A judicial interpretation to precisely crack down on tax-related crimes

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Text | Director of the Institute of Finance, Taxation and Financial Law, School of Civil, Commercial and Economic Law, China University of Political Science and Law, Professor and Doctoral Supervisor

Weng Wuyao

On March 20, 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") came into force. The Interpretation was promulgated in response to the new challenges and new requirements brought about by the current social and economic development and the construction of the rule of law in taxation to the application of the law on tax-related crimes, and has greatly promoted the improvement of the legal system for tax-related crimes in the mainland. Among them, because the provisions of the Criminal Law of the People's Republic of China (hereinafter referred to as the "Criminal Law") on tax-related crimes are relatively principled and general, there are different understandings in the theoretical and practical circles on whether many illegal acts should be convicted and punished and what kind of tax-related crimes should be convicted.

Fundamental Purpose

First, the Interpretation creates a tighter network to combat tax-related crimes, and explicitly includes some illegal acts with unclear criminal penalties into relevant tax-related crimes, so as to strengthen the protection of national tax interests. For example, the Interpretation clearly stipulates that the decomposition of income and property in the name of others can also constitute a means of deception and concealment of the crime of tax evasion, and at the same time, in the context of the continuous popularization of the people's understanding of tax payment in accordance with the law, a catch-all clause has been introduced in the definition of non-declaration, that is, other circumstances in which tax should be paid but not declared. For another example, the Interpretation clearly stipulates that failure to fulfill tax obligations and escape from the supervision of tax authorities can also constitute a means of transferring or concealing assets to evade the crime of tax arrears. For another example, the Interpretation clearly stipulates that fictitious transaction entities can also constitute the criminal act of falsely issuing special VAT invoices.

Second, the Interpretation narrows the scope of crackdown on tax-related crimes or serious crimes, and excludes some behaviors that should not be criminalized or punished as felonies from relevant tax-related crimes, so as to reduce the criminal tax-related risks of taxpayers' economic activities and strengthen the protection of taxpayers' rights and interests. For example, with regard to the determination that a withholding agent has withheld or received tax, the Interpretation adds the condition that "when it pays after-tax income to the taxpayer", which limits the conviction and punishment for tax evasion by the withholding agent. For another example, for the crime of false issuance of special VAT invoices, the Interpretation restricts the criminal acts and excludes acts that are not for the purpose of tax fraud and do not cause tax fraud and losses due to tax deduction. At the same time, the act of using part of the false invoices to offset the input tax is convicted and punished as the crime of tax evasion.

Guiding Philosophy

First, based on the modest nature of the Criminal Law, the Interpretation clarifies the constitutive elements of tax-related crimes and ensures that the Criminal Law only punishes those acts that seriously harm tax interests. For example, for the crime of tax evasion, the Interpretation emphasizes "knowingly" in the definition of non-declaration through a catch-all clause, clarifying the subjective elements of intent and the purpose of tax evasion. For another example, for the crime of false issuance of special VAT invoices, in terms of objective elements, the Interpretation focuses on the issuance of invoices in excess of the actual tax in the case of actual business, and at the same time, restricts the actual business to the actual deductible business. In other words, it is limited to cracking down on fraudulent invoicing that can lead to fraudulent tax deductions.

Second, for different tax-related criminal acts, based on the principle of proportionality of criminal responsibility and punishment, the Interpretation fairly and scientifically distinguishes and convicts and defines criminal circumstances such as "huge amounts" or "other particularly serious circumstances" according to the degree of harmfulness, so as to conform to the sentencing and punishment of different tax-related crimes and different criminal circumstances of the same tax-related crime under the Criminal Law. For example, compared with the crime of tax evasion, the sentence for the crime of false issuance of special VAT invoices is heavier, and the Interpretation clearly lists the false payment of input tax as a means of deception and concealment of tax evasion, and taxpayers issue false invoices for false input tax credit, without defrauding the state of taxes, and the harm is the same as that of other tax evasion acts, and it is punished as the crime of tax evasion. However, if the input tax amount of the false credit exceeds the tax payable by the taxpayer, so as to defraud the state tax based on the tax refund of the retained credit, the harm is even greater, and it should be punished as the crime of false issuance of special VAT invoices. For another example, for several crimes, such as the crime of fraudulently obtaining export tax rebates, the provisions of the Interpretation on serious and especially serious circumstances have increased and refined the determination of recidivism, which is a more harmful circumstance.

Institutional guarantees

First, tax-related crimes are essentially violations of tax laws and regulations, and for this reason, the provisions of the Criminal Law on the constitutive elements of tax-related crimes and their application need to be based on the tax law. For example, the Interpretation clearly stipulates that the means of deception and concealment of tax evasion include false declaration of special additional deductions, which is a special response to the introduction of special additional deductions in the 2018 revision of the Individual Income Tax Law of the People's Republic of China, and also emphasizes the criminal crackdown on evasion of individual income tax payment. In another example, the Interpretation highlights that "deduction" and "fraudulent deduction" are the constituent elements of the relevant acts of false issuance of special VAT invoices, which is a response to the unique mechanism of input tax deduction in the determination of the tax payable in the Provisional Regulations of the People's Republic of China on Value-Added Tax, according to which it can be determined that the tax interests protected by the crime of false issuance of special VAT invoices are VAT interests, and also provide legitimacy for the positioning of this crime as a serious crime.

Second, the Criminal Law cracks down on acts that seriously harm tax interests, and the Criminal Law also needs to be independent when establishing tax crimes on the basis of relevant tax violations in the tax law, which is different from the relevant tax laws. For example, the Interpretation restricts the criminal act of false issuance of special VAT invoices, and makes a clear distinction between the false issuance of invoices under the Measures of the People's Republic of China for the Administration of Invoices, which only emphasizes that it is inconsistent with the actual business situation. In addition, some tax-related violations cannot be completely eliminated at the level of tax collection and administration, and conviction and punishment are still necessary. To this end, the Interpretation clearly stipulates that if a forged special VAT invoice is falsely issued, it shall also be punished as the crime of false issuance of a special VAT invoice.

Innovative means

First, the Interpretation is the first judicial interpretation that specifically applies the law to tax-related crimes, breaking the traditional practice of independently interpreting one or several tax-related crimes. The overall interpretation is conducive to a systematic understanding of the application of the law, and the correct conviction and punishment of tax-related crimes, especially when there is a competition of related crimes. For example, after the Interpretation establishes the tax evasion method of false input tax deduction, it can correctly understand the aforementioned correct understanding of the applicable relationship between the crime of tax evasion and the crime of false issuance of special VAT invoices. For another example, the Interpretation stipulates that an intermediary organization shall be punished for the crime of providing false supporting documents for the purpose of fraudulently obtaining tax refunds, but at the same time, it also introduces a common rule that the helping entity shall be punished as an accomplice to the corresponding crime.

Second, although the Interpretation does not mention the crime of smuggling, based on a systematic interpretation, the definition of the corresponding tax amount in the Interpretation does not include the value-added tax and customs duties collected by the customs.

In short, the Interpretation not only greatly improves the clarity of the application of the law on tax-related crimes and the reasonable expectation of protecting market entities, but also effectively promotes a fairer and more just tax criminal justice, which can not only effectively punish tax-related crimes, but also lay a solid foundation for the comprehensive governance of tax-related crimes (compliance rectification), and will further improve the level of tax rule of law, optimize the business environment, and promote high-quality social and economic development.

Cover and table of contents of this issue

China Trial, Issue 7, 2024

China Trial News Semi-Monthly No. 341

Editor/Xu Chang