Why is it considered [false] even though there is a contract and there is a tran
2024-05-04
142 CommentsIn recent years, there has been a surge in cases of false invoicing, particularly noteworthy is that even some enterprises, which appear to have complete contracts and fund flow proof in their economic activities, are still identified by tax authorities as engaging in false invoicing.
Many bosses and finance personnel are puzzled: under what circumstances will an invoice be deemed as falsely issued? And what criteria do tax authorities use to determine whether an invoice is falsely issued? Let's take a look together!
Why is it considered false invoicing even with a contract and fund transfers?
Firstly, the tax department's determination of "false issuance" of value-added tax (VAT) invoices refers to the act of issuing VAT invoices without a genuine transaction. Contracts and remittance records are merely corroborative evidence of the authenticity of the business; the existence of a real business transaction is the fundamental basis for determining whether it is a "false issuance."
For example, Company A issues a VAT invoice for the sale of Product A to Company B, and a purchase and sale contract for Product A is signed between A and B. Company B has a remittance record for this transaction with Company A.
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Assumption 1: Company A has no purchase records for Product A
It is considered a false issuance of VAT invoice due to the absence of "goods flow." Unless Company B can prove that it indeed purchased Product A from Company A, and has evidence such as a delivery note, freight bill, warehouse receipt, and physical proof of the product. Otherwise, the invoice obtained by Company B cannot be recognized. If Company B can prove the existence of "goods flow" and the transaction is genuine, then the responsibility of Company A during the purchase will be pursued.
Assumption 2: Company A has inventory of Product A
If there are records of goods delivery, it will not be considered as "false issuance."The authenticity of a value-added tax (VAT) invoice requires the unification of four flows: the invoice flow, the fund flow, the contract flow, and the goods flow. Even with a contract and recorded transactions, it can still be determined as a false issuance if the following three conditions are not met simultaneously:
1. The taxpayer has collected the payment for the goods sold, the taxable labor services provided, or the taxable services from the recipient of the invoice, or has obtained the voucher for claiming the sales payment;
2. The taxpayer has sold goods to the recipient of the invoice, or has provided taxable labor services or taxable services subject to VAT;
3. The content of the VAT special invoice issued by the taxpayer to the recipient of the invoice, as required by regulations, corresponds with the goods sold, the labor services provided, or the taxable services, and the VAT special invoice is legally obtained by the taxpayer and issued in their own name.
What are the "four flows" in "four flows consistency"?
"Three flows consistency" has been required for many years, and many business owners and accountants are already very familiar with it. However, many people are not so sensitive to the "four flows consistency."
"Three flows consistency" refers to the unification of the invoice flow, the fund flow, and the goods flow.
In daily economic activities, as the importance of contracts continues to increase, in tax inspections, contracts have become a very important basis, and it naturally leads to the proposal of "four flows consistency," which means the unification of the goods flow, the fund flow, the invoice flow, and the contract flow.
Is it illegal if the four flows are not consistent?Having reviewed the examples above, does it mean that any inconsistency in the four flows is a violation? Does it constitute the issuance of false invoices?
Actually, it's not that simple. In practice, many situations are often more complex, such as:
Company B, as the purchaser, entrusts the head office to pay the bid bond and the service fee for winning the bid, totaling 2 million yuan. The contracts are all signed by Company B, and the sales company, Company A, issues the invoice to Company B.
In this case, the cash flow is inconsistent, involving a value-added tax of 2 million yuan. Can Company B be allowed to deduct this amount? Does Company A count as issuing a false invoice?
Of course not! Here, the head office plays the role of an agent for the advance payment, and the 2 million yuan special invoice obtained can still be deducted.
As long as the business is real and due to industry or corporate fund supervision regulations, the principle allows for the "inconsistency between the payer and the invoice recipient" situation, but relevant proof materials must be provided, such as an agency advance payment agreement, a power of attorney, etc.
Special Cases
For the general branches that implement consolidated payment of value-added tax, the contract flow, cash flow, invoice flow, and business flow can also be inconsistent under specific circumstances.
1. Financial Institutions
The employment security fund for the disabled is a fund paid by government agencies, organizations, enterprises, institutions, and private non-enterprise units (hereinafter referred to as employers) that have not arranged for the employment of the disabled as stipulated, in order to protect the rights and interests of the disabled.According to the provisions of Article 3, Paragraph 5 of the "Announcement of the State Administration of Taxation on Matters Related to the Comprehensive Pilot of the Business Tax to Value-Added Tax Reform," financial institutions that adopt consolidated tax payment, branches below the prefecture-level cities under the jurisdiction of provinces and autonomous regions, can use the value-added tax (VAT) special invoices, VAT ordinary invoices, and VAT electronic ordinary invoices uniformly obtained by the prefecture-level institutions.
Branches below the district and county level under the jurisdiction of municipalities directly under the central government and separately listed cities can use the VAT special invoices, VAT ordinary invoices, and VAT electronic ordinary invoices uniformly obtained by the institutions of the municipalities directly under the central government and separately listed cities.
2. Consolidated tax payment within some regions within the province
According to the "Notice of the Ministry of Finance and the State Administration of Taxation on the Relevant Policies of VAT Consolidated Tax Payment for Fixed Business Households' Headquarters and Branches," the headquarters and branches of fixed business households that are not in the same county (city) but within the same province (region, municipality), with the approval of the provincial (regional, municipal) finance department (bureau) and the state tax bureau, can be consolidated by the headquarters to declare and pay VAT to the tax authorities at the location of the headquarters.
For the headquarters and branches implementing consolidated VAT payment within the same province (region, municipality), whether the VAT invoices are uniformly issued by the headquarters or issued separately by the headquarters and branches, different local tax authorities have different enforcement standards, and should be implemented in accordance with local policies.
As always, whether there is a real business is the fundamental basis for determining whether it is a "false opening."
What are the risks if the "four flows" are inconsistent?
1. VAT tax risk
The State Administration of Taxation clearly stipulates in the third item of "Several Issues on Strengthening the Administration of VAT Collection": The unit that the taxpayer pays for the purchase of goods or taxable services and transportation expenses must be consistent with the selling unit that issues the deduction certificate and the unit that provides services in order to declare and deduct the input tax, otherwise, it will not be deductible.
The consistency of the "four flows" is usually the basis for the tax authorities to determine whether the transaction is real. Inconsistency in the four flows may lead to the inability to deduct the corresponding input tax, the need to make up for the tax and late payment interest, and may even result in the payment of corresponding fines.2. Corporate Income Tax Tax-Related Risks
(1) Inconsistency between three or four streams may lead to suspicions of purchasing invoices and being identified as "tax evasion," which could result in disallowance of deductions before tax;
(2) Failure to pay for goods through a public account can easily result in receiving fraudulently issued invoices (for example, suppliers having third parties issue invoices, etc.).
3. Potential Criminal Liability
"Inconsistency between four streams" may strongly suggest "fraudulent issuance of invoices," and in severe cases, it could lead to criminal liability.