Judicial Interpretation of Tax-related Crimes and Optimization of the Business Environment

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Liu Jianwen, President of the Finance and Taxation Law Research Association of China Law Society, Distinguished Professor and Doctoral Supervisor of Liaoning University

Jiang Lijie, assistant researcher of the Institute of Finance and Taxation Rule of Law in the New Era, Liaoning University

General Secretary Xi Jinping pointed out: "The rule of law is the best business environment. This important assertion profoundly explains the relationship between the rule of law and the business environment, requires equal protection of the legitimate rights and interests of all types of market entities in accordance with the law, and takes the rule of law as the focus of business environment optimization. In the entire legal system, the protection of tax law and criminal law is related to the economic freedom and property interests of market entities, and constitutes the two cornerstones of business environment optimization. As a tax-related criminal case at the intersection of the two, it also has a special position in the optimization of the entire business environment.

Judicial interpretations undertake the task of refining legal provisions and filling gaps in the law, and have the effect of stabilizing expectations, shaping good laws, and promoting good governance. In particular, the provisions of the current legislation on the mainland on some crimes endangering tax collection and administration are relatively principled and general, and need to be clarified by judicial interpretation. In March 2024, 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 Endangering Tax Collection and Administration (hereinafter referred to as the "Interpretation") was released.

Stabilize expectations

Clarify the boundaries between violations and crimes by market entities

The Interpretation clearly stipulates the application of law to new criminal methods and the conviction and sentencing standards for related crimes, providing relatively stable expectations for market players.

The first is to respond to practical concerns. The Interpretation adapts to the needs of practice and clearly stipulates the legal application of new types of criminal methods. For example, in the provisions on the crime of tax evasion, the signing of a "yin-yang contract" is clarified as one of the ways of tax evasion; in the provisions on the crime of fraudulently obtaining export tax rebates, the typical forms of "false export declaration" are enumerated, and in the provisions on tax evasion and recovery, the specific acts of "transferring or concealing property" are clearly stipulated. This provides a precise basis for the judicial authorities to apply the law, responds to practical concerns, and draws a red line for the operation of market entities.

The second is to promote the connection between executions. Different from the previous tax-related judicial interpretations, which provided for the crimes of special VAT invoices, tax evasion and tax resistance, and fraudulent export tax rebates, the Interpretation systematically provides comprehensive provisions on the conviction and sentencing circumstances for each crime under Chapter 3, Section 6 of the Sub-Provisions of the Criminal Law of the People's Republic of China (hereinafter referred to as the "Criminal Law"), which is similar in style to the Provisions on the Standards for Filing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Organs (II) revised in 2022 In terms of content, it also realizes the unification of conviction and sentencing standards and case filing and prosecution standards, which is conducive to clarifying the boundaries between administrative violations and crimes and stabilizing the expectations of market entities.

Plastic good law

Help enhance the confidence of market players

Good law is the foundation of good governance. In the past, due to the fact that the provisions of the Criminal Law on some crimes endangering tax collection and administration were relatively principled and general, there was a great difference between the theoretical and practical circles on the understanding of certain crimes. Due to the different social harms of different criminal acts, the Criminal Law sets different punishment standards, such as the maximum sentence for the crime of false issuance of special VAT invoices, the crime of fraud, and the crime of tax evasion is seven years in prison. In practice, the existence of relevant differences in conviction is not conducive to distinguishing between minor and serious crimes according to social harm, and will also have an adverse impact on economic development. Based on the principle of modesty in criminal law, the Interpretation focuses on the prominent crimes of false issuance of special VAT invoices and tax evasion.

The first is the crime of fraud and tax evasion. The Interpretation clearly stipulates that "providing false materials and fraudulently obtaining tax incentives" will be used as a means of tax evasion, so as to avoid tax evasion, and the felony of fraud will be punished.

The second is the crime of tax evasion and the crime of false issuance of special VAT invoices. The "Interpretation" clearly stipulates that the "false deduction of input tax" is one of the means of tax evasion, which not only clarifies that the felony of false issuance of special VAT invoices is specifically punished for acts that seriously endanger the order of invoice management, and clarifies the boundary between the crime of false issuance and tax evasion, but also greatly reduces the legal responsibility of the perpetrator and ensures that the punishment is commensurate with the crime.

Third, the scope of the crime of false issuance of special VAT invoices has been restricted. The "Interpretation" clearly stipulates that when there is an actual deductible business situation, "issuing a special VAT invoice that exceeds the tax corresponding to the actual deductible business" is the target of this crime, and excludes the special circumstance of "low opening" in which the state's tax benefits do not decrease but increases; It is of great significance to optimize the business environment.

Promoting good governance

Guide market entities to consciously abide by the law

Taxation is the property that taxpayers transfer to the state free of charge, which makes it difficult to eradicate tax-related crimes, coupled with the technicality and complexity of tax law norms, which also makes it difficult to properly handle tax-related criminal cases, requiring the organic combination of crime and governance, and improving taxpayers' compliance with tax laws. The Interpretation makes a number of provisions in this regard.

First, encourage offenders to turn over a new leaf. In 2009, the Standing Committee of the National People's Congress passed the Amendment (VII) to the Criminal Law of the People's Republic of China, which made major amendments to Article 201 of the Criminal Law, clearly stipulating that taxpayers have the right to "pay taxes and be exempted from punishment" under certain circumstances, namely" After the tax authorities have issued a recovery notice in accordance with the law, the tax payable shall be paid back and the overdue penalty shall be paid, and criminal liability shall not be pursued if the tax has already been subject to administrative punishment, except for those who have received criminal penalties for tax evasion within five years or have been given two or more administrative penalties by the tax authorities." In view of the differences in practice of this provision, the Interpretation clarifies that "if the tax authorities fail to issue a recovery notice in accordance with the law, they shall not be investigated for criminal liability in accordance with the law", resolving the disputes between the parties on the administrative pre-procedure of whether the recovery notice constitutes the prosecution of the crime of tax evasion. Encourage offenders to turn over a new leaf, and guide market entities to consciously abide by the law.

Second, promote the compliance operation of the enterprises involved in the case. Enterprises, especially private enterprises, are a new force in promoting Chinese-style modernization and the foundation for high-quality economic development. Among the tax-related criminal cases, the proportion of unit crimes is relatively high, and it occupies the top three private enterprise crimes. In recent years, the central government has promoted the compliance reform of enterprises involved in cases, aiming to strengthen the compliance construction of enterprises involved in cases through source governance, and strive to make enterprises "survive", "retain" and "operate well". The Interpretation confirms this system, providing a clear basis for the application of law by judicial organs.

In short, the Interpretation has left a strong mark on the entire process of optimizing the business environment. For example, the rules for the connection between the crime of evading the recovery of tax arrears and the exercise of the tax department's subrogation and revocation power need to be clarified, and new problems that arise in the future also need to be responded to in a timely manner, so as to give full play to the effect of judicial interpretations in stabilizing expectations, shaping good laws and promoting good governance, and solidly promote the optimization of the business environment.

Cover and table of contents of this issue

China Trial, Issue 7, 2024

China Trial News Semi-Monthly No. 341

Editor/Xu Chang