The Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Management, which came into effect on March 20, 2024, Law Interpretation [2024] No. 4, further clarifies the conviction and sentencing standards, understanding of charges, legal application of new criminal methods, and punishment principles for 14 tax related crimes, including the crime of tax evasion, evasion of tax arrears, fraud of export tax refunds, and falsification of value-added tax special invoices. The author of this article, based on years of experience in representing tax related criminal and administrative cases, interprets several high incidence charges such as tax evasion mentioned in Fa Shi [2024] No. 4 and the key issues that readers are concerned about, in order to be beneficial to readers.

Crime of tax evasion

1. Add specific situations of "deception and concealment methods"

Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Administration

Article 1: If a taxpayer makes false tax declarations and falls under any of the following circumstances, it shall be deemed as a "means of deception or concealment" as stipulated in Article 201, Paragraph 1 of the Criminal Law:

（1） Forgery, alteration, transfer, concealment, or unauthorized destruction of account books, accounting vouchers, or other tax related materials;
（2） Concealing or decomposing income or property in the name of others through the signing of "yin-yang contracts" or other forms;
（3） Falsely reporting expenditures, falsely offsetting input tax amounts, or falsely reporting special additional deductions;
（4） Providing false materials to defraud tax incentives;
（5） Fabricating false tax calculation basis;

（6） Other deceptive and concealing measures taken for not paying or underpaying taxes.

Interpretation:

Article 201, Paragraph 1 of the Criminal Law stipulates that the crime of tax evasion refers to taxpayers who, by means of deception or concealment, make false tax declarations or fail to declare, and evade paying a large amount of tax, accounting for more than 10% of the taxable amount.

The first article of the Interpretation on Several Issues Concerning the Specific Application of Laws in the Trial of Criminal Cases of Tax Evasion and Refusal to Pay Tax (2002) No. 33, which previously applied, lists tax evasion methods in accordance with Article 63 of the Tax Administration Law. The newly added tax evasion measures in Fa Shi [2024] No. 4, such as using "yin-yang contracts" to split income, decomposing income and property in the name of others, falsely reporting special additional deductions, and providing false materials to deceive tax incentives, are clearly a new type of means that combines the high incidence of tax evasion in recent years and are classified as tax evasion. The revision of this clause will inevitably provide a basis and reference for tax authorities to characterize "tax evasion" behavior in administrative law enforcement.

2. Change the recognition of the withholding agent's behavior of withholding and collecting taxes

Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Administration

Article 1: If any of the following circumstances occur, it shall be deemed as "non declaration" as stipulated in Article 201, Paragraph 1 of the Criminal Law:

（1） Taxpayers who handle the establishment registration with the registration authority in accordance with the law but fail to declare and pay taxes due to taxable activities;

（2） Taxpayers who do not need to apply for establishment registration with the registration authority in accordance with the law or have not done so in accordance with the law, and have engaged in taxable activities, but have been notified by the tax authority to declare and pay taxes in accordance with the law;

（3） Other individuals who knowingly declare and pay taxes in accordance with the law but fail to do so.

If the withholding agent fails to pay or underpays the tax withheld or collected by the means listed in the first and second paragraphs, and the amount is relatively large, they shall be convicted and punished in accordance with the provisions of Article 201 (1) of the Criminal Law. The withholding agent undertakes to pay taxes on behalf of the taxpayer, and shall recognize that the withholding agent has "withheld and collected taxes" when paying the taxpayer's after tax income.

Interpretation:

According to Article 1, Paragraph 2 of the previously applicable Interpretation (2002) No. 33, "If the withholding agent promises in writing to pay taxes on behalf of the taxpayer, it shall be deemed that the withholding agent has' withheld or collected taxes'.". On the basis of "commitment", Fa Shi [2024] No. 4 added that "when it pays the taxpayer the post tax income, the withholding agent shall be deemed to have" deducted and received the tax ".

The difference between Fa Shi [2024] No. 4 and Fa Shi (2002) No. 33 lies in the addition of the premise of "paying after tax income" to the withholding agent. That is to say, if there were only written contracts in the past that stipulated the withholding agent to withhold and pay on behalf of the withholding agent, the responsibility would naturally shift to the withholding agent. But after the implementation of Fa Shi [2024] No. 4, only when the withholding agent pays the post tax income to the taxpayer, can it be recognized as "deducted" or "collected", and the responsibility will be transferred to the withholding agent. The revision of this provision is aimed at protecting withholding agents and is also in line with the timing of personal income tax obligations stipulated in the Personal Income Tax Law.

Crime of evading the pursuit of overdue taxes

Clarify and refine the means of transferring and concealing property

Article 6 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Administration

Article 6: If a taxpayer fails to pay the payable tax and, in order to evade recovery by the tax authorities, falls under any of the following circumstances, it shall be recognized as "adopting the means of transferring or concealing property" as stipulated in Article 203 of the Criminal Law:

（1） Abandoning due debts;
（2） Transfer of property without compensation;
（3） Trading at clearly unreasonable prices;
（4） Concealing property;
（5） Not fulfilling tax obligations and leaving the supervision of tax authorities;

（6） Transferring or concealing property by other means.

Interpretation:

Article 203 of the Criminal Law of the People's Republic of China: The crime of evading the collection of overdue taxes. Taxpayers who fail to pay their taxes and adopt means of transferring or concealing their property, resulting in the inability of tax authorities to recover the overdue taxes.

Fa Shi [2024] No. 4 added specific means of "transferring or concealing property", clarifying specific execution standards for judicial practice. It is worth noting that this article sets a bottom line provision, which states that "property is transferred or concealed by other means." Therefore, if there are new ways of transferring or concealing property in the future, they will still be regulated by this article.

Crime of defrauding export tax refunds

1. Change and improve the situation of "false export reports or other deceptive methods"

Article 7 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Administration

Article 7: If any of the following circumstances occur, it shall be deemed as "false export or other deceptive means" as stipulated in Article 204, Paragraph 1 of the Criminal Law:

（1） Declaration of export tax refund using value-added tax special invoices or other invoices that can be used for export tax refund obtained through false opening, illegal purchase, or other illegal means;
（2） Declaring untaxed or tax-free export business as taxed export business;
（3） Using someone else's export business to declare export tax refunds;
（4） Although there are exports, fabricating the product name, quantity, unit price and other elements of the export business that should be refunded, and declaring export tax refunds by falsely increasing the export tax refund amount;
（5） Falsifying or signing false sales contracts, or obtaining export related documents and vouchers such as export declaration forms and transportation documents through illegal means such as forging or altering, and fabricating export facts to declare export tax refunds;
（6） After the export of goods, they are transferred to China or the same type of goods from overseas are transferred to China for circular import and export and declared for export tax rebates;
（7） Falsely reporting the functions and uses of exported products, and declaring products that do not enjoy tax refund policies as tax refund products;

（8） Using other deceptive means to obtain export tax refunds.

Interpretation:

Article 204 of the Criminal Law of the People's Republic of China: The crime of fraudulently obtaining export tax refunds shall be punished with imprisonment of not more than five years or criminal detention, and a fine of not less than one time but not more than five times the amount of tax fraudulently obtained by falsely reporting exports or other deceptive means, if the amount involved is relatively large; If the amount involved is huge or there are other serious circumstances, the offender shall be sentenced to fixed-term imprisonment of not less than five years but not more than ten years, and shall also be fined not less than one time but not more than five times the amount of tax defrauded; If the amount involved is particularly huge or if there are other particularly serious circumstances, the offender shall be sentenced to fixed-term imprisonment of not less than ten years or life imprisonment, and shall also be fined not less than one time but not more than five times the amount of tax defrauded or have his property confiscated.

Compared to the previously applicable Interpretation on Several Issues Concerning the Specific Application of Laws in the Trial of Criminal Cases of Cheating Export Tax Refunds, Fa Shi [2002] No. 30 and Fa Shi [2024] No. 4 have added four new types of "false reporting of exports or other deceptive means", which are: (3) those who falsely declare export tax refunds using someone else's export business; （5） Forgery of transportation documents; （6） After the export of goods, they are transferred to China or the same type of goods from overseas are transferred to China for circular import and export and declared for export tax rebates; （7） Falsely reporting the functions and uses of exported products, and declaring products that do not enjoy tax refund policies as tax refund products. These four situations closely follow the high incidence of tax fraud methods such as "circular import and export" and falsely reporting non refundable goods as refundable goods in current judicial practice. The newly added circumstances in this clause are more in line with the requirements of judicial practice and provide a stronger legal basis for punishing fraudulent export tax refunds.

2. Newly added intermediaries who provide false proof documents shall be held criminally responsible for the crime of providing false proof documents

Article 9 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Administration
Article 9: If a person commits the act of fraudulently obtaining a national export tax refund without actually obtaining the export tax refund, the punishment may be lighter or mitigated in comparison to a completed offense.

If intermediary organizations and their personnel engaged in goods transportation agency, customs declaration, accounting, taxation, and comprehensive foreign trade services violate relevant national import and export business regulations, provide false proof documents to others, and cause others to fraudulently obtain national export tax refunds, and the circumstances are serious, criminal responsibility shall be pursued in accordance with Article 229 of the Criminal Law.

Interpretation:

Article 6 of the previously applicable Law Interpretation [2002] No. 30 stipulates that "a company or enterprise with import and export operation rights, knowing that others intend to defraud the state of export tax rebates, still violates the relevant provisions of the state on import and export operation, allows others to bring their own customers, bring their own sources of goods, bring their own bills of exchange, and declare customs on their own, and defraud the state of export tax rebates, shall be convicted and punished in accordance with the provisions of Article 204, Paragraph 1, and Article 211 of the Criminal Law." Law Interpretation [2024] No. 4 deleted Article 6 of Law Interpretation [2002] No. 30.

It should be noted that after the implementation of Fa Shi [2024] No. 4, "allowing others to bring their own customers, sources of goods, bills of exchange, and self declare to obtain national export tax refunds" may not necessarily constitute a crime, but according to Article 2 of the "Notice of the State Administration of Taxation and the Ministry of Commerce on Further Regulating the Order of Foreign Trade Export Operations and Strengthening the Management of Export Goods Tax Refunds (Exemptions)" (Guo Shui Fa [2006] No. 24) and Article 7 (1) of the "Notice of the Ministry of Finance and the State Administration of Taxation on the Policy of Value added Tax and Consumption Tax on Export Goods and Labor" (Cai Shui [2012] No. 39), if it meets the provisions of "fake self operation and real agency", it is not entitled to tax refunds.

Fa Shi [2024] No. 4 added, "If intermediary organizations and their personnel engaged in goods transportation agency, customs declaration, accounting, taxation, foreign trade comprehensive services, etc. violate relevant national import and export business regulations, provide false proof documents to others, causing others to fraudulently obtain national export tax refunds, and the circumstances are serious, they shall be held criminally responsible in accordance with the provisions of Article 229 of the Criminal Law." The intermediary organizations and personnel involved in the case will also be punished in accordance with the "crime of providing false proof documents" stipulated in Article 229 of the Criminal Law.

In recent years, in judicial practice, intermediary organizations such as freight transportation agents, customs declaration, accounting, taxation, and comprehensive foreign trade services have provided false proof documents to the main offender in participating in cases of defrauding export tax refunds. However, they have no subjective intention of defrauding taxes, and have punished such intermediary personnel as accomplices of the crime of defrauding export tax refunds, which has caused many controversies. This explanation, regarding the punishment of the intermediary involved in the case for providing false proof documents, reflects the principle of appropriate criminal responsibility and punishment.

Crime of Falsely Issuing Value Added Tax Special Invoices

Clarify that "not using tax fraud as the purpose, and not causing tax fraud losses due to deduction does not constitute false opening"

Article 10 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harmful Tax Collection and Administration

Article 10: If any of the following circumstances occur, it shall be deemed as "falsely issuing value-added tax special invoices or other invoices used to defraud export tax refunds or offset taxes" as stipulated in Article 205, Paragraph 1 of the Criminal Law:

（1） Without actual business, issuing value-added tax special invoices or other invoices used to defraud export tax refunds or offset taxes;
（2） Having actual deductible business, but issuing value-added tax special invoices that exceed the corresponding tax amount of the actual deductible business, or other invoices used to defraud export tax refunds or offset taxes;
（3） For businesses that cannot be deducted taxes according to law, issuing value-added tax special invoices or other invoices used to defraud export tax refunds or offset taxes through fictitious transaction entities;
（4） Illegally tampering with value-added tax special invoices or other electronic information related to invoices used to defraud export tax refunds or offset taxes;

（5） Violating regulations and using other means to make false statements.

If the purpose of falsely increasing performance, financing, loans, etc. is not to deceive and offset taxes, and there is no loss of tax fraud caused by deduction, it shall not be punished for this crime. If it constitutes other crimes, criminal responsibility shall be pursued for other crimes in accordance with the law.

Interpretation:

The second paragraph of this article is the highlight of this provision, which clarifies that "not with the purpose of defrauding taxes, and not causing tax fraud losses due to deduction does not constitute false opening". This clause positively lists three methods: inflated performance, financing, and loans, which are not considered inflated. So, should taxpayers who purchase goods or services without obtaining invoices and issue invoices on behalf of third parties or other parties be deemed as not constituting false invoices? The new explanation does not confirm this viewpoint.

Fa Shi [2024] No. 4 also involves changes in the conviction and sentencing standards for 14 charges. Due to space limitations, this article only interprets a few widely concerned issues. It can be said that the promulgation of Interpretation [2024] No. 4 is a comprehensive revision of the judicial interpretations issued by the Supreme People's Court in 1996, namely the Interpretation on Several Issues Concerning the Application of the Decision of the Standing Committee of the National People's Congress on Punishing the Crime of Falsifying, Forging, and Illegally Selling Value Added Tax Special Invoices, the Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Tax Evasion and Refusal, and the Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Fraud of Export Tax Refunds. The implementation of Fa Shi [2024] No. 4 will inevitably have a significant and far-reaching impact on judicial practice.