The cheating issue should be clarified in export tax rebate

Among the many tax cases we dealt with, foreign trade enterprises accepted the entrustment of the upstream factories and signed a purchase and sales contract and an agency contract respectively. They handled the export tax rebate in the name of self-employed export and advanced the tax rebates to the upstream factories, and received eight cents RMB each dollar for agency fees in accordance with the export amount. Before the rebate business was started, the tax authorities where the foreign trade enterprises were located sent a letter to the tax authorities where the upstream factories were located, and the latter returned normal answer. However, shortly afterwards, the tax authorities of the place where the factory was located found that the factory had falsified the special VAT invoice for the foreign trade enterprises. So they required the tax authorities where the foreign trade enterprises were located to investigate and deal with them. The tax authorities where the foreign trade enterprises are located think that the foreign trade enterprises are engaged in the Illegal agency business and it belongs to a 「fake self-real agent」. According to Article 66 Paragraph 2 of 「the Tax Administration Law」 and Article 1 Paragraph 4 of 「the State Administration of Taxation on Stopping In order to defraud the export tax rebate enterprises to handle the issue of export tax rebate (State Administration of Taxation release [2008] No. 32) ", the tax authorities decided to stop the export tax rebate for two years. Combined with the above cases, let』s talk about four common issues about cheating export tax rebate.

First, is "false self-real agency" cheating export tax rebate?

Article 2 of the Circular of the State Administration of Taxation and the Ministry of Commerce on Further Regulating the Order of Foreign Trade Export Operation and Practically Strengthening the Administration of Tax Refund (Exemption) on Export Goods (State Administration of Taxation release [2006] No. 24) made provisions that export tax rebates shouldn』t be applied in such circumstances. In this case, the tax authorities found that the main factual basis for "fake self-acting real agents" was that "the exporting enterprises export on their own names and the same batch of goods they export both sign the purchase contract and sign the export contract (or agreement)". When the two agreements exist simultaneously, can the foreign trade enterprises be identified as engaging in illegal acts?

For this issue, the Supreme Peoples Court has actually made a valid verdict. In "Beijing Borch Innov Technology Co., Ltd. and Poly Explosive Technology Group Co., Ltd. contract dispute case [(2013) People mention word No. 73]", the Poly Company accepted the Borch Company』s commission, promised to apply export tax rebate in the name of self-export itself and refund the tax rebate to the Borch company in the case of agency fees charged. For such a typical "fake self-real agent", Beijing Municipal Higher Peoples Court of second instance held that it violated Article 2 of State Administration of Taxation release [2006] No. 24 and therefore the agreement was invalid. After the Supreme Peoples Court examined the case, it clearly pointed out: after the court examined the Supreme Peoples Court clearly pointed out: 「about the issue of export tax rebates, the foreign trade contracts of export business in this case has already been fulfilled and there is a real export of goods. The main body of the tax rebate is the Poly Company which signed the export trade contracts with foreign and its way to obtain export tax rebate in line with the provisions of our law and administrative regulations. In the "Cooperation Agreement", the Poly Company agreed to pay all tax rebates back to the company within five days of receiving the export tax rebate under the contract. This is a convention about redistribution of export tax rebate between the parties and is the true meaning of them, so the Poly Company had the right to dispose of the sum of money. Exporting tax rebate is the government』s measure of encouraging exports. The case doesn』t have the situation of export fake, so it doesn』t have fraud plot. Circular on Further Regulating the Order of Foreign Trade Export and Practically Strengthening the Administration on the Tax Rebate (Exemption) of Export Goods is not an administrative rule. So it is responsibility of the administration whether the behavior of the Poly Company and the Borch Company had violated the rules but not the scope of this case. Therefore, the "Cooperation Agreement" is not a contract signed for the purpose of illegally obtaining the tax refund of the countrys exports.

It shows that State Administration of Taxation release [2006] No. 24 paper provides "false self-real proxy" doesn』t mean cheating export tax rebate.

Second, is engaging the "four self and three invisible" export tax rebate business equaled to cheating export tax rebates?

The statement of "four self and three invisible" first appeared in the circular of "State Taxation Bureau, Ministry of Economy and Trade on No Refund of Products Exported by Chinese Exporters in the Form of" four self and three invisible "(State Administration of Taxation release [1992] No. 156). It means the export enterprises traded in the case of "merchants" or intermediaries own customers, bringing their own sources, bring their own bills, export declarations or export enterprises do not see the export products, the supply of the shipper and the presence of foreign investors. In the process of tax law enforcement, the tax authorities generally regard "four self and three invisible" as the basis for the determination of export tax rebates. The peoples court also generally uses the principle of "four self and three invisible" as the basis for the presumption of subjective intent in defrauding the export tax rebate offense.

In our opinion, this view is too absolute. It neglects the core factor of cheating on export tax rebates, namely the authenticity of the transaction. "Four self and three invisible" is only a surface phenomenon of the problem. It merely means that foreign trade enterprises have the possibility of a high possibility of tax fraud when there is "four self and three invisible", but we can』t directly equate "four self and three invisible" and cheating export tax rebates. The supplementary description of State Administration of Taxation release [1992] No. 156 issued after it deserves our attention. Such transactions do not have products, their invoices and customs declarations are forged which provided a convenient condition for criminals to cheat tax rebates, causing serious losses to countries and enterprises. Therefore, the tax authorities should not directly recognize the export tax rebate which has a real export in form of "four separate but not three" as a fraudulent one.

In addition, it is totally contrary to commercial practice to completely defame the export tax rebate with the principle of "four self and three invisible". For example, in the normal foreign trade agency business, the upstream factories often not allow foreign trade enterprises to contact with foreign customers because of their worry about "jumping orders" and the loss of customers. At the same time, foreign trade enterprises often find it hard to prove whether they have seen the products when they receive tax treatment, because it in fact require foreign trade enterprises to record the whole process of viewing the factory in advance and, if necessary, record in a notarized manner ,which apparently too harsh for normal business activities.

"Four self and three invisible" refers to the conclusion of the tax authorities on the characteristics of the tax rebate for export fraud. It is appropriate as an inspection trail of enforcement, but not directly justified to defraud the export tax rebate. Or it can also be said that a large number of fraudulent export tax rebate behavior has the feature of "four self and three invisible", but not all of the "four self and three invisible" features are cheating export tax rebate.

Third, is getting a false VAT invoice equal to defraud the export tax rebate?

Once the invoice issued by the upstream factory is found to be false, the downstream foreign trade enterprises are mostly found to be defrauding export tax rebates. In fact, this routine law enforcement model does not comply with the law. From the current law, if foreign trade enterprises only have the bona fide purchase of value-added tax invoices, should not be dealt with as defrauding export tax rebates. Article 4 (1) of Article 1 of the Circular of the Ministry of Finance and the State Administration of Taxation on Certain VAT Value-added Tax Policies on Preventing Tax Risks (Cai Shui [2013] No. 112) provides that 「As stated in this circular, false VAT invoices or other VAT deduction certificates refer to those who falsify themselves, falsify themselves, let others falsify themselves, introduce others to falsify special VAT invoices or other VAT deductions, but except for the taxpayer bona fide obtain special VAT invoices or other VAT deductions.」 Accordingly, while foreign trade enterprises earnestly obtain fake VAT invoices, they should not be dealt with on the basis of faking export tax rebates although there is an obligation to transfer input VAT when they can』t be replenished.

From the Judicial Practice point of view, VAT invoices was also not surely dealt with a cheating export tax rebate treatment. In the Kecheng Lixin Mary Cap Factory case of export tax rebate fraud ((2013) Zhejiang Quxu Chu Zi No. 18) in Quzhou, the defendant unit was established in June 22, 2001. It is the sole proprietorship owned by the defendant Mao Lixin, with the business scope of processing, sales, etc. of hats, garments, gloves, bags, leather products and travel goods. Mao Lixing served as its legal representative, responsible for the plants management. In the first half of 2009, after the defendant Cui Lan proposed and Mao Lixin consulted with others, in addition to purchasing clothing from the factory, the two sides agreed to use the general taxpayer status of the Lixin Cap Factory to make up the duty-paid clothing purchased by Cui from others at the duty-paid clothes manufactured by Lixin Cap Factory and exported them to Guatemala through the foreign trade enterprises to declare tax rebates. At the same time, Cui will pay the cost of 7 cents per dollar for Lixin Cap Factory according to the actual export amount. Due to the application for tax rebates, Lixin Cap factory needed to invoice the foreign trade enterprises a special VAT invoice to confirm the export garment has been paid value added tax. To pay less or no taxes, reduce the cost of billing, Cui Lan, Mao Lixin purchased a large number of value-added tax invoices from hundred units in Guangdong, Zhejiang, Jiangsu, Hubei Other provinces (municipalities) for the deduction Lixin Hat Factory out of the tax. From 2009 to the end of 2010, in the name of the new hat factory, Cui Lan and Mao Lixin exported 4635889 pieces of clothing from Quzhou City Blue Eagle Trading Co., Ltd. (hereinafter referred to Lanying Company) and Quzhou City Saifu Trade Co., Ltd. (hereinafter referred to as Saifu company) to Guatemala, total tax refund 14781306.10 yuan. Although Lanying Company and Saifu Company have made fake VAT invoices and handled export tax rebates, there is no evidence to prove its intention to defraud the export tax rebate, so Quzhou Peoples Procuratorate made a decision not to prosecute these foreign trade enterprises. Lixin hat factory and its responsible person was convicted of fraudulent export tax rebate by Quzhou Intermediate Peoples Court.

This shows, to defraud export tax rebates should separately examine the subjective intent of foreign trade enterprises and factories and shouldn』t hold accountable for foreign trade enterprises because of the factorys intentions.

Fourth, after the letter can the foreign trade enterprises still be identified as fraudulent export tax rebate?

In the export tax rebate operation, the letter is the weapon of tax authorities to prevent the export tax rebate fraud. According to Article 5 of the Notice of the State Administration of Taxation No. 11 of 2010 on the Administration of Tax Collection of Taxes on Export Goods, the tax authorities have the obligation to send a letter investigation in line with the provisions of this article. According to Article X of the provisions, the tax authorities should promptly check the reply letter through the letter system, and after receiving the letter of investigation of export tax revenue, request the supplier to fill in the report, and analysis the company』s situation in the "Self-inspection supplier list" content and the integrated management system, send more than two tax officers to check the supplier. According to Article 15 (5), only when the tax authority from the reply address made a normal reply, can tax authorities handle the export tax rebate business.

From an administrative law point of view, the above process constitutes a substantive examination. This review process took place between the tax authorities and suppliers which can』t be intervened by foreign trade enterprises. If the tax authorities even can』t find the transaction or invoice false situation by using state power, how to expect foreign trade enterprises to find out? If the tax authorities was cheated in the letter, they may only be deceived by the suppliers and can』t be deceived by foreign trade enterprises unless they can prove the collusion of foreign trade enterprises and suppliers conspiracy. So we think, after the letter of the export tax rebate, the tax authorities should not judge the foreign trade enterprises to defraud the export tax rebates merely on the ground of the transaction or false invoices.

In a word, fraudulent export tax rebate is a very serious allegation of foreign trade enterprises. It is entirely possible to turn into a criminal case. Therefore, the tax authorities must assume a higher burden of proof when they decide to defraud export tax rebates. Just "fake self-real agent", "four self and three invisible" or bona fide gain false VAT invoices isn』t enough to find fraud export tax rebates.