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Where is the boundary of legal affiliation or illegal false invoicing for individuals borrowing the name of a business to conduct business?

Oct. 23, 2024, 5:08 p.m.
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 I. Introduction: an individual invoicing in the name of a third party enterprise, the recipient is recognized as tax evasion

Recently, Hubei Provincial Tax Bureau issued a penalty announcement, the basic case of the announcement of the case is that Zhang Mou sold a batch of leather to enterprise A. However, because Zhang Mou did not apply for tax registration, he could not issue invoices, therefore, Zhang Mou negotiated with the legal representative of enterprise A, so that Zhang Mou entrusted his friend's enterprises B and C to issue VAT invoices to enterprise A. During the period from January 2020 to August 2023, the Enterprise A accepted a total of 235 invoices from B and C, with a total price and tax of more than 25.23 million yuan and a tax amount of more than 2.9 million yuan, all of which were deducted by Enterprise A after receiving the invoices. All of the above 235 invoices were recognized as false invoices by the competent tax authorities of enterprises B and C. Enterprise A, as the recipient of the invoices, was recognized as tax evasion, and was required to make up for the underpayment of tax totaling more than RMB 3,040,000, and was imposed a penalty of 50% of the underpayment of tax, which amounted to more than RMB 4,560,000 in total.

In the case and the reason for penalty described in the penalty announcement, it was held that the legal representative of Company A knew that the VAT invoice obtained by the seller was obtained by illegal means, and used the invoice obtained by such illegal means for offsetting, which was recognized as tax evasion. And similar “borrowing the name of other enterprises” to carry out business, issuing invoices in practice, some of the plot is recognized as a legal affiliation, some are recognized as tax evasion, illegal purchase of special invoices, and even the crime of false special invoices. Why is there a huge difference between tax and judicial determination of similar circumstances? How should taxpayers safeguard their rights when facing tax audits and public security investigations? This article will analyze the possible consequences from the perspective of the invoiced party and give relevant legal advice.

Ⅱ. Practice Observation: borrowing the name of others for invoicing is a common phenomenon, the party to be invoiced qualitatively very different

(I) Reality Reasons for Borrowing Others' Names to Conduct Businesses

Judicial authorities in the case often think that the purpose of borrowing other people's name invoicing is to avoid paying taxes or cheating against the national VAT illegal and criminal behavior, but from the point of view of the market business situation, borrowing the name of the business, invoicing has a reasonable and realistic reasons, is part of the individuals used to solve the problem of business qualification, invoicing qualification, in line with the market transaction mode of the reasonable choice, and the purpose of its purpose is not absolutely in order to pay less, do not pay the tax.

1. Solving the problem of business qualification

In certain industries, such as construction, coal, medicine, etc., operators must have specific qualifications to carry out business activities. For individuals who do not have qualifications, attaching to a company with higher qualifications becomes a solution, a practice that allows these individuals to undertake engineering projects or sell specific commodities that they would otherwise not be able to participate in. For example, in the case of (2017) 冀01刑终334号, the referee believes that the defendant Zhang Moumou, that is, does not have the qualification of pharmaceutical sales, relying on the pharmaceutical qualification enterprises to operate the legal behavior.

2.Solving the problem of invoicing qualification

In practice, some individuals engaged in sporadic transactions or for other reasons did not apply for tax registration, can not issue invoices, even if you can issue invoices, some self-employed or small-scale taxpayers need to go to the tax office on behalf of the opening, the procedure is more cumbersome and the invoices issued by the lower tax rate, resulting in the customer can not get enough tax deductions. In a buyer's market, the party that obtains the invoice often has stronger bargaining power. If the buyer requires the seller to issue special invoices for general taxpayers, and the seller itself does not have such qualifications, affiliation becomes a means to meet market demand and maintain customer relationships. For example, in the freight industry, those engaged in actual transportation are often individual drivers, lacking tax compliance awareness and weak willingness to issue invoices, and it is difficult for the commissioning party to obtain input cost invoices, thus turning to cooperate with logistics enterprises or network freight platforms to obtain input invoices, and the individual drivers also choose to rely on the logistics enterprises or platforms to receive orders, so as to be able to provide formal VAT invoices to customers. For example, some individuals registered as self-employed will also choose to establish cooperative relationships with general taxpayers, so as to issue VAT invoices with higher tax rates to customers in the capacity of general taxpayers.

It can be seen that the purpose of individuals borrowing names to issue invoices is usually not to avoid tax or fraudulently offset tax, but to meet the downstream enterprises' demand for invoices, and they may even issue special invoices with a higher tax amount, which essentially pays more tax. However, due to the lack of tax compliance awareness of both parties, although both parties have the general meaning of affiliation, but actually did not sign the affiliation agreement, in the situation of real but no name, the invoices issued are easy to be judged as false invoicing, the invoicing party, the invoiced party are easy to be subject to administrative penalties, and even incur criminal risks.

(Ⅱ) Possible consequences for the recipient

1. Legal affiliation does not constitute an offense

Despite the similarity in form, the legal nature of dependence and proxy invoicing is completely different. The Interpretation of the Announcement of the State Administration of Taxation on Issues Relating to the Issuance of Special VAT Invoices by Taxpayers to Foreign Parties (hereinafter referred to as the Interpretation of the Announcement) stipulates that “Dependence on a person to carry out business activities is common in social and economic life, and the application of the Announcement to dependence behavior needs to be determined in accordance with different circumstances. Firstly, if the dependent party sells goods, provides VAT taxable services or taxable services to the taxpayer of the billed party in the name of the dependent party, the dependent party shall be the taxpayer. As the seller of goods or the provider of taxable services or taxable services, the dependent party shall issue VAT invoices to the invoiced party in accordance with the relevant regulations, which is a case stipulated in this Notice. ......” can be seen that, in the case of legal dependence, the invoice issued by the dependent party in the name of the dependent party is legal and compliant, and belongs to the act of invoicing explicitly permitted by the law, which does not involve the responsibility at the administrative level, and even less involves the criminal responsibility. As an invoiced party, it enjoys all the invoice rights as it obtains the invoice issued by the dependent party and the normal invoice.

  1. “Illegally obtaining invoices” is recognized as tax evasion

As in the case introduced in this article, some tax bureaus consider that the invoice obtained by the payee is the invoice issued by another person on behalf of the payee, which belongs to the invoice obtained by illegal means by the seller, therefore, based on the defects of the invoice itself that does not conform to the actual situation as well as the subjective state of the payee's knowledge, the payee does not belong to the bona fide obtaining, and shall not make deductions from the invoice, and the value-added tax that has already been deducted, and the part of enterprise income tax that has already been deducted, are recognized as tax evasion. In addition to the case introduced in this paper, in the case of Zhejiang Shen's Provincial Heart Logistics, which had a wide impact, most of the downstream enterprises actually carried out the transportation of goods, but due to the fact that the individual driver who actually undertook the transportation was unable to issue the invoices, and issued the invoices on behalf of the enterprises through the freight platform. Eventually, most of the implicated downstream enterprises were characterized as tax evasion. In practice, some of the serious tax evasion cases escalated from administrative penalties to criminal risks, with the IRD referring the cases to the public security authorities on the basis of tax evasion.

3. “Purchasing special invoices as commodities” is criminalized as illegal purchase of special invoices.

Some cases have been dealt with under the crime of illegal purchase of VAT invoices. Yang was the actual person in charge of a Hunan petrochemical company. As his company purchased coal from a small coal kiln where the seller was unable to provide VAT invoices, Yang purchased 223 VAT invoices totaling more than 25.87 million yuan from a coal sales company in March 2018 through the assistance of Sun and other intermediaries and paid the invoicing fees at 8.8% of the face value of the invoices. Yang then used these invoices to offset more than RMB 3.75 million in taxes at the tax department. Eventually, Yang was detained by the public security authorities on suspicion of the crime of falsely issuing VAT invoices, and the procuratorate filed an indictment to the court on suspicion of the crime of illegally purchasing VAT invoices. The court found that Yang's behavior constituted the crime of illegally purchasing VAT invoices, and sentenced Yang to five months' imprisonment and imposed a fine of 40,000 yuan.

4. “Separation of invoices and goods” was recognized as the crime of false invoicing

In some cases, individuals issued invoices in the name of other enterprises, and the recipient of the invoices was found guilty of false invoicing. For example, in People's Court Case (2022) Lu 09 Criminal Final No. 125, the party receiving the invoice, Company E, was unable to obtain the VAT invoice after the transaction with the individual household, so that the individual household contacted other enterprises to issue invoices on behalf of Company E. Company E paid the invoicing fee through the individual household, and the case was finally convicted of the crime of false invoicing after the second trial, and the legal representative, the head of the operation department, and the accountant-in-charge of Company E were sentenced to sentences of two to three years' imprisonment. The legal representative of Company E, the head of the operation department and the accountant in charge were sentenced to two to three years' imprisonment. In the decision, the judge pointed out that “for the business which has actual transaction but no tax payment, because the purchase link has not paid the tax, so it has no right to offset; if the defendant buys invoices from the third party to offset, it is essentially the false invoicing behavior of fraudulent offsetting of tax.”

(Ⅲ) Summary

There is commercial rationality for an individual to borrow another person's name to issue invoices, and thus it is widely used in practice. However, due to the current law on the borrowing of the name of the act of opening the characterization is unclear, the judicial organs around the knowledge and understanding of similar acts there are different, the result of free heart discretion is inconsistent, part of the case invites the suspicion that the same case is different sentence. Borrowed name invoicing in the end should be how to characterize the party to be invoiced should bear what consequences? This article will be further analyzed in conjunction with the legal provisions, and give recommendations.

Ⅲ. the legal characterization: borrowing the name of others to carry out business, the essence of the legal relationship constitutes affiliation

At present, from the legal provisions and practice, the “dependence behavior is not a crime” has basically reached a consensus, but under what circumstances can be identified as dependence behavior has not been unified standard. In this paper, we believe that individuals borrowing the name of others to carry out business, invoicing in the name of others, should belong to the dependence, does not violate the administrative level, and does not constitute a crime.

After searching, the official public document about what is “dependence” is clearer than the “dependence” described by the Goods and Services Tax Department of the State Administration of Taxation in the “Comprehensively Pushing Forward the Pilot Business Tax to Value-added Tax Policy Training Reference Material” (2016.04), p. 6, where it argues that “dependence” is not a crime. According to the Department of Goods and Services Tax of the SAT, the description of “dependence” in the “Training Material on Pilot Policy of Changing Value-added Tax from Comprehensive Business Tax to Value-added Tax” (2016-04) on page 6, “Dependence” refers to the fact that “an enterprise, a partnership organization, etc. reaches a dependence agreement with another business entity. regularly collect certain management fees from the dependent party's business mode.” However, from the practical point of view, the definition does not need to be satisfied in its entirety to be recognized as a dependency. For example, (2017) Ji 01 criminal final 334 did not have the circumstance of paying management fees, but was still recognized as dependency. Therefore, this article believes that according to its nature “borrowing, independent accounting, temporary” to determine whether the behavior is more reasonable. Individuals borrow the name of others to carry out business and invoicing, in essence, borrowing the qualification of the unit is dependent, with borrowing; dependents to operate independently of the purpose of independent external business, although borrowing the name of the enterprise is dependent on, but the business belongs to the independent accounting, with independent accounting; most of the business carried out by individuals can be carried out in their own name, borrowing the name of the billing party is only occasional, a small amount of behavior. Therefore, individuals borrow the name of others to carry out activities and invoices, in fact, constitute dependence.

Part of the judiciary does not recognize the real supplier and the invoicing party for the dependence relationship, the reason is that the two sides do not depend on the agreement and other written contracts to prove the dependence of consent. In this paper, this is a mechanical misunderstanding of the relevant provisions, although there is no written contract, but can not be denied the establishment of the legal relationship. The “dependency” relationship is actually a civil legal relationship, according to the “People's Republic of China Civil Code” Article 469 provides that “the parties to enter into a contract, may be in written form, oral form or other forms”, means that the dependency contract is not the only Proof of the existence of the dependency relationship evidence, there is other evidence that the two sides reached a dependency of the meaning of the expression should be considered dependency relationship was established, such as the dependent party to register the platform used by the dependent party to operate the business, and to carry out the business on the platform and so on.

Fourth, in-depth analysis: even if it does not constitute affiliation, it should be “truthful issuance” and does not constitute the crime of falsely issuing VAT invoices.

The Research Office of the Supreme People's Court (Law Research [2015] No. 58) clarifies that “even if there is no affiliation relationship between the perpetrator and the other person, if the perpetrator carries out the actual invoicing, it shall be ‘truthful invoicing’ and shall not constitute the crime of false invoicing of VAT”. affiliation does not exist, but if the perpetrator carries out actual business activities, subjectively does not have the intention to fraudulently obtain tax deduction, and objectively does not cause loss of the state VAT payment, it is not appropriate to recognize it as 'falsely issuing VAT invoices' as stipulated in Article 205 of the Criminal Law; if it meets the conditions for other crimes such as the crime of tax evasion, the other crimes can be thesis.” It can be seen that even if the affiliation relationship is not established, as long as the subjective and objective conditions do not meet the constitutive elements of the crime of false invoicing, the crime of false invoicing shall not be punished.

The so-called truthful invoicing, in fact, refers to the consistency between the tax-inclusive price paid by the invoiced party for the procurement of taxable items and the total of price and tax on the invoice obtained from the invoicing party. The borrowing of other people's names, based on the actual occurrence of the business truthfully on behalf of the opening, can faithfully reflect the real occurrence of the business name, price, quantity, amount, tax and other key factors, even if the affiliation is not established should also belong to the truthfulness of the opening, should not be recognized as the crime of false invoicing.

As mentioned above, the behavior of the name on behalf of the opening of its practice reasonableness, the waste recycling industry, for example, the seller is mostly individuals, and the industry is a typical seller's market, the industry does not bring the ticket sales is the industry practice. The recipient party in the real transaction, there is no corresponding cost deduction voucher, let others truthfully open is not to cheat tax deduction, but in order to make up for the formal defects, so as to realize the substantive right of deduction, so the recipient party is subjectively no fraudulent deduction of tax purposes. From the practical point of view, in the case of truthful opening on behalf of the invoice, the invoicee obtains the amount of invoice and the substantive rights and interests of offsetting input tax have consistency, the invoicing party should have to bear the corresponding tax burden when issuing the invoice, and the invoicing party, if it pays the corresponding tax truthfully, has not resulted in the loss of national tax. Further, the invoicee in the payment of the price including tax, even if the invoicing person did not truthfully pay the tax, the invoicee also has reason to believe that the invoicing person will truthfully pay the tax, the loss of state tax is not due to the deduction of behavior caused by the seller's tax evasion behavior, then the invoicee subjectively does not have the intention of fraudulent obtaining of state tax, also does not constitute the crime of false invoicing.

V. Compliance Recommendations for Invoiced Enterprises

1. Double-check the name of the invoicing party and refuse to accept invoices issued on behalf of the invoicing party.

Before accepting an invoice, be sure to double-check whether the name of the invoicing party is exactly the same as the name of the actual seller or service provider, and whether the invoicing party is the same as the party that signed the contract, and avoid accepting invoices issued by any third party on behalf of the seller. If an individual, as a seller, is unable to issue a special invoice, the seller should be required to produce evidence that can prove the existence of an affiliation with the invoicing party to prevent tax problems arising from inconsistent invoice information.

2. Ensure the authenticity of the business and avoid touching the tax red line

Whether the business model is considered to constitute affiliation or truthful invoicing, the basis for defense lies in the fact that there are real goods transactions between the real supplier and the invoicee. Therefore, the invoicee should retain evidence of real business transactions, such as transaction contracts, bank water, original books and other bookkeeping documents, waybills, pound signs, GPS lines, storage contracts, etc., in the tax audit can fully explain the authenticity of the business, leaving room for defense.

3. Hire professionals to intervene and protect legitimate rights

Currently, the tax bureau is escalating its crackdown on platform-based enterprises, and downstream invoiced enterprises are easily implicated. Local tax bureaus have not yet formed a unified standard for invoicing under a borrowed name, and there is a large room for defense for the invoiced enterprises. Therefore, when encountering tax disputes, especially when it involves complex legal procedures such as tax audits, administrative reviews or even criminal proceedings, professional tax lawyers should be introduced as early as possible in order to strive for the best defense results. 

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