metal invoices. Such cases have occurred frequently in recent years and often involve huge amounts of money, affecting many non-ferrous metal enterprises.

III. Analysis of four major causes of tax-related risks in non-ferrous metal industry

(I) Insufficient VAT invoices from upstream enterprises and difficult input deduction

There is a large amount of recycled non-ferrous metals in the procurement source of non-ferrous metals industry, which is usually recycled by the self-organized recycling sites operated by individuals, but due to the reasons that individuals are unwilling or unable to issue VAT invoices, it is difficult for downstream non-ferrous metals purchasing and selling enterprises to obtain input invoices for deduction. Previously, non-ferrous metal purchasing and selling enterprises usually use homemade acquisition vouchers to exchange for scrap material purchase invoices to solve the problem of insufficient input invoices, and use homemade vouchers for enterprise income tax cost deduction. 2008, the Ministry of Finance, State Administration of Taxation issued the Notice on Value-added Tax Policies on Renewable Resources (Cai Shui [2008] No. 157) to abolish the purchase invoices for scrap material, and with the Ministry of Finance, State Administration of Taxation ("SAT") issued the Announcement on Improving the VAT Policy on Comprehensive Utilization of Resources (Ministry of Finance SAT Announcement No. 40 of 2021, hereinafter referred to as "Document No. 40"), the invoice exchange for non-ferrous metal purchasing and selling enterprises was completely stopped in all regions, and Document No. 40 also required localities to remove the financial rebates and subsidies, which led to the fact that Non-ferrous metal enterprises are once again confined to the problem of difficult input invoices. Although Document No. 40 stipulates that enterprises can choose to calculate VAT with 3% simple taxation, the problem of deducting the cost of enterprise income tax cannot be solved, and it is difficult to effectively reduce the tax burden of enterprises, which makes it difficult to implement the regulations. In addition, some of the new non-ferrous metal enterprises in order to reduce corporate expenses also choose to sell non-ferrous metals without invoices, exacerbating the contradiction of the enterprise input invoice.

(II) purchase and sales enterprises involved in non-ferrous metal purchasing business for personal invoicing, easy to be recognized as "false invoicing"

The lack of input invoices lead to non-ferrous metal enterprise cost increases, the high tax burden leads to the enterprise is difficult to maintain normal business, many enterprises are facing production cuts or even stop working. Therefore, some non-ferrous metal enterprises require individuals to be attached to the purchase and sale of enterprises with relevant qualifications, and purchase and sale of enterprises to reach an agreement to purchase and sale of enterprises in the name of non-ferrous metal enterprises to carry out transactions, and in the name of the purchase and sale of enterprises to non-ferrous metal companies to issue VAT invoices to the issue of input invoices. However, in practice, or because of personal dependence and enterprise business specification on certain defects, or because of some areas of the tax authorities on the dependence of the business model of the denial of the business model, resulting in non-ferrous metal enterprises are difficult to avoid tax-related risks.

(III) High logistics and transportation costs of bulk commodities, and unrecognized transfer certificates of warehousing rights

Non-ferrous metals and other bulk commodities due to the quality of the volume of large, high logistics and transportation costs, usually using a "unified warehousing, tail-end pickup" approach, that is, the intermediate trading enterprises through the warehousing documents to complete the transfer of the right of goods, only by the actual use of the goods enterprises to pick up the goods. Therefore, in the transaction process of non-ferrous metal purchasing and selling enterprises usually do not actually carry out the transfer of goods, but to the inventory company or a third-party warehousing company issued by the transfer of goods as the basis for proof of the transaction there is an actual transfer of goods. However, some regional tax authorities do not agree with this approach, that the purchase and sale of non-ferrous metals enterprises are no real goods transactions, such as inter-enterprise also exists between the funds back to the flow of issues, extremely easy to be recognized by the tax authorities as a false openings, and thus be subjected to administrative penalties or even criminal penalties.

(IV) gold into a ticket is difficult to identify, the risk of false opening the whole chain conduction, non-ferrous metal enterprises are difficult to prevent

Due to the special nature of the policy of gold, the Shanghai Gold Exchange agent enterprises have the right to request the tax authorities to open special invoices for VAT on behalf of gold after purchasing gold, and enjoy the tax policy of instant tax refund under the corresponding conditions. Driven by huge profits, the lawless elements obtain gold invoices through the form of separation of goods and tickets, and complete the name change of gold invoices to alloy invoices by partnering with other alloy companies or setting up their own alloy companies; and then complete the name change of alloy invoices to non-ferrous metal invoices through the downstream alloy enterprises and change the VAT invoices of gold to VAT invoices of non-ferrous metals. Under the situation of strict regulation of tax, the above behaviors are easily recognized by the tax authorities and recognized as false invoicing. For non-ferrous metal companies, they cannot effectively identify the authenticity and legitimacy of the VAT invoices obtained, and due to the characteristics of the VAT chain ringing deduction, the risk of upstream false invoicing will be passed to non-ferrous metal enterprises, and the enterprises may face the risk of tax reimbursement, administrative penalties or even criminal penalties.

IV. Non-ferrous metal industry tax risk response suggestions

It was reported that in March 2023, the Nonferrous Metals Group held the "Compliance Management Strengthening Year" work promotion meeting to implement the "Compliance Management Measures for Central Enterprises" issued by the SASAC, and enterprises such as Sinoscale Orient and other associations have successively promoted the corporate compliance, strengthened the awareness of corporate compliance, improved the business audit capabilities of nonferrous metal enterprises, and implemented the compliance management responsibility. management responsibility. Prior compliance prevention is the most effective way to reduce losses, and non-ferrous metal enterprises should focus on the following three aspects: first, non-ferrous metal enterprises should set up complete business processes and retain written materials. Enterprises need to pay special attention to whether the seller exists on behalf of the opening, dependence and other phenomena, timely investigation of whether there is inconsistency in the three streams of the situation, if there are instructions to deliver, advances on behalf of the payment of such behavior, the other party must be retained to illustrate the document, the relevant agreements and so on, in order to prove the authenticity of their own business. After the transaction is completed, relevant contracts, invoices, transportation documents, remittance statements and other transaction-related information should be retained in a timely manner; secondly, it is necessary to establish a sound internal control system. Improve the construction of internal approval, signature, seal and other systems, through the system to build a real business "chain of evidence", to protect non-ferrous enterprises compliance and tax risk prevention; Finally, build a special tax compliance organization system. Non-ferrous metal enterprises should establish tax compliance department or tax compliance group according to their own business situation to ensure that the enterprises correctly apply the labor legal relations and tax policies under the new industry, and reduce the tax risks in the early stage of the enterprise. They should also regularly engage outsiders to carry out corporate tax health checks to reduce administrative and criminal risks.

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