Editor’s Note:Surplus invoices, as one of the primary sources of invoice-related illegal activities, have persisted for years despite repeated crackdowns. The internet industry, which directly connects a large number of individual consumers and service providers, hosts both supply and demand sides for invoices. Due to the intangible nature of internet products and the concealability of such crimes, the sector has gradually evolved into a new hotspot for surplus invoice fraud. Recently, three high-profile cases involving fraudulent issuance of surplus invoices by online recharge platforms have erupted, involving massive amounts and drawing widespread public attention. For both issuers and recipients of surplus invoices, the unique characteristics of the internet industry introduce tax risks distinct from those in traditional sectors. In this article, the author analyzes the differing circumstances faced by issuers and recipients based on observed patterns and emerging practices in the industry, shedding light on potential tax risks.

I. Surplus Invoice Fraud Cases Erupt Across Three Regions: Platforms Must Be Wary of Associated Risks

On March 27, the Shanghai Municipal Tax Authority disclosed a case involving fraudulent issuance of VAT special invoices by an online recharge platform. Since January 2021, a criminal gang led by Gao manipulated shell companies across multiple regions, exploiting surplus invoices from the platform to obtain input tax credits. By fabricating business contracts and disguising fictitious transactions as "information technology services," they fraudulently issued over 1,700 VAT special invoices, involving more than 900 million yuan.

In the past six months, two other major cases—in Pengshui, Chongqing, and Pingdu, Shandong—have also been exposed, each involving hundreds of millions of yuan. In the Pengshui case, the perpetrators controlled a company that served as recharge agent for a well-known short-video app. The business generated a large volume of surplus invoices, which were then used to create fake transaction chains under the guise of "advertising services" and "traffic top-ups," leading to the fraudulent issuance of VAT special invoices totaling over 880 million yuan. The Pingdu case resembled the Shanghai incident, where the involved entity acted as an illegal intermediary selling VAT special invoices, purchasing surplus invoices from online platforms and profiting from their resale.

In theory, platform companies should declare untaxed income truthfully. However, the significant arbitrage opportunities presented by surplus invoices have driven some enterprises to take risks. Yet, surplus invoices are far from a low-risk tool for profit. In practice, such cases are typically prosecuted as "fraudulent issuance of VAT special invoices," with principal offenders often receiving sentences exceeding ten years. As the source of invoices, platform companies usually face harsher criminal penalties compared to recipients. For instance, in the Pingdu case, the gang led by Lin XX and He XX was convicted of "fraudulent issuance of VAT special invoices" and "fraudulent issuance of invoices," respectively. Fourteen defendants, including Lin XX, were sentenced to prison terms ranging from fourteen to three years.

II. Unique Characteristics of the Internet Sector Heighten Risks of Surplus Invoice Fraud for Issuers

(1) Buyers in Internet-Based Transactions Are Predominantly Individuals

There is a fundamental difference between traditional distribution sectors and the internet industry in terms of how surplus VAT invoices are generated and legally assessed.

In sectors such as gold and electronics, goods flow through a multi-tier distribution system (e.g., producer → distributor → sub-distributor → individual consumer). Since individual consumers typically do not require invoices, sub-distributors often do not request them from upstream suppliers, resulting in surplus invoices accumulating between distributors and sub-distributors. In such cases, if a distributor issues surplus invoices to a sub-distributor, the deduction may lead to tax losses. However, because sub-distributors serve as intermediaries in the supply chain, there remains some legal ambiguity over whether the deduction chain can be justified, leaving room for debate on tax loss liability.

In contrast, transactions in the internet sector follow a distinct business model where products and services are delivered directly to individual consumers. Under VAT principles, end consumers—as the ultimate bearers of tax liability—should terminate the VAT chain. Since individuals have no legal right to claim VAT special invoices nor the eligibility to deduct input tax, any surplus invoices generated from such transactions should not be reintroduced into the deduction cycle. If an internet company reissues these surplus invoices to third-party businesses, it effectively revives tax amounts that should have been extinguished, allowing recipients to unlawfully deduct taxes that legally should not circulate. In practice, this leaves little room for legal defense regarding the illegality of such acts or disputes over tax losses.

(2) Judicial Practice Typically Classifies Surplus Invoices Issued to Individuals as Fraudulent

A review of public cases reveals that surplus invoices issued to individuals are predominantly deemed fraudulent.

For example, in aGuangxi supply chain management case (Case No. 2023-05-1-146-003, included in the Judicial Case Database), the company engaged in fuel oil sales accumulated ¥19 million in unused VAT special invoices due to individual buyers not requesting them. The company’s legal representative, Lu, along with shareholder Wu and salesperson Teng, fabricated three fake oil purchase contracts and fraudulently issued 175 VAT special invoices to three enterprises, involving ¥17.334 million in sales and ¥2.253 million in tax deductions. They charged a ¥100,000 "issuance fee," and all defendants were convicted of fraudulent VAT invoice issuance.

Similarly, in the(2018) Anhui No. 01 Criminal Final 457 ruling, a mobile phone wholesaler exploited the industry practice where individual consumers rarely request VAT special invoices. From January 2014, the actual controller, Huang, issued 594 fraudulent VAT invoices to downstream businesses without real transactions, involving ¥4888 million in tax deductions and illicit profits exceeding ¥4 million. The company later reimbursed ¥300,000 in illegal gains, and Huang was convicted of fraudulent VAT invoice issuance.

However, in rare cases, surplus invoice issuers may be charged under the lesser offense of"fraudulent issuance of invoices" (as opposed to VAT-specific fraud). For instance, in the(2023) Hubei No. 0822 Criminal Initial 232 case, an oil product wholesaler sold fuel at discounted prices to buyers who did not require VAT invoices but later issued surplus invoices to third parties. The prosecution argued this constituted "fraudulent issuance of invoices," and the court agreed. Yet, such rulings are exceptional and often tied to industry-specific contexts.Whether a case constitutes fraud still depends on the business model and evidentiary chain.

(3) Judicial Interpretations Explicitly Target Surplus Invoice Fraud, Escalating Criminal Risks

Article 10(3) of the Supreme People’s Court and Supreme People’s Procuratorate’s Interpretation on Handling Criminal Cases of Tax Evasion (2024) (Judicial Interpretation [2024] No. 4) explicitly defines as fraudulent any act where:"For transactions legally ineligible for tax deductions, a party issues VAT special invoices or other tax-refund/credit-eligible invoices by fabricating transaction parties."

Legal experts widely view this clause as directly addressing the core feature of surplus invoice fraud—mismatched transaction parties—and specifically targeting this high-risk violation. Even if issuers generate surplus invoices from legitimate transactions, redirecting them to third parties (with whom no real transaction exists) inherently requires falsifying contracts, services, or entire transaction chains.

From a legal standpoint,issuing surplus invoices to individuals already lacks defensibility, and the Supreme Court’s interpretation now explicitly categorizes such acts as fraud,significantly elevating criminal exposure

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III. Whether Recipients Constitute Fraud Hinges on Actual Eligibility for Tax Deductions

(1) No Actual Transaction, No Legitimate Deduction Rights

Some recipients obtain surplus VAT invoices fraudulently despite having no real transactions, aiming to illegally extend the tax deduction chain and claim input tax credits they are not entitled to. These acts—lacking both genuine transactions and lawful deduction rights—are fundamentally about fabricating documents to defraud the state of tax revenue, demonstrating clear malicious intent.

While debates persist over whether "no actual business" refers to transactions between the issuer and recipient or between the recipient and a third party, there is little dispute that recipients withno real transactions at all constitute fraud.

(2) Real Transactions but No Legitimate Deduction Rights

In practice, some downstream recipients face gaps in original invoice supply due to industry realities (e.g., individual livestreamers unable to provide compliant VAT special invoices). A common misconception is that having substantive transactions automatically shields them from fraud liability. However, court rulings reveal divergent judicial standards:

Strict formalists deem any invoice inconsistent with actual transactions as fraudulent, regardless of the recipient’s business context.

Substantive approaches recognize deductions if real transactions andlegitimate deduction rights exist, permitting invoices within that scope.

The internet sector’s reliance on individual service providers (e.g., livestreamers) complicates deduction rights. For example:

Compliant practice: MCN agencies paying streamers should obtain either (a) general invoices issued by the streamer via tax authorities or (b) 3%-rate special invoices from individually owned businesses.

Fraudulent manipulation: Using 6%-rate surplus invoices from third parties to claim excess deductions illegally captures tax differentials, meeting the objective criteria for fraud. Despite having transactional backgrounds, such practices violate VAT governance rules.

(3) Real Transactions with Legitimate Deduction Rights

If recipients engage in real transactionsand hold valid deduction rights, sourcing surplus invoices to formalize those rights—without intent to or tax losses—should not constitute fraud.

Example: Emerging practices in livestreaming. Some MCNs bypass platform restrictions on corporate account gifting by using (e.g., employees or associates) to fake traffic and claim platform incentives. To offset taxes, they purchase surplus invoices under fabricated "advertising" or "marketing services" transactions. While some cases have been deemed fraudulent by tax authorities, we argue:

Legal substance: Despite using personal accounts, the true transactional parties are the MCN and platform. The MCN’s deduction rights are legitimate.

Key distinction: Here, surplus invoices merely remedyprocedural gaps in deduction rights, lacking fraudulent intent or fiscal harm.

IV. Key Takeaways

The internet industry’s unique dynamics expose both issuers and recipients to higher tax risks than traditional sectors. Persistent misconceptions include:

Myth: "Having underlying transactions nullifies fraud risks."

Reality: Courts often apply strictformal scrutiny. Even with real transactions, using third-party invoices mismatched to the actual counterparty may imply intent to defraud.

Given case-specific complexities in business models and evidence chains, some scenarios might qualify for lesser charges (e.g,fraudulent issuance of invoicesinstead of VAT-specific fraud).Affected enterprises should promptly consult tax litigation specialists to explore defenses.​