Editor's Note:On April 2, 2025, the Hwuason team, through close collaboration and representation by attorney Jiang Zhenghe, secured a favorable judgment in an export tax fraud case. The company's principal, accused of defrauding nearly RMB 9 million in tax refunds with no mitigating factors such as voluntary surrender or meritorious conduct, initially faced a potential sentence exceeding 10 years. After a thorough review of the case files, Hwuason's lawyers presented a defense to the procuratorate, arguing that certain transactions did not constitute tax fraud. The procuratorate ultimately accepted the defense, reducing the alleged fraud amount from the figures determined by the tax and public security authorities to approximately RMB 4 million. Accordingly, the procuratorate recommended the minimum statutory sentence of 5 years for the adjusted amount. The People's Court adopted the sentencing recommendation, and the Hwuason team successfully secured a 5-year prison term for the client—an optimal outcome under the circumstances.

Ⅰ.Case Brief

The defendant, Mr. Jia, had long been engaged in foreign trade of fruits and general merchandise at the port in City H, X Autonomous Region. Starting in 2017, numerous individual vendors at the port began exporting domestically grown fruits such as oranges and apples abroad. Since the state provided tax refunds for fruit exports and City H offered additional fiscal subsidies for export businesses, these vendors sought partnerships with qualified foreign trade enterprises to facilitate exports. As a result, in addition to purchasing fruits directly, Mr. Jia collaborated with other vendors by exporting their externally sourced fruits under his own company’s name to their designated foreign buyers, paying them a cooperation fee ranging from several hundred yuan per truckload.

To address the vendors’ inability to provide legitimate invoices for tax refund claims, Mr. Jia established several domestic trading companies. These companies issued VAT special invoices to his foreign trade enterprise based on export volumes and used local farmers’ information to issue agricultural product purchase invoices.

In 2019, Mr. Jia’s foreign trade enterprise drew the attention of tax authorities due to an unusually rapid increase in export tax refund claims. An investigation by the local inspection bureau revealed that his domestic and foreign trade companies engaged in fictitious transactions, false accounting, fraudulent issuance of VAT special invoices, fabricated foreign exchange records, and falsified supporting documents. Consequently, he was accused of fraudulently obtaining approximately RMB 9 million in export tax refunds, and the case was referred to judicial authorities. In March 2024, Mr. Jia was criminally detained and arrested by the local economic crime investigation unit.

During the second supplementary investigation in December 2024, Mr. Jia’s family retained Hwuason lawyers for his defense. By then, the procuratorate had preliminarily concluded that Mr. Jia was not the actual exporter but had misused others’ export goods or instructed third parties to "supply goods" on his behalf. Additionally, he was found to have engaged in invoice fraud, fund round-tripping, fictitious foreign exchange settlements, and falsified shipping documents—all supporting the charge of export tax fraud. The procuratorate upheld the tax authorities’ determination of the fraudulent refund amount. Given the alleged fraud of nearly RMB 9 million and the absence of mitigating factors such as voluntary surrender or meritorious conduct, Mr. Jia faced a potential prison sentence exceeding 10 years.

II. Overall Defense Strategy  

Drawing on years of experience in criminal defense within the foreign trade sector, we maintain that this case significantly differs from the procuratorate's characterization of it as a "buy-and-match invoicing" scheme. The typical "buy-and-match invoicing" scenario involves a company fraudulently obtaining export tax refunds by purchasing export information and falsely declaring goods it neither produced nor acquired, often without the actual exporter's knowledge.  

In this case, however, the actual owners of the goods were fully aware that their exports were being declared under Mr. Jia's company to obtain tax refunds. The arrangement constituted a cooperative export model, which should be classified as "false self-operation, true agency" rather than "buy-and-match invoicing."  

Furthermore, after thoroughly reviewing the case files, analyzing financial data, and consulting with Mr. Jia, we confirmed that his company did engage in legitimate fruit procurement activities. However, the actual purchase amounts were lower than those recorded in the agricultural product purchase invoices, indicating the existence of "low-value, high-declaration" practices aimed at fraudulently obtaining tax refunds.  

Based on these findings, we presented two key defense arguments to the procuratorate: First, Mr. Jia's cooperation with other vendors in export activities, where tax refunds were shared, should not be considered "misuse" of others' export businesses, and therefore the cooperative export portion should not be deemed as fraudulent invoicing. Second, according to the fruit farmers' testimonies, Mr. Jia did indeed purchase fruits from them, albeit at amounts lower than those stated in the invoices. Thus, the legitimate procurement portion should not be classified as tax fraud, while Mr. Jia was willing to plead guilty and accept penalties for the overreported portion of the invoices.

（Ⅰ）Defense Strategy in Detail:

1. Regarding the "false self-operation, true agency" relationship between Mr. Jia and individual vendors, whether it constitutes tax fraud should not be generalized.

Generally, in "buy-and-match invoicing" schemes, the actual exporters are unaware that their export goods are being used by other entities. However, as mentioned above, since the actual owners of goods in this case were natural persons without export qualifications or capacity, they could only export through Mr. Jia's foreign trade enterprise. Mr. Jia and the actual owners established a cooperative export relationship through direct agency arrangements, where the owners voluntarily provided their goods for export through the enterprise. Moreover, Mr. Jia distributed the export profits (including tax refunds) to the actual owners, which fundamentally differs from typical "buy-and-match invoicing" operations.

Therefore, the relationship between Mr. Jia's enterprise and individual vendors was essentially a "false self-operation, true agency" arrangement. Mr. Jia's export enterprise legally obtained ownership of the goods and conducted genuine export activities, rather than fraudulently using others' export goods. While this practice may violate tax regulations, it does not constitute the criminal offense of "false export declaration" or "buy-and-match invoicing" for fraudulent tax refund purposes.

On this basis, whether "false self-operation, true agency" constitutes tax fraud cannot be determined uniformly and must be assessed against the constitutive elements of export tax fraud under Article 204 of the Criminal Law. The provision divides fraudulent tax refund violations into three components: first, "false export declaration or other deceptive means" emphasizes the objective act of non-genuine export business; second, the wording "false declaration" and "fraudulent obtaining" as well as judicial practice require subjective intent to defraud; third, "fraudulently obtaining export tax refunds" emphasizes the objective consequence of harming state tax refund interests. Therefore, failure to satisfy these objective acts, subjective intent, and objective consequences means the conduct does not constitute export tax fraud. This case fails to meet these requirements because:

First, the business in question involved genuine export of goods. Under this business model, actual goods owners without import/export qualifications proactively established cooperative relationships with qualified foreign trade companies, voluntarily requesting to export goods under the companies' names. In such cases, the actual owners effectively operated under the export enterprises' licenses, and through this affiliation or cooperation, the export enterprises obtained ownership or control over the goods, constituting authentic export activities.

Second, according to policy interpretations by the State Taxation Administration, agricultural products qualify as "pre-taxed goods," meaning their export tax refunds do not cause loss of state tax revenue. The investigators argued that even with genuine exports, non-compliant agricultural purchase invoices would disqualify the products as "pre-taxed goods." This interpretation is incorrect.

As explained in the State Taxation Administration'sComprehensive Business Guide for VAT Reform Implementation:"Farmers pay VAT when purchasing production materials like fuel and agricultural machinery for growing crops, meaning agricultural product prices inherently contain VAT components. Thus, purchasers of tax-exempt agricultural products effectively 'bear' VAT burdens. If these purchasers were denied input tax deductions, it would create double taxation and potentially force agricultural buyers to depress purchase prices, harming farmers' interests."

In other words, agricultural products inherently constitute "pre-taxed goods." Since agricultural purchasers bear the embedded VAT, they should rightfully claim input tax deductions or export refunds. Here, enterprises are essentially "claiming refunds for taxes they've already borne." According to Article 204(2) of the Criminal Law:
"If taxpayers, after paying taxes, use deceptive methods specified in the preceding paragraph to obtain refunds of paid taxes, they shall be punished under Article 201

This confirms no loss of state tax revenue occurred, negating fraud allegations.

Finally, Mr. Jia and his enterprise lacked fraudulent intent. As established, they legitimately qualified for export refunds. Their consolidated issuance of agricultural purchase invoices and irregular foreign exchange practices merely supplemented formal requirements with reasonable explanations, rather than demonstrating intentional tax fraud. Similarly, while Mr. Jia engaged in foreign exchange purchases and used non-compliant documentation to facilitate refunds, these acts only warrant administrative penalties without crossing into criminal liability.

In conclusion, the cooperative export portion fails to meet the constitutive elements of export tax fraud. Accordingly, the corresponding tax refunds should be excluded from the alleged fraud amount.

(2) Regarding the Overstated Portion of Export Value: The Genuine Export Portion Does Not Constitute Tax Fraud

Mr. Jia stated that he engaged in annual fruit procurement, though he could not recall the exact quantities. However, there was indeed legitimate purchasing activity. In addition to personally sourcing from farmers, Mr. Jia also acquired fruits through employees and agents to meet foreign buyers' demands. Due to the irregular operational scope of these procurement agents, they were not formally incorporated into the involved trading companies, but they essentially acted on Mr. Jia’s behalf.

This account was corroborated not only by Mr. Jia’s own statements but also by testimonies from surveyed farmers who confirmed selling fruits to Mr. Jia and his employees/agents.

While Mr. Jia did engage in authentic procurement and export, he admitted to inflating the declared value of goods to claim higher export tax refunds. According to Article 7(4) of Judicial Interpretation [2024] No. 4,"falsely declaring details such as product names, quantities, or unit prices to inflate refundable amounts—even with actual exports—constitutes export tax fraud."Mr. Jia fully acknowledged this misconduct after his arrest.

The procuratorate ultimately accepted the arguments presented by Hwuason Lawyers, who systematically calculated and substantiated the deductible portions of the refund claims. Within just two months of their involvement, the case saw a breakthrough: Mr. Jia’s family repaid over RMB 4 million in taxes; Mr. Jia signed a Plea Agreement, receiving a prosecutorial sentencing recommendation of 5 years imprisonment—the minimum within the statutory 5–10-year range.

III. The Judgment in This Case Demonstrates the Professional Value of Tax Attorneys Under the New Judicial Interpretations on Tax Crimes by the Supreme Court and Procuratorate​​

In March 2024, the Supreme People's Court and Supreme People's Procuratorate issued the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Harming Tax Collection and Administration" (Judicial Interpretation [2024] No. 4). Article 7(3) and (4) explicitly lists "fraudulently obtaining export tax refunds by falsely using others' export business" and "applying for export tax refunds by inflating refundable amounts" as methods of export tax fraud, aiming to crack down on tax fraud practices such as "buy-and-match invoicing" and "low-value high-declaration". Recent tax fraud cases published by state tax authorities and judicial organs all involve huge amounts, severe sentencing and extremely high liability risks. Against this background, enterprises and individuals involved in cases should more accurately understand their business conduct and objectively assess risks.

At the same time, Hwuason lawyers intervened in the case relatively late, with limited communication time with the parties, procuratorate and court, which increased the difficulty of defense. If Mr. Jia had hired professional tax lawyers at the tax inspection stage to help tax authorities comprehensively, objectively and fairly determine the facts and amount of tax fraud, and correctly assess criminal liability risks, we believe Mr. Jia could have obtained circumstances of voluntary surrender to mitigate punishment, and might even have achieved bail pending trial without detention, ultimately obtaining probation. However, Mr. Jia's superstitious belief in "seeking connections" caused him to waste the "golden period" for resolving criminal liability risks, which should serve as a warning to enterprises.

This case fully demonstrates the importance of professional tax lawyers in tax-related criminal cases. In the current legal environment where tax supervision is increasingly strict, enterprises should abandon the illusion of solving problems through "relationships", and instead establish correct legal risk awareness at an early stage, seeking professional legal services in a timely manner to protect their legitimate rights and interests. Only in this way can they effectively prevent and resolve potential tax-related criminal risks.