Editor's note: On March 15, 2024, the Supreme People's Court and the Supreme People's Procuratorate issued the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration (Fa Shi [2024] No. 4). Surprisingly, the judicial interpretations of the Supreme People's Court and the Supreme People's Court have made a major breakthrough in the criminal compliance policy, completely dispelling the concerns about whether the court system can and should apply criminal compliance in the field of tax-related crimes, and the importance of criminal compliance will be greatly enhanced. At the same time, there are still doubts about the legal effect of criminal compliance for tax-related crimes, and the legislation needs to be further improved. This article will analyze the application of criminal compliance in tax-related crimes in the future based on the judicial interpretations of the Supreme People's Court and the Supreme People's Court, and put forward suggestions for the revision and improvement of the criminal compliance system.
According to the first paragraph of Article 21 of the judicial interpretations of the Supreme People's Court and the Supreme People's Court, "if a crime endangering tax collection and management is committed, causing a loss of state tax revenue, and the perpetrator pays back the tax and recovers the tax loss, he may be given a lenient punishment; where the circumstances of the crime are minor and do not require a criminal punishment, he may not be prosecuted or exempted from criminal punishment; and where the circumstances are obviously minor and the harm is not great, it shall not be handled as a crime." Although it is only a short provision, it is extremely rich in connotation, and the author believes that this provision solves at least three issues: (1) can criminal compliance be applied to tax-related crime cases with a sentence of more than 10 years? (2) can criminal compliance be applied at the court trial stage, especially at the second-instance stage, in tax-related crime cases? However, at the same time, the judicial interpretations of the Supreme People's Court and the Supreme People's Court have not made further breakthroughs in the legal effect of criminal compliance, which is not conducive to giving full play to the incentive role of criminal compliance, and there are certain regrets.
1. Criminal compliance may also be applied in cases of tax-related crimes with a sentence of more than 10 years
(1) In the past, many places held that criminal compliance could not be applied in cases where sentencing was more than 10 years
On June 3, 2021, the Supreme People's Procuratorate and nine other departments jointly issued the Guiding Opinions on the Establishment of a Third-Party Supervision and Assessment Mechanism for the Compliance of Enterprises Involved in Cases (for Trial Implementation) (hereinafter referred to as the "Criminal Compliance Guiding Opinions"), establishing a criminal compliance policy nationwide for the first time. According to Article 4 of the Guiding Opinions on Criminal Compliance, there are three prerequisites for the application of criminal compliance, namely, the enterprises and individuals involved in the case admit guilt and accept punishment, meet the conditions for initiating criminal compliance, and voluntarily apply criminal compliance, and do not link the severity of sentencing with whether criminal compliance can be applied.
However, in the course of enforcement by local courts, many of them have imposed further restrictions on the conditions for the application of criminal compliance, and some local provincial high courts have clearly declared that criminal compliance is not applicable to cases where the sentence may be more than 10 years, which has narrowed the scope of application of criminal compliance, resulting in an unreasonable phenomenon that minor crimes can be compliant but felonies cannot be compliant, and the incentive effect of the criminal compliance system has been reduced.
(2) Future: Criminal compliance may be applied to enterprises involved in tax-related crime cases with a sentence of more than 10 years
The judicial interpretations of the Supreme People's Court and the Supreme People's Court stipulate that the applicable targets of compliance rectification are the perpetrators of "committing crimes endangering tax collection and management", and do not limit the sentencing range of the applicable objects, and give the parties to tax-related crimes the right to apply for criminal compliance without discrimination. Regardless of the amount of the tax-related crime, a party that meets the conditions of the Criminal Compliance Guidance may actively apply for criminal compliance in accordance with the provisions of this Article.
2. Criminal compliance can be applied for before the judgment of the second instance of tax-related crimes
(1) In the past: criminal compliance was mainly applicable to the procuratorate's review and prosecution process
According to Article 1 of the Guiding Opinions on Criminal Compliance, criminal compliance is only applicable to "the procuratorate's handling of enterprise-related criminal cases", that is, it is only applicable to the procuratorate's review and prosecution stage in criminal proceedings. After the procuratorate initiates a public prosecution with the people's court, the enterprise will lose the opportunity to apply for criminal compliance rectification.
On October 10, 2023, the Supreme People's Court issued the Guiding Opinions on Optimizing the Legal Environment and Promoting the Development and Growth of the Private Economy, which clarifies that "for private enterprises that can be sentenced to suspended sentences and exempted from criminal punishment in accordance with the law, they will work with the procuratorate to carry out the criminal compliance reform of the enterprises involved in the case, make full use of the third-party compliance supervision mechanism, ensure that the compliance rectification is implemented, and prevent and reduce the recurrence of violations and crimes by enterprises from the source", providing guidance for the courts to participate in criminal compliance. However, it only stipulates that the court and the procuratorate can jointly carry out criminal compliance reform, but does not give the court the power to initiate criminal compliance procedures on its own, and it is impossible to draw a positive conclusion on whether the enterprises involved in the case can still start the compliance procedures after entering the court trial stage if they have not carried out criminal compliance in the review and prosecution stage, and whether they can still initiate compliance procedures after entering the second instance if they have not carried out criminal compliance in the first instance.
Although the Supreme People's Court has not issued clear instructions, local courts have made useful explorations on criminal compliance, and the Gucheng County Court and the Wuhu Intermediate People's Court in Hubei Province have contributed the first cases in the country in which criminal compliance is applied in the first and second instance stages of the courts, respectively. Due to the lack of a clear basis for the Supreme People's Court and the Supreme People's Court, courts in more places have taken a wait-and-see attitude towards whether the criminal compliance procedure can be initiated at the trial stage, which limits the efficacy and role of the criminal compliance system to a certain extent.
(2) Future: Courts across the country can initiate criminal compliance in the first and second instance trial stages of tax-related crimes
The judicial interpretations of the Supreme People's Court and the Supreme People's Court do not limit the criminal compliance rectification to the procuratorate's review and prosecution stage, but instead stipulate that the legal effect of effective compliance rectification is lenient punishment, that is, as a consideration factor in the court's imposition of criminal punishment, which means that the enterprises involved in the case can carry out criminal compliance rectification before the court makes a final judgment, and the court should recognize it. Of course, the final judgment is not limited to the first-instance procedure, if the enterprise involved in the case did not apply for criminal compliance rectification before the first-instance judgment, and applied after the appeal, as long as the criminal compliance conditions are met, the court should of course allow it. This clause gives the enterprises involved in the case more opportunities to rectify and effectively protects the litigation rights of the enterprises.
III. Effective criminal compliance rectification has become a sentencing circumstance that the court must consider
(1) In the past: The results of criminal compliance rectification may not be considered in the court's sentencing
According to article 2 of the Measures for the Establishment, Assessment, and Review of Compliance of Enterprises Involved in Cases (Provisional), where an enterprise involved in a case has undergone criminal compliance rectification and acceptance, but the procuratorate still decides to initiate a public prosecution, the procuratorate may submit a sentencing recommendation for lenient punishment. However, the Supreme People's Procuratorate did not participate in the formulation of the document, and the document did not stipulate that the court must accept the sentencing recommendation of the procuratorate. Therefore, the previous acceptance of criminal compliance is not a sentencing circumstance, but only affects the procuratorate's sentencing recommendation.
In practice, some local provincial high courts stipulate that if the compliance rectification is accepted and accepted, and the procuratorate submits a sentencing recommendation for a suspended or lighter punishment, the court shall generally adopt it, which strengthens the rigidity of the compliance rectification and leniency of punishment to a certain extent, but it can only guide local judicial practice and is not applicable nationwide.
(2) Future: Effective criminal compliance rectification has become a discretionary sentencing circumstance, and the court must consider it
The judicial interpretations of the Supreme People's Court and the Supreme People's Court clarify that effective compliance rectification can achieve "lenient punishment", and institutionalize and standardize leniency for effective compliance rectification, which means that compliance rectification has officially become a discretionary sentencing circumstance. If an enterprise completes compliance rectification at the procuratorate or court stage and passes the acceptance, the court must consider it in the sentencing process and give a lighter punishment. It can be said that effective compliance rectification leniency has basically the same status as plea leniency, and in the future, it may also follow the development of the plea leniency system and be included in the Criminal Procedure Law to further enhance the legal ranking.
IV. Remaining Issues: Can the Punishment Reduction Be Achieved through the Rectification of Criminal Compliance for Tax-Related Crimes?
(1) The reduction of sentencing after the correction of criminal compliance violates the provisions of the Criminal Law
According to the Interpretation of the Supreme People's Court on the Application of the Criminal Procedure Law of the People's Republic of China (Fa Shi [2021] No. 1), sentencing circumstances include statutory sentencing circumstances and discretionary sentencing circumstances, and statutory sentencing circumstances are circumstances expressly provided for in the Criminal Law, such as voluntary surrender and meritorious service. Discretionary sentencing circumstances are circumstances that are not expressly provided for in the Criminal Law but can reflect the degree of harm to society of the criminal act, such as first-time offenders, occasional offenders, etc. Among them, the statutory sentencing circumstances include severe punishment circumstances and lenient punishment circumstances, and lenient punishment circumstances also include mitigating punishment circumstances, mitigating punishment circumstances, and exemption from punishment circumstances.
Mitigating circumstances refer to circumstances where a mitigating punishment is given within a sentencing range, such as a false tax amount of 1,000,000 RMB, and a sentence shall be given within the sentencing range of 3 to 10 years imprisonment, and where there are mitigating circumstances, a lighter sentence may be given within this sentencing range, such as a sentence of 3 or 4 years imprisonment. Mitigating circumstances refer to circumstances that may reduce the sentencing range, for example, where the amount of tax falsely issued is 1 million yuan, and there are mitigating circumstances, the sentence may be given within the sentencing range of up to three to 10 years imprisonment, i.e., up to three years imprisonment or short-term detention, to achieve a reduction in sentencing, such as a sentence of one year imprisonment.
According to article 63 of the Criminal Law, "where a criminal has mitigating circumstances as provided for in this Law, he shall be sentenced to a penalty below the statutory penalty;
Although criminals do not have the mitigating circumstances provided for in this Law, they may also be sentenced to a punishment below the legally-prescribed penalty based on the special circumstances of the case and upon approval by the Supreme People's Court."
Accordingly, only statutory mitigating circumstances can achieve sentencing reduction, and discretionary sentencing circumstances usually only include severe punishment and mitigating circumstances, excluding mitigating circumstances and exemption from punishment, unless the discretionary sentencing circumstances are special and approved by the Supreme People's Court, they can be used as mitigating or waived circumstances. Article 21 of the judicial interpretations of the Supreme People's Court and the Supreme People's Court stipulates that effective criminal compliance rectification is a discretionary mitigating circumstance, which means that criminal compliance can only achieve a lighter punishment, but cannot achieve sentencing reduction.
(2) In practice, there seem to be cases where sentencing has been reduced after criminal compliance rectification
Judging from the typical criminal cases of endangering tax collection and administration released by the Supreme People's Court and the Supreme People's Court, it seems that different conclusions can be drawn. The basic facts of the case are as follows:
In September 2019, in order to deduct taxes, a waterproof material company in Shandong (hereinafter referred to as the waterproof company) issued 22 false VAT invoices for it through a shell company controlled by Gou Moumou, with a tax amount of more than 270,000 yuan, in the absence of real goods transactions. From August to October 2019, Xu Moumou also falsely issued 59 special VAT invoices to two companies, including a waterproof building materials company in Xiamen, where he was an executive, through a shell company controlled by Gou Moumou, with a tax amount of more than 750,000 yuan. All the invoices issued above were used for deduction, and the false invoices were transferred out as input tax after the case was discovered. After the case was transferred for review and prosecution, Xu Moumou pleaded guilty and accepted punishment, and took the initiative to apply for the start of corporate compliance procedures for the waterproof company, and voluntarily carried out compliance rectification. In November 2022, the procuratorate decided to apply the compliance and third-party supervision and evaluation mechanisms of the enterprises involved in the case to the waterproof companies.
In October 2023, the People's Procuratorate of Shouguang City, Shandong Province, with reference to the conclusion of the compliance inspection, decided not to prosecute the waterproof company, prosecuted Xu Moumou on suspicion of falsely issuing special VAT invoices, and put forward a lenient sentencing recommendation for him. The People's Court of Shouguang City, Shandong Province, sentenced the defendant Xu XX to two years imprisonment, suspended for two years, and fined 20,000 yuan for the crime of falsely issuing special VAT invoices.
In this case, the parties had the parties to issue false VAT invoices for the two companies they controlled and worked for, with a total tax amount of 1.02 million yuan, and the possible sentence ranged from three to ten years in prison. The case disclosed that one of the companies had completed the criminal compliance rectification and did not disclose other mitigating circumstances, but the party finally obtained a sentence of two years in prison and a two-year suspended sentence, and the sentencing was reduced. If the information disclosed in the case is complete, it means that in judicial practice, there are cases in which the sentencing file has been reduced after effective compliance rectification.
(3) Reflections and suggestions on criminal compliance legislation
The author believes that the role and efficacy of criminal compliance is to carry out comprehensive and thorough rectification of the enterprises involved in the case, eliminate the possibility of recidivism, and realize the educational and reform function of the criminal law. All the statutory sentencing circumstances in the current Criminal Law cannot achieve the replacement of criminal compliance rectification, and criminal compliance rectification is an institutional innovation in the new era, and it cannot give full play to its value if it is regulated by judicial interpretations alone, and should be regulated by the Criminal Law.
Criminal law not only has the meaning of punishing the parties and making amends for the victims, but also has social significance, and the criminal law must take into account the impact on society. In the field of enterprise tax-related crimes, the enterprise involved in the case may have undertaken a variety of social functions such as creating tax sources, providing employment, and developing the economy, and the enterprise involved in the case has already made up for the losses caused to the state's tax interests by paying back taxes, late fees, or accepting penalties, there is no need to impose a serious criminal penalty on the parties involved in the case, otherwise it will affect the continued operation of the enterprise involved in the case, causing the enterprise involved in the case to be unable to exert its social value and causing greater trauma to the local society. Therefore, in the field of tax-related crimes, criminal compliance can be regarded as a statutory mitigating or exempting circumstance, which should be clarified by the criminal law.
5. Enlightenment for the defense of tax-related crimes
The judicial interpretations of the Supreme People's Court and the Supreme People's Court have cleared the obstacles to the court's application of criminal compliance and improved the status of criminal compliance in the court's trial, so that the judicial authorities will pay more attention to the application of criminal compliance for tax-related crimes in the future, providing a favorable starting point for the sentencing defense of tax-related crimes. Enterprises suspected of endangering tax collection and administration that may be sentenced to three to 10 years imprisonment may actively apply for criminal compliance rectification, striving to impose a three-year sentence and apply a suspended sentence within the sentencing range. For enterprises that may be sentenced to more than 10 years imprisonment, the significance of criminal compliance cannot be ignored, and where the enterprises involved in the case have statutory mitigating circumstances such as voluntary surrender and meritorious service, they may further strive for criminal compliance rectification, so as to achieve the combined effect of "sentencing downgrade of statutory circumstances + lighter punishment for criminal compliance rectification", and further strive for probation. For enterprises involved in cases that may be sentenced to more than 10 years in prison and there are no statutory mitigating circumstances, it is recommended that other defense strategies be adopted first.