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Renewable Resource Enterprise Tax Risk Outbreak and Countermeasures in 2020

Release Time: 2023-10-04

Release time: December 16, 2020

Cap.1: Renewable resource enterprise tax dilemma
In 2008, due to changes in policy orientation, the Ministry of Finance and the State Administration of Taxation cancelled the preferential tax policies for renewable resource enterprises. The reason of the lack of VAT input tax for renewable resource enterprises is that they always buy goods from personals who cannot or unwilling to issue VAT invoices for they.
Cap.2: Renewable resource enterprise tax risk outbreak and causes
Ⅰ.Renewable resource enterprises who did not involve in cargo transportation will raise suspicion from the tax bureau that those enterprises didn’t have true trade.
Because the company does not actually participate in the transportation of goods, the tax bureau is prone to make judgments of "false transactions". However, when goods are resold between renewable resource enterprises, the transfer of ownership of the goods is often completed by means of "instructed delivery" or "possession modification". Those two  means indicated that the goods are true. Renewable resource enterprises are suggested to keep consignment contract, payment vouchers and other materials to prove the trade is true.
Ⅱ. The entrusted payment agreement between the recycling enterprises and the production enterprises can easily lead to tax bureau’s misjudgment of "funds return".
To ensure that the supplier obtains the payment in time, the recycling enterprises usually pays the supplier in cash directly. For the lack of money, recycling enterprises will borrow money form the production enterprises first. After they received the payment from the production enterprises, they will pay the debt. But this behavior will easily lead to tax bureau’s misjudgment of "funds return".
Ⅲ. Renewable resource enterprises issue VAT invoices for the suppliers will easily lead to tax bureau’s misjudgment of “falsely issuing VAT invoice”
Because the actual suppliers do not have the qualification for issuing VAT invoices, they should ask the tax bureau to issue VAT invoices for them. However, it costs time and suppliers will pay the tax, the actual suppliers are unwilling to do so. As an alternative, those suppliers choose to affiliate with other companies and those companies will issue VAT invoices for them. This behavior widespread in renewable resource industry and was proved legal by State Administration of Taxation.
Cap.3: Renewable resource enterprises tax risks prevention and control advice
Ⅰ. Important business certificates need to be properly kept
Under the new regulations, renewable resource enterprises should properly keep materials such as purchase vouchers, payment vouchers, and retail personal information. When the business is done, renewable resource enterprises should collect every materials involved in the trade, such as contracts, invoices, money orders, etc.
Ⅱ.“suppliers-recycling enterprises-production enterprises” trade mode is in line with industry practices and tax law
Given the particularity of the renewable resource industry, the State Administration of Taxation developed a special policy to help the industry. The policy states: if the goods are real, the personal suppliers can affiliate with recycling enterprises to sell goods. In this situation, recycling enterprises can issue VAT invoices for the personal suppliers.
Ⅲ. Actively seek business transformation
Renewable resource enterprises can sell goods within the “Catalog of VAT Preferential Products and Services for Comprehensive Utilization of Resources" in order to benefit from tax incentives.
Renewable resource enterprises can also change their tax payer status form “general taxpayer” to “mall-scale taxpayers” to enjoy lower tax rate.
The current taxation problems faced by renewable resource industry are closely related to its operating characteristics and the country's taxation policies. To solve the taxation problems, the State Administration of Taxation shall further adjust and improve relevant preferential tax policies, and renewable resource enterprises shall also strengthen corporate management. Huashui lawyers suggest that once renewable resource enterprises were engaged in criminal cases, they should immediately hire professional tax lawyers to carry out judicial relief and help enterprises get out of the crisis.
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