Introduction: Falsely issuing invoices is not just about "buying and selling invoices"; one may inadvertently get involved.

What is a falsely issued invoice?

What is a falsely issued invoice? "Falsely issuing" refers to the content of the invoice not matching the actual business operations. Distributors may mainly be involved in the following two types: 1. Issuing invoices to others that do not match the actual business operations; 2. Having others issue invoices to themselves that do not match the actual business operations. "Mismatch" includes discrepancies in quantity, amount, and tax amount, as well as discrepancies in the buyer's company name, seller's company name, goods name, and unit, and even invoices issued without any real transaction. In simple terms, there are two categories: one where you are the issuer of the invoice, and the other where you are the recipient. This may still sound abstract, but after reading the specific scenarios below, you will understand the risks of falsely issued invoices that may be encountered in actual operations.

Several scenarios of falsely issued invoices

Category 1: Issuing invoices to others that do not match actual business operations.

  1. Violent false issuance for profit: Registering a company without conducting any actual business activities, and because VAT special invoices can be obtained during the short-term existence, falsely issue VAT special invoices to others based on forged contracts and fake fund payments—or even without these forged acts. This type of false issuance is illegal profit-seeking. Distributors with normal operations and basic tax law knowledge should not engage in this. However, it is worth noting that many distributors register multiple companies. If your main operating company does not have such behavior, do you have other companies under your name involved?
  2. False issuance of surplus invoices for profit: The application for VAT special invoices is strictly controlled. Strictly speaking, they can only be used to issue invoices for your actual sales. However, in daily operations, distributors may generate so-called "surplus invoices," for example, when some customers do not need invoices. In such cases, some distributors may charge a handling fee to falsely issue VAT special invoices for enterprises in need, illegally profiting. In addition, input tax credits may also form "surplus invoices." Enterprises with a large amount of input tax credits that cannot be fully deducted within the expected operating period may "utilize" the ending credits to falsely issue VAT special invoices to others for illegal gains. Of course, some companies do not do this for proactive profit, but due to personal relationships, helping others issue invoices. However, regardless of how "surplus invoices" arise or for whatever reason, falsely issuing invoices must be avoided. Issuing false invoices for others has always been a focus of tax audits. Here is a real audit case: A trading company issued 70 VAT special invoices in 2020, and in 2022 it was investigated and identified as falsely issuing invoices. The company was heavily fined, and the relevant responsible persons were also held criminally liable. The above two situations are where you, as the business entity, are the issuer of the invoice. However, false issuance also includes situations where you are the recipient. Category 2: Having others issue invoices to yourself that do not match actual business operations.
  3. Purchasing invoices without actual transactions to inflate costs: The trading and circulation industry has thin profit margins. Some distributors, to reduce VAT and corporate income tax burdens, purchase invoices by paying handling fees without actual transactions. This constitutes having others falsely issue invoices to themselves. Once the issuer is identified as falsely issuing, the Golden Tax system can directly query the recipient. The tax authority of the issuer will directly transmit the "Notice of Confirmed False Issuance" to the tax authority of the recipient, thereby directly locating the recipient unit. The tax department will further verify based on bank flows, fund returns, etc. For those confirmed to have obtained falsely issued invoices, the input VAT cannot be deducted, and the corresponding costs cannot be deducted before corporate income tax. Moreover, the tax authority will recover the tax and late fees, and may impose a fine of 50% to five times the amount. If it constitutes a crime, criminal liability will be pursued.
  4. Actual transactions but the issuer is inconsistent with the seller: The above is without actual transactions, but with actual transactions, there may also be risks. For example, you purchase goods from upstream, but the seller does not issue invoices, and instead, a third party issues the invoice on their behalf. Or you do not request an invoice for a lower price, and then obtain an invoice from elsewhere to deduct. The problem here is that the issuer is inconsistent with the actual business entity, which also constitutes falsely issuing invoices. It will be identified by the tax authority as tax evasion. In addition to paying back taxes and late fees, a fine of 50% to five times the amount of tax evaded may be imposed. If it constitutes a crime, criminal liability will be pursued. Distributors generally do not encounter such issues when taking goods from brand owners, but if you frequently resell goods, you may be exposed to such tax risks.
  5. Using office supplies, meeting fees, consulting fees, etc. to inflate expenses for tax deduction: To inflate expenses, reduce profits, and pay less corporate income tax, many companies seek various expense invoices. If your company's books show a large amount of "meeting fees," "consulting fees," "service fees," or "training fees," but you cannot provide relevant materials to prove these are actual expenses, you need to be careful. These expenses are keywords, and the Golden Tax system will flag anomalies based on these keywords and your company's filing information, pushing risk alerts. If the tax authority verifies that they are falsely issued invoices, the enterprise will face risks of tax supplements, late fees, and fines.

Legal liability for falsely issuing invoices

Falsely issuing invoices is illegal, and relevant laws have clear penalty provisions. The "Measures for the Administration of Invoices of the People's Republic of China" stipulates that for falsely issuing invoices, the tax authority shall confiscate illegal gains, and the penalty varies according to the amount falsely issued: if the amount is less than 10,000 yuan, a fine of up to 50,000 yuan may be imposed; if the amount exceeds 10,000 yuan, a fine of 50,000 to 500,000 yuan shall be imposed. According to the Criminal Law and relevant regulations, if the amount of tax falsely issued exceeds 50,000 yuan, it constitutes a crime and criminal liability shall be pursued: if the amount is more than 50,000 yuan, the offender shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention, and shall also be fined not less than 20,000 yuan but not more than 200,000 yuan; if the amount is relatively large (more than 500,000 yuan) or there are other serious circumstances, the offender shall be sentenced to fixed-term imprisonment of not less than three years but not more than ten years, and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan; if the amount is huge (more than 2.5 million yuan) or there are other particularly serious circumstances, the offender shall be sentenced to fixed-term imprisonment of not less than ten years or life imprisonment, and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan, or have property confiscated.

Response measures

Ren Wenqing, head of the New Distribution Distributor Academy, FMCG industry analyst, host of the "BC Integration" column, with industry research covering channel digitalization, distributor business growth, and new retail in FMCG.