Editor's Note: The policy of "reverse invoicing" has been implemented for more than a year. According to the latest statistics of State Taxation Administration of The People's Republic of China, by the end of June this year, there were 13,300 resource recycling enterprises "reverse invoicing" to 1.67 million natural persons, with an invoicing amount of 515.2 billion yuan and 5.11 million copies. The policy of "reverse invoicing" provides a solution to the problem of missing the first invoice in the renewable resources industry. Before the introduction of "reverse invoicing", most resource recycling enterprises accounted for the income tax deduction with self-made vouchers. Recently, some local tax authorities require enterprises to adjust the tax payment for the self-made voucher business in the past, or require enterprises to adjust the income tax in full, or check it with the taxable income rate, and even characterize the invoices issued by enterprises as abnormal vouchers because they have not paid the income tax on the self-made vouchers, which has an impact on the input deduction of all downstream links. Based on the provisions of the tax law and the actual situation of the industry, this paper discusses the self-made vouchers of resource recycling enterprises before the implementation of "reverse invoicing" for readers' reference.

I. The corresponding cost of self-made vouchers shall not be deducted: it violates the provisions of the income tax law on pre-tax expenses and even deviates from the principle of substantive taxation.

Article 8 of the Enterprise Income Tax Law stipulates that "reasonable expenses actually incurred by an enterprise related to income, including costs, expenses, taxes, losses and other expenses, are allowed to be deducted when calculating taxable income", that is, the requirements of "authenticity", "relevance" and "rationality" for pre-tax deduction of enterprise income tax are clarified. After the enterprise has incurred expenses directly related to income and in line with the routine business activities, it shall

In practice, the tax authorities usually think that resource recycling enterprises should deduct the cost with invoices according to the Administrative Measures for Pre-tax Deduction Vouchers of Enterprise Income Tax (State Taxation Administration of The People's Republic of China Announcement No.28, 2018). Because resource recycling enterprises can't make up or change invoices, according to the provisions of Article 16 of Announcement No.28, it is determined that the related expenses of enterprises should not be deducted before tax. We believe that there are practical obstacles for resource recycling enterprises to obtain invoices when the invoice chain is broken in the recycling link of renewable resources. To require resource recycling enterprises to make pre-tax deduction with invoices is essentially to transfer the problem of broken invoice chain at the source of supply and waste to the recycling link, which imposes formal compliance obligations on resource recycling enterprises. If we insist on requiring resource recycling enterprises to deduct income tax with invoices according to the provisions of Announcement No.28, and refuse to recognize the cost without invoices, many resource recycling enterprises will fall into a survival dilemma and affect the development of renewable resources industry. In addition, from the perspective of tax adjustment, if the enterprise is not allowed to make pre-tax deduction and make tax adjustment and reduce the cost in full, it will be taxing non-existent "income", which is not in line with the principle of levying enterprise income tax and will damage the legitimate rights and interests of the enterprise.

II. Verification and collection of adjusted income tax: The selection of verification methods should take into account the actual situation of industries and enterprises.

In practice, in order to solve the problem of income tax adjustment of self-made vouchers of resource recycling enterprises before the implementation of "reverse invoicing", some local tax authorities apply approved collection to enterprises in accordance with Article 35 of the Law on the Administration of Tax Collection, which stipulates that "although account books are set up, the accounts are chaotic or the cost data, income vouchers and expense vouchers are incomplete and difficult to audit". In the choice of the approved collection method, some local tax authorities have approved the income tax of resource recovery enterprises according to the taxable income rate range of 4%-15% in the "Measures for the Approved Collection of Enterprise Income Tax (Trial)" (Guo Shui Fa [2008] No.30) and the taxable income rate of 8%.

We believe that the selection of verification methods should follow the principle of fairness and rationality. In fact, it is an ex post facto adjustment to adjust the income tax on the self-made vouchers and apply the verification levy. At this time, the purchase and sale businesses involved have already occurred, and the corresponding costs and incomes exist objectively. Therefore, the selection of the verification method should be based on the principles of substantive taxation and capacity taxation, combined with the actual situation of the industry, the geographical location of the enterprise, the scale of operation, the income level, the profit level and other factors. According to the provisions of Article 47 of the Detailed Rules for the Implementation of the Law on the Administration of Tax Collection, the tax rate, cost profit rate, etc. are all legal methods for verification and collection. In a case, an enterprise can actively communicate with the tax authorities based on the actual situation of itself and the industry, and strive for a proper and fair verification method.

III The invoice issued is deemed abnormal due to unpaid income tax: the identification of abnormal vouchers has legal reasons and should not be expanded at will.

At the end of 2021, after the announcement of the Ministry of Finance and the State Administration of Taxation on improving the value-added tax policy for comprehensive utilization of resources (Announcement No.40 of the Ministry of Finance and the State Administration of Taxation in 2021) was issued, some renewable resource enterprises arranged resource recovery enterprises with simple tax at the front end of purchase and sale trade, and obtained invoices from them as vouchers for VAT input deduction and enterprise income tax pre-tax deduction. Resource recycling enterprises that apply simple taxation usually purchase a large number of natural persons, but it is still difficult to obtain invoices for pre-tax deduction of income tax. Therefore, most of them follow the common practice in the industry to make self-made vouchers for cost allocation.

In the current practice, some local tax authorities require simple tax recovery enterprises to pay back the income tax on self-made vouchers. Because simple tax recovery enterprises are unable to pay back the income tax, the tax authorities regard the invoices issued by simple tax recovery enterprises as abnormal tax deduction vouchers according to the Announcement on Management of Abnormal VAT Tax Deduction Certificates (State Taxation Administration of The People's Republic of China Announcement No.38, 2019), which leads to the risk that the invoices obtained by back-end resource recovery enterprises will be transferred out. And in practice, the invoices obtained by the back-end resource recycling enterprises under this business model basically come from this simple tax recovery enterprise. According to Announcement No.38, "The abnormal voucher input tax accounts for more than 70% (inclusive) of all the special VAT invoices in the same period", the invoices issued by the resource recycling enterprises will also be recognized as abnormal tax deduction vouchers, and the adverse effects such as input transfer will be further transmitted to the downstream.

We believe that the default of enterprise income tax by simple tax recovery enterprises does not belong to the case of inclusion of abnormal vouchers as stipulated in Announcement No.38, and the invoices issued to downstream enterprises should not be regarded as abnormal tax deduction vouchers. In its interpretation of Announcement No.38, the State Administration of Taxation pointed out that the background of the announcement was to crack down on the behavior of "registering a' fake enterprise' that has no actual business, fraudulently obtaining special invoices for value-added tax, and quickly escaping (losing contact) and maliciously evading tax supervision after implementing illegal and false invoicing", that is, to realize the tax collection and management of value-added tax (and consumption tax in some cases) through the idea of "controlling tax by ticket" and prevent ".

If the simple tax recovery enterprise does not escape and lose contact, falsely invoice, be recognized as an abnormal household and fail to declare and pay value-added tax on the issued invoice as stipulated in Announcement No.38, the invoice issued by it does not fall within the scope of the abnormal tax deduction certificate in Announcement No.38.. In the case of real transactions, if the upstream simple tax recovery enterprise has truthfully declared and paid the value-added tax by issuing invoices to the downstream enterprises, the downstream enterprises will deduct the value-added tax input according to the obtained invoices, which will not cause tax losses. The problem of non-payment or underpayment of income tax caused by the tax adjustment of the self-made vouchers of the simple tax recovery enterprises should be collected and managed in accordance with the provisions of the tax law, and should not be used to identify abnormal tax deduction vouchers and implicate the legitimate rights and interests of the downstream enterprises. Therefore, the identification of abnormal tax deduction vouchers should follow the purpose of policy formulation and legal conditions, and only unpaid or underpaid enterprise income tax is not included in the scope of abnormal tax deduction vouchers.

IV. Summary

The lack of source invoices is a long-term objective tax problem in the renewable resources industry. We should take a cautious and objective attitude to adjust the income tax on the historical problems left over by self-made vouchers before the introduction of "reverse invoicing", consider the actual situation of the industry and enterprises, protect the legitimate rights and interests of taxpayers while maintaining the order of tax collection and management, and apply a certain adjustment method across the board, which not only ignores the actual situation of the industry and enterprises, but also violates the principle of tax fairness.