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Frequent major cases in the coal industry, involving multiple taxes and tax risks

The coal industry over the years as the country's important energy industry and economic pillar industry, is to promote the national economic construction of the cornerstone, the state has repeatedly used tax policy means of regulation of the coal industry, such as 2022 to strengthen the energy supply security and the implementation of the zero tariff policy on coal imports. At the same time, the coal industry is also the hardest hit by the outbreak of tax-related problems, and has always been the focus of tax audits, the state has repeatedly emphasized the strengthening of the coal and other key areas of tax-related violations of the crackdown, previously carried out by the coal industry to check the twenty-year action makes the coal enterprises on tax-related compliance to bring up "twelve points" of vigilance. In recent years, not only has the crackdown on the issue of fraudulent invoicing in the coal industry persisted, but the issue of tax evasion in multiple tax categories in the industry has also received the attention of the tax authorities one after another. 

I. Decrease in the number of open cases but the risk of false invoicing remains

Due to the special characteristics of the coal industry, it is difficult for coal recycling enterprises to obtain the corresponding VAT invoices from retailers, so the industry is constantly involved in tax issues, and is the hardest hit by false invoicing cases, and the amount of money involved is usually huge. Recently, the tax authorities issued a "Notice of Tax Administrative Penalty Matters" to a subsidiary of a Fortune 500 coal company, which was found to constitute a false VAT invoice with a tax amount of more than 110 million yuan.

Previously, many places have carried out actions to investigate the coal industry for twenty years, implicating a large number of coal enterprises in tax-related cases. Searching for the "coal" industry through public channels and using the keywords "crime of falsely opening VAT invoices" and "crime of falsely issuing invoices" as search terms, we found that the tax amount was over RMB 100 million. By searching the "coal" industry through the public channel with the keywords "false VAT invoice" and "false invoicing", it can be found that the number of false invoicing cases in the coal industry in the past five years is as high as 931, which is the highest percentage among all industries. Since 2021, although the number of publicized cases has declined, the problem of false invoicing in the coal industry is still very urgent in terms of the number of inquiries on related issues.

Regarding the publicized cases in recent years, it can be found that the cases of false driving in the coal industry are characterized by high tax amount and high risk. 2023 saw a total of six publicized criminal cases of false driving in the coal industry: one first-instance verdict, three second-instance verdicts, and two retrial verdicts. Three of the second-instance cases appealed by the parties were dismissed and upheld, and two applications for retrial appeals were rejected, with the parties' attempts to seek remedies through the second-instance and retrial procedures all ending in failure. In terms of the amount of money involved, the tax amount in four cases exceeded 2.5 million yuan, while the other two cases amounted to 2.49 million yuan; in terms of the judgment results, two cases were sentenced to more than ten years of imprisonment, and the rest were also sentenced to more than five years of imprisonment. It can be seen that although the coal industry has seen a decline in the number of cases since 2023, there has been a significant increase in both the strength of the judgments, the difficulty of re-trial v. statement, and the ability to investigate and deal with violations of the law. The risk of false driving is still a "black swan" in the coal industry that cannot be ignored.

II. VAT and Enterprise Tax Risks Continue, Resource Tax Risks Arrive

Due to the implementation of the coal quota system in China, many coal enterprises are unable to make normal sales due to over-exploitation quota and turn to sell "cash coal" (i.e., coal sold without tickets). In order to avoid showing over-exploitation quota in the books, they do not charge the revenue in the books and make VAT and EIT tax declarations. With the increasingly close cooperation between the tax authorities and the financial system, the above behavior is extremely easy to be exposed. Coal enterprises may be recognized by the tax authorities as tax evasion due to false declarations and be held administratively liable, or be criminally punished if they are unable to make up for the tax in a timely manner. A public search of tax evasion cases in the coal industry reveals that there have been as many as 59 cases of administrative penalties for tax evasion in the coal industry in the past year, one of which involved an amount of as much as 13 million yuan, in which the company involved obtained a large number of VAT invoices but did not pay the corresponding payment for the goods, and the tax authorities therefore characterized it as tax evasion for obtaining false invoices and asked it to make up for the tax payment of 13,314,000 yuan and impose a fine of double the amount, which has been previously recognized for false declarations by the company. The company had been penalized once before for obtaining false invoices.

In addition, the problem of resource tax evasion has also begun to appear in the coal industry.2022 In May, a number of major coal producing areas have exploded the "black market trading" of coal mine drainage water, and a number of mining enterprises have evaded water resources tax amounting to more than one hundred million yuan, which has caused the loss of a large amount of national tax money and at the same time led to the local ecological environment being seriously damaged. In the case of a wood mining company, for example, by burying hidden pipes and avoiding metering facilities, the company privately handled 9.02 million cubic meters of dried water between 2018 and 2021, suspected of evading water resources tax of more than 18 million yuan, and the tax authorities, together with the Water Conservancy Bureau, issued a hefty fine to the enterprise in question.

To summarize, tax evasion in the coal industry in recent years involves not only taxes such as value-added tax (VAT) and enterprise income tax (EIT), but also resource tax and consumption tax. With the continuous upgrading of the tax authorities' investigation system and the joint inspection of tax-related issues by multiple departments, the tax authorities are able to timely and effectively grasp the tax-related information of the enterprises and carry out the tax risk early warning, and the tax-related risks of coal enterprises in various tax types will rise significantly.

III. The risk of fraudulent tax credit refund is surging, and business compliance becomes the key

In April 2022, in order to encourage the development of small and micro-enterprises, the tax authorities increased the strength of the policy of VAT final tax credit and refund, and relaxed the applicable conditions and industry scope of tax credit and refund, and some of the coal enterprises "seized the opportunity" to fraudulently obtain the tax credit and refund through unlawful means. Since the implementation of the tax rebate policy has been the focus of tax inspection, July 3, 2023, the seven departments jointly convened the "Conference on Combating Tax-Related Illegal and Criminal Offenses", put forward the "rigorous investigation of the fight against fraudulent tax rebate illegal and criminal", 2022, the country investigated and dealt with 7,813 suspected of fraudulent or irregularly obtaining the tax rebate enterprises, to recover all kinds of tax losses totaling 15.5 billion yuan. Tax losses totaled 15.5 billion yuan, of which 73 cases of fraudulent tax credit refund cases were publicized by tax authorities around the country, and in May 2022 alone, there were three cases of coal enterprises fraudulently obtaining tax credit refunds.

Under the situation of cracking down on fraudulent tax rebates, coal enterprises should strictly follow the relevant regulations on tax rebates, improve the declaration process of enterprises, and do a good job of retaining information in order to cope with the investigation and handling of the tax authorities, and should pay attention to the sorting out and retention of documents for the transaction-related contracts, records of warehouses, receipts and payments and other information proving the authenticity of the transaction.

IV. Affiliated transactions are subject to tax audits, and it is difficult to avoid the risk of multiple tax reimbursements

After more than ten years of development, the coal industry has given rise to a large number of modern enterprises with high output and high valuation. According to the statistics of the National Energy Administration and other groups and enterprises, by the end of 2021, there are already six billion-ton and nine 50-million-ton enterprise groups in China, which have given rise to a large number of associated enterprises. And the related transactions among the coal group enterprises have been the focus of tax collection and management.

Previously, we published an article entitled "Low price of coal-related transactions, the tax bureau demanded to pay more than 300 million yuan of enterprise income tax and value-added tax", which revealed a case in which a coal enterprise was audited by the tax authorities for its related transactions of goods. The transaction amount of coal and other goods is huge, and the transaction between goods involves multiple taxes such as VAT, EIT and surtax, which is prone to skyrocketing taxes and late payment fees involved. In this case, due to the large fluctuation in the value of coal in the market in 2021, the settlement price between A and B enterprises was obviously low compared to the market value, and thus was subject to inspection by the tax authorities and recovery of VAT, enterprise income tax and other taxes totaling more than 300 million yuan. In addition, during the inspection process, the tax authorities will conduct a comprehensive inspection of all tax-related matters of an enterprise at a certain period of time, which will also involve resource tax, cultivated land occupation tax, environmental protection tax, etc., and may lead to a large-scale recovery of various taxes for coal enterprises, and may even be recognized as tax evasion, which may result in the assumption of the corresponding administrative and criminal risks.

V. Processing tax risk rises, deep-processing excise tax draws controversy

(I)Tax evasion risk in categorized processing

Previously, tax-related cases were mainly concentrated in the purchase, sale and transportation of coal, due to the fact that coal retailers did not issue VAT invoices when supplying coal, and coal trading enterprises requested others to issue invoices on their behalf in order to reduce the tax burden, thus triggering the risk of false invoicing. In recent years, the coal industry has gradually developed towards high-end and integrated development, and many coal enterprises have expanded their business chains and introduced coal processing links in order to increase the added value of coal products. Processing in the coal industry is mainly divided into two categories: general processing and deep processing. Ordinary processing generally refers to screening, coal selection, coal molding, coal pulping and other links, as well as the application of physical, chemical or physicochemical methods to exclude mineral impurities and harmful elements in the coal, to produce different qualities of coal varieties adapted to the different needs of the use of the sector, and to create the conditions for the effective comprehensive utilization of coal.

Previously, China Tax News announced a case of tax evasion by a coal enterprise utilizing ordinary processing. In the case, enterprise A is engaged in coal washing and sorting processing enterprises, tax authorities in the risk screening process found that there is a serious imbalance between the proportion of fine coal and medium coal in enterprise A. Normally, the proportion of fine coal output is 50% to 80%; the proportion of medium coal output is 15% to 30%, and the proportion of gangue solid waste is 10% to 20%. However, the quantity of fine coal of enterprise A is 10 times of that of medium coal, which is seriously out of balance. After investigation, the tax authorities found that Enterprise A sold medium coal to the outside world, but recorded it as gangue in the account book, and collected money through private accounts to cover up the illegal behavior. The tax authorities determined that it constituted tax evasion and recovered more than 5 million yuan.

Nowadays, the tax big data system is constantly improving, the tax authorities can find out the tax violations of the enterprise by comparing the data, and in this case, the tax authorities found out the tax evasion by comparing the sales data of the enterprise. Therefore, enterprises should pay attention to the compliance of their own business to reduce the risk of tax audit.

(II)Consumption tax risk of deep processing

Coal deep processing refers to technological innovation as a means, through the coal processing and transformation of a variety of single technology coupling, integration, joint production of a variety of clean fuels, chemical raw materials, and heat, electricity and other products, is to achieve the comprehensive utilization of coal resources, improve the efficiency of coal conversion, and promote the structural adjustment and optimization of the development of the coal chemical industry is an important way to achieve, the main output materials for the processing of coal as a raw material for the production of oil products, The main output materials are oil, natural gas, dimethyl ether, synthetic ammonia, olefin, ethylene glycol, aromatics, etc. produced by processing coal as raw material.

According to public information, China's "13th Five-Year Plan" period, the total investment in new demonstration projects of coal deep processing amounted to 45 million yuan, one of the leading enterprises in the domestic coal industry, China Coal Energy, in the first quarter of 2023 report, pointed out that it will invest in the construction of new coal deep processing projects, to further expand the scale of the business of coal chemical industry. China's coal deep processing industry after more than a decade of rapid development, technological progress and industrial demonstration has made great achievements, mastered the direct liquefaction of coal with independent intellectual property rights, coal indirect liquefaction, coal gasification, coal to olefin, coal to glycol, coal to aromatics and other process technologies, the overall reached the world's advanced level. However, coal-to-aromatics and coal-based stabilized light hydrocarbons, as products of deep processing by coal enterprises, have been subject to continuous disputes over the collection of consumption tax among tax enterprises.

On June 30, 2023, the State Administration of Taxation ("SAT") issued the "Announcement on the Implementation Caliber of Consumption Tax Policy for Part of Refined Products" (Ministry of Finance SAT Announcement No. 11 of 2023, hereinafter referred to as "Document No. 11"), which stipulates that: "For the consumption tax of mixed aromatic hydrocarbons, heavy aromatic hydrocarbons, mixed carbon 8, stabilized light hydrocarbon , light oil, and light coal tar are subject to consumption tax in accordance with naphtha." Responding to the above controversy, it clarifies that coal-based chemical products such as coal-based aromatics and coal-based stabilized light hydrocarbons should be subject to consumption tax. For enterprises planning to introduce coal deep-processing in the product chain, they should be cautious of the above provisions and declare tax truthfully; for enterprises that have already carried out coal deep-processing, Article 5 of the No. 11 document stipulates, "The oil products listed in this announcement, matters that have occurred before the announcement, will no longer be subject to tax adjustment." It reduces the risk of enterprises facing back taxes, but enterprises should get in touch with the affiliated tax bureaus to clarify the issue of enterprise consumption tax collection and reduce the tax risk.

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