Editor's note: For a long time, the problem of the lack of "source invoice" has been restricting the development of the renewable resources industry, in order to alleviate this problem, most of the business models emerging in practice have different degrees of tax-related risks, and in recent years, the tax, audit and other departments have also brought more uncertainty to the tax compliance of the renewable resources industry. Recently, the much-talked-about "reverse invoicing" landing, since April 29, recycling enterprises in Changzhou, Jiangsu, Foshan, Guangdong and other places have issued reverse invoices. Under the new situation of tax collection and management, how to correctly understand and apply the "reverse invoicing" policy, how to combine the "reverse invoicing" policy, and how to achieve a balance between tax compliance and economic interests in supporting the existing simplified tax calculation and other provisions have become the focus of attention of enterprises in the renewable resources industry. Based on the characteristics of the industrial chain of the renewable resources industry, this paper analyzes the tax-related risks of the existing business model, and expounds the key points that need to be considered in the adjustment of the business model of waste-using enterprises under the new situation in combination with the "reverse invoicing" policy, for readers' reference.
First, it is difficult to obtain "source invoices" for renewable resource recycling, and the risk of false opening and tax evasion in the industry is high
The basic format of the renewable resources industry is to recycle and process the waste materials generated in industrial production or daily life to produce reusable products, forming an industrial chain of "waste materials resource end - waste materials recycling end - waste materials processing and utilization end". In practice, the front-end of renewable resource recovery is usually a small retail investor such as natural persons and acquisition stations, and because of the need to bear additional taxes and fees for invoicing, such entities often sell goods without tickets, resulting in the source of the invoice chain of renewable resource recovery business. Scrap enterprises purchasing goods from retail investors face the problems of not being able to deduct the input VAT and obtaining the deduction voucher of enterprise income tax.
Considering the dilemma of source invoices in the renewable resources industry, in order to encourage and support the development of the renewable resources industry, the Ministry of Finance and the State Administration of Taxation have successively issued policies to give preferential policies such as tax exemption and tax exemption for enterprises engaged in recycling business, and the entry threshold for recycling enterprises is low. Since the "Notice on the Value-Added Tax Policy on Renewable Resources" (Cai Shui [2008] No. 157) canceled the tax exemption policy for recycling enterprises, the problem of source invoices has become prominent again, and the recycling enterprises in the business model of "retail households-recycling enterprises-waste enterprises" rely on local financial return policies to reduce the tax burden of paying taxes after invoicing to waste enterprises, and because recycling enterprises do not participate in the transportation and storage of goods, and use financial returns to issue invoices to waste enterprises, it is easy to lead to the suspicion of false issuance. The case-handling authority may deny the reasonableness of the existence of the recycling enterprise on the grounds that there is no real goods transaction, and then deny the legitimacy of the entire purchase and sale transaction chain. In addition, since the beginning of this year, many departments such as auditing, taxation, and the National Development and Reform Commission have made it clear in the form of meetings or documents that they must strictly investigate the problem of illegal tax refunds, and Jiangxi, Shanxi, Zhejiang and other places have also successively carried out rectification actions to clean up subsidies or refunds that are improperly intervening in the market and linked to tax revenues. The business model of recycling enterprises relying on financial returns is facing severe challenges, and the risk of false opening is easy to be transmitted to waste users.
Second, the recycling enterprise simple tax calculation, "reverse invoicing", the new policy of the renewable resources industry to respond to the practical dilemma
For a long time, the phenomenon of issuing and falsely opening on behalf of the source due to insufficient invoices at the source is widespread, and cases of false opening in the renewable resources industry are frequent, and all entities in the business chain are facing different degrees of administrative and criminal liability risks. In order to alleviate the problem of source invoices in the renewable resources industry, the Ministry of Finance and the State Administration of Taxation issued the Announcement on Improving the VAT Policy for Comprehensive Utilization of Resources (Announcement No. 40 of 2021 of the Ministry of Finance and the State Administration of Taxation, hereinafter referred to as "Announcement No. 40") at the end of 2021, allowing general taxpayers engaged in the recycling of renewable resources to choose to apply the simplified tax calculation method to calculate and pay VAT at a rate of 3%. Circular No. 40 effectively responds to the problem of excessive VAT burden on recycling enterprises, but does not solve the problem of pre-tax deduction vouchers for enterprise income tax, and some localities expressly do not allow the collection of self-made vouchers of enterprises to be recorded, so there are certain limitations in the application of Circular 40 in practice.
The recently landed "Announcement on Matters Concerning the "Reverse Invoicing" of Resource Recovery Enterprises to Sellers of Scrapped Products by Natural Persons (Announcement No. 5 of 2024 of the State Administration of Taxation, hereinafter referred to as "Announcement No. 5") clarifies that from April 29, 2024, sellers of scrapped products by natural persons (hereinafter referred to as "sellers") sell scrapped products to resource recovery enterprises, and qualified resource recovery enterprises can issue invoices to sellers, that is, "reverse invoicing". Announcement No. 5 also clarifies that the special VAT invoice issued in reverse has the functions of VAT input deduction and pre-tax deduction of enterprise income tax, and can be used as a voucher for the application of the policy of immediate levy and refund for comprehensive utilization of resources, smoothing the VAT deduction chain and responding to the problem of pre-tax deduction voucher for enterprise income tax.
Under Announcement 40 and Announcement 5, it is worth in-depth discussion on how enterprises in the renewable resources industry can adjust their business models and achieve a balance between tax compliance and economic interests. Based on the industrial characteristics of the renewable resources industry, the following will analyze the four key points that need to be paid attention to in the adjustment of the business model of waste enterprises, so as to provide reference for the understanding and application of tax policies in the renewable resources industry.
3. Under the new policy of "reverse invoicing", there are four key points that need to be paid attention to in the adjustment of the business model of waste enterprises
Announcement No. 5 clarifies that recycling enterprises or waste enterprises with recycling qualifications need to purchase waste materials from the sellers of scrapped products by natural persons before the "reverse invoicing" policy can be applied, and the sellers of scrapped products by natural persons include two categories, one is the natural person who sells the scrapped products they have used, and the other is the natural person who sells the acquired scrapped products and has a cumulative sales volume of no more than 5 million yuan (excluding VAT, the same below) for no more than 12 consecutive months (natural month, the same below). If a recycling enterprise directly purchases waste materials from a self-employed person or a waste production enterprise, it shall issue invoices by the self-employed or waste production enterprises, and the "reverse invoicing" policy cannot be applied. The following discussion of the impact of the "reverse invoicing" policy on the business model is based on the purchase of scrap materials from eligible natural person sellers of scrapped products.
Concern 1: Do recycling enterprises choose simple tax calculation or general tax calculation?
Under the business model of "seller-recycling enterprise-waste enterprise", there are two possibilities for the invoice obtained by the waste enterprise from the general taxpayer recycling enterprise: first, the recycling enterprise applies the general tax calculation method and issues a 13% VAT special invoice to the waste enterprise; Second, in accordance with the provisions of Announcement No. 40, recycling enterprises shall apply the simplified tax calculation method and issue 3% VAT special invoices to waste enterprises.
Under the business of the recycling enterprise applying the general tax calculation method, the recycling enterprise purchases waste materials from the seller and issues a special VAT invoice with a tax rate of 1% or 3% on its own, and the waste enterprise obtains a 13% VAT special invoice from its purchase of waste materials, so as to realize the input deduction of VAT and the pre-tax deduction of enterprise income tax, and can be used as an applicable voucher for immediate refund. However, under this model, the VAT burden of recycling enterprises is higher.
Under the business of applying the simplified tax calculation method to recycling enterprises, recycling enterprises can pay VAT at a rate of 3% on the sale of waste materials, and can issue ordinary VAT invoices as pre-tax deduction vouchers for enterprise income tax in conjunction with the "reverse invoicing" policy, which solves the problem of pre-tax deduction vouchers for enterprise income tax in the application of Announcement No. 40 in the past. However, under the simplified tax calculation model, waste enterprises can only obtain 3% of the special VAT invoice from the recycling enterprise, and the VAT tax burden is relatively high, especially for waste enterprises that do not meet the requirements of immediate collection and refund. At present, the scope of application of the policy of immediate refund is relatively limited, in addition to the need to use the resources specified in the "Catalogue of Preferential VAT on Products and Services for Comprehensive Utilization of Resources (2022 Edition)" to produce products that meet the requirements, some tax refund projects also put forward requirements for the qualifications of waste enterprises and the objects of product sales. Taking scrap steel as an example, scrap steel processing enterprises first need to comply with the relevant provisions of the Ministry of Industry and Information Technology's "Scrap Steel Processing Industry Access Conditions", and as of the "Scrap Steel Processing Industry Access Conditions" enterprise list (the eleventh batch), there are currently only 824 scrap steel processing enterprises that meet the access conditions of the Ministry of Industry and Information Technology. Among the 824 eligible scrap processing enterprises, according to incomplete statistics, only 282 can enjoy the policy of immediate collection and refund, accounting for 34.22%.
Therefore, for the business of recycling enterprises that apply simple tax calculation, the tax burden of waste enterprises is generally higher. In practice, in order to solve this problem, some waste-using enterprises set up another recycling enterprise that is subject to general taxation at the back-end of the original recycling enterprise, forming a model of "seller-recycling enterprise (simple tax calculation)-recycling enterprise (general tax calculation)-waste enterprise", and obtain a 13% special VAT invoice from the recycling enterprise that is subject to general taxation, transfer the VAT tax burden to the recycling enterprise, and return to the problem of excessive tax burden of the recycling enterprise under the general tax calculation mode mentioned above. In current practice, such recycling enterprises usually enjoy fiscal rebates to reduce their tax burden, but this kind of business model that relies on fiscal rebates has greater tax-related risks as mentioned above.
Focus 2: "Seller-Waste Enterprise" or "Self-employed Enterprise"?
Under Announcement No. 5, waste-using enterprises (i.e., "recycling enterprises" as stipulated in Announcement No. 5) can directly purchase scrapped products from sellers, and issue invoices in reverse as VAT input deductions and pre-tax deduction vouchers for enterprise income tax, which can be used as the basis for the application of the policy of immediate collection and refund, shortening the original transaction chain of "retail households-recycling enterprises-waste enterprises" to "sellers-waste enterprises", avoiding doubts about whether "recycling enterprises" are actually involved in the business in previous practice. Avoid the transmission of the risk of false opening of recycling enterprises. However, for waste enterprises that cannot enjoy the policy of immediate collection and refund, they also face the problem of excessive tax burden.
Compared with the previous model of "self-employed enterprises", the tax burden of waste-using enterprises has not changed greatly, and they have obtained 1% or 3% special VAT invoices; From the perspective of the invoicing limit, the cumulative sales of "reverse invoicing" of the seller within 12 months shall not exceed 5 million yuan, and the limit of invoicing for self-employed individuals varies from region to region, and the annual invoicing limit in some areas is 5 million yuan. From the perspective of the tax burden of the seller of waste materials, the seller or the self-employed can apply the preferential VAT policy for small-scale taxpayers, but there may be differences in income tax: 1) from the tax procedure, the seller under the "reverse invoicing" needs to pay 0.5% income tax in advance and handle the final settlement of business income in the following year; Self-employed individuals are required to pay income tax in advance on a monthly or quarterly basis, and complete the final settlement in the following year. 2) In terms of individual income tax, at present, the part of the annual taxable income of self-employed households not exceeding 2 million yuan will be reduced by half of the individual income tax, and some areas will give self-employed individuals an approved collection policy, so that the individual income tax that self-employed individuals need to bear when selling waste materials may be lower than that of natural person sellers.
Focus 3: "Seller-Waste Enterprise" or "Seller-Recycling Company-Waste Enterprise"?
In the past practice, waste enterprises mainly set up recycling enterprises at the front end for two considerations: first, the quality and quantity of retail supply fluctuate greatly, and qualified recycling enterprises collect goods to ensure that they can obtain raw materials that meet production needs; Second, under this model, waste enterprises can obtain 13% VAT special invoices from recycling enterprises, which can be used as pre-tax deduction vouchers for enterprise income tax and the vouchers required for applying for immediate refund. However, after the "reverse invoicing" policy clarifies that the invoices issued in reverse have the functions of VAT input deduction, pre-tax deduction of enterprise income tax and immediate refund vouchers, is it still necessary to include recycling enterprises in the business chain of waste enterprises?
In the author's opinion, the choice between the "seller-waste enterprise" model or the "seller-recycling enterprise-waste enterprise" model needs to be comprehensively considered in three aspects: first, whether the waste enterprise enjoys the policy of immediate collection and refund, if the waste enterprise enjoys the policy of immediate collection and refund, under the "seller-waste enterprise" model, the tax refund part can effectively alleviate the problem of low deductible VAT of invoices issued in the opposite direction; Second, it is necessary to consider whether the recycling enterprises enjoy the fiscal return policy, and at the same time, we should also pay attention to the legitimacy, effectiveness and stability of the fiscal return policy; Third, it is necessary to consider the overall economic cost and tax burden of the whole business chain structure from recycling to production.
Concern 4: The "reverse invoicing" of recycling enterprises should pay taxes and fees on their behalf, and they should bear the responsibility of making up the payment if they fail to handle it in accordance with the regulations
Article 11 of Announcement No. 5 stipulates that when a resource recovery enterprise "reverses invoicing" to the seller, it shall handle the declaration of value-added tax, additional tax and individual income tax for the seller in accordance with the regulations, submit the "Tax Report Form" and the "Tax Detail Report Form" to the competent tax authorities within the declaration period of the following month, and pay the tax and fee as required. At present, some renewable resource enterprises have sent letters to suppliers, clarifying that recycling enterprises shall apply for the declaration and payment of value-added tax, additional taxes and individual income tax on behalf of sellers, and the standard for withholding and payment is 1.6% of the settlement price.
According to Announcement No. 5, if a recycling enterprise fails to pay the tax as required, it will face the risk of being suspended from the qualification of "reverse invoicing" and being called up for taxes and fees. If the recycling enterprise has paid the price to the seller, but has not withheld the value-added tax, individual income tax and other taxes corresponding to the payment, it will need to pay the unpaid agency taxes and fees on time when it has actually borne the taxes and fees, and impose a late payment fee, which will cause a heavier economic burden; On the other hand, Announcement 5 has not yet stipulated the period for the suspension of the "reverse invoicing" qualification, whether it can be reinstated, and how it can be resumed.
Fourth, summary
From the above analysis, it can be seen that because the sales source of waste materials is mostly natural persons and self-employed individuals, whether under the previous model or under the new policy of "reverse invoicing", recycling enterprises can only obtain 1% or 3% of the special VAT invoice for the purchase of waste materials from such entities, and the problem of insufficient VAT input deduction may be passed on to recycling enterprises or to waste enterprises. However, it is undeniable that the "reverse invoicing" policy has smoothed the invoice chain of renewable resource recycling business, so that there are legal and compliant invoices in all links from the seller of waste materials to the recycling enterprise and the waste enterprise, which solves the problem of pre-tax deduction voucher for enterprise income tax. Scrap users can consider whether to adjust their business model based on multiple factors, such as the right to speak in the chain, the cost of tax agency, and whether they can apply the policy of immediate collection and refund, so as to improve business compliance and prevent tax-related risks.