Individual business is an important part of the private economic organization, plays a unique role in promoting economic development, driving employment, solid livelihoods, and facilitating the lives of the masses. Recently, the fourteenth session of the fifteenth meeting of the National People's Congress voted to adopt the “Private Economy Promotion Law” will help individual business households sustained, healthy, high-quality development. It is foreseeable that self-employed businessmen will have great potential. However, we have also observed that recently, a number of cases of tax evasion and false invoicing by individual entrepreneurs have erupted in industries such as renewable resources, pharmaceuticals, and online entertainment, implicating downstream enterprises. This organization has been abused by “people with good intentions” and become a tool for “tax planning”. Based on this, this paper intends to analyze the causes of the abuse of the individual industrial and commercial enterprises and suggest the corresponding tax risks from the cases of individual industrial and commercial enterprises' tax evasion and false opening.

I. Tax Case Observation: Frequent Cases of Tax Evasion and False Invoicing by Individual Entrepreneurs

(i) Renewable resources industry: middlemen set up multiple recycling stations for tax evasion and false invoicing.

The State Administration of Taxation tax case notification, the middleman Sheng Mou from all over the country after the purchase of waste paper sales to a paper company, a paper company requires invoicing, Sheng Mou in order to avoid its name Rongfeng Recycling Station invoices need to pay a higher tax, borrowing other people's identity cards to set up 85 individual industrial and commercial enterprises, will be Rongfeng Recycling Station should be the operating income is split into the income of the 85 individual industrial and commercial enterprises, the use of small-sized taxpayer VAT exemption policy, underpayment of VAT, personal income tax and other taxes amounted to 2,158,400 yuan. The tax authorities recovered tax payments, imposed late payment fees and fines totaling RMB 3,397,400 on Rongfeng Recycling Station and Sheng. In addition, during the case, Rongfeng recycling station only to a paper company issued ordinary invoices of more than 3 million yuan, 85 individual industrial and commercial enterprises to a paper company issued ordinary invoices of 111 million yuan, the tax authorities of Sheng and 85 individual industrial and commercial enterprises suspected of fraudulent invoicing clues sent to the public security organs for further investigation.

(ii) Pharmaceutical industry: pharmaceutical representatives set up individual businesses to evade taxes and issue false invoices.

The penalty instrument of the Nanjing Municipal Taxation Bureau Audit Bureau shows that Zhang Mou, a pharmaceutical representative, provided pharmaceutical promotion services for the pharmaceutical company during the period from January 1, 2018 to September 30, 2023, and in order to conceal the business income obtained from the pharmaceutical company attributable to himself, he set up 34 individual industrial and commercial households and individual enterprises by borrowing the identities of other people and actually controlled the abovementioned 34 units to issue invoices to the pharmaceutical company, and disaggregated the collection of the payment made by the pharmaceutical company The tax authorities found that Zhang constituted a fraudulent invoice. The tax authorities determined that Zhang constituted tax evasion by way of false tax declaration and imposed a fine of more than RMB 112 million for one times of Zhang's underpaid individual tax.

(iii) Network Entertainment Industry: Anchor Using Individual Business Enterprise to Convert the Nature of Income to Tax Evasion

The State Administration of Taxation (SAT) tax case notification, network anchor Le Mou respectively as legal representative, shareholders of the two companies and Le Mou's relatives or assistants set up an individual industrial and commercial enterprise fictitious business transactions between the individual industrial and commercial enterprise in more than two years time for the two companies false invoices 10 million yuan, and in the collection of the two companies of the funds away from the account after the transfer of the funds into the Le Mou's personal bank account, the funds ultimately used for the Le Mou a personal consumption. The tax authorities determined that Le Mou converted the income from labor remuneration obtained by an individual into income from the operation of an individual business to evade taxes, constituting tax evasion, and recovered the amount of underpaid taxes and fees from Le Mou, imposed late fees and fines in accordance with the law.

(iv) Summary

The above three typical cases reflect the commonality of the abuse of individual industrial and commercial households, that is, “people with intention” will alienate the individual industrial and commercial households as a tool for “tax planning”, and achieve the purpose of underpayment of tax by means of splitting the income through false invoicing and converting the nature of income. Such behavior not only disrupts the tax economic order and destroys the fair business environment, but also violates the original intention of the state to encourage and support the development of individual business households. Tax risk.

II. Reasons for the alienation of self-employed industrial and commercial households into “tax planning” tools

As mentioned above, the state attaches great importance to the development of self-employed business, and has repeatedly emphasized the introduction, continuation, optimization, improvement and implementation of tax and fee reduction policies. Specifically:

1. Value-added tax (VAT) reduction and exemption policy

According to the current VAT-related policies, taxpayers with annual taxable VAT sales of 5 million yuan or less, with unsound accounting and unable to submit tax information in accordance with the regulations can be registered as small-scale taxpayers. Since self-employed businessmen are economic organizations operated by natural persons or families, they usually do not have accounting ability and cannot provide tax information, therefore, self-employed businessmen can be registered as small-scale taxpayers and enjoy the policy of exemption of VAT on monthly sales of 100,000 yuan or less (quarterly sales of 300,000 yuan or less), and the policy of reduction of VAT payment by 1% levy rate. For example, if a self-employed businessman chooses to pay quarterly tax and the quarterly sales are 300,000 yuan, he does not need to pay VAT, but if the quarterly sales are 310,000 yuan, he needs to pay 3,100 yuan (310,000 x 1%) of VAT.

2.Personal income tax exemption policy and approved collection method

Individual industrial and commercial households, with the owner as the individual income taxpayer, shall pay individual income tax in accordance with the tax item of “business income” and the super progressive tax rate of 5%-35%, taking the total income of each taxable year, minus the balance of costs, expenses, taxes, losses, other expenses and losses allowed to be compensated for in previous years, as the taxable income. Individual Income Tax. For the portion of annual taxable income not exceeding 2 million RMB, the individual income tax is reduced by half. For example, if Li Mou operates a self-employed business with an annual taxable income of 80,000 yuan, Li Mou needs to pay 3,250 yuan [(80,000 yuan × 10% - 1,500) × 50%] of individual income tax. It should be pointed out that this method is applicable to individual industrial and commercial enterprises with checking accounts. Correspondingly, for some individual business households that cannot meet the standard of book-keeping or for other reasons it is difficult to accurately determine the amount of tax payable by the individual business households, the approved levy method can be adopted.

Further, the approved levy includes the following four methods, i.e., regular fixed amount (fixed rate), approved taxable income rate, approved taxable income, and approved levy rate, of which the regular fixed amount method is mainly applicable to those individual business households that fail to meet the standard for establishing accounts. In addition, under the approved collection method, individual industrial and commercial households can still enjoy the aforementioned preferential policies of 50% reduction of individual income tax. From the practical point of view, the individual industrial and commercial households pay less individual income tax under the approved collection method compared with the account-checking collection method.

In practice, “people with intention” make use of the tax incentives given by the state, and split the sales by setting up several individual business households, so that the annual VAT sales of a single individual business household does not reach 5 million yuan, and even the monthly sales does not reach 100,000 yuan, so as to achieve the purpose of not paying or paying less VAT, and at the same time, by intentionally At the same time, by intentionally failing to reach the standard of building accounts, making it difficult for the tax authorities to check the accounts, and being stationed in the parks with approved policies, etc., in order to achieve the purpose of underpayment of individual income tax.

Returning to the aforementioned case, Sheng, a middleman in the renewable resources industry, mainly abused the VAT exemption and reduction policy by controlling the sales of a single individual industrial and commercial enterprise to less than 5 million yuan and applying a reduced tax rate of 1% to issue invoices to the outside world in order to reduce the VAT burden. Zhang, a pharmaceutical representative in the pharmaceutical industry, and Le, in the network entertainment industry, mainly abused the authorized collection of personal income tax to reduce their personal income tax liability.

III. What are the tax risks faced by the relevant subjects?

(i) Individual industrial and commercial households: the risk of paying back taxes, late fees and fines, and the risk of being suspected of committing the crime of fraudulent invoicing

Natural person B, who abuses the tax policy for individual business households, splits the VAT that should have been paid by individual business household A into multiple individual business households for payment, resulting in the underpayment of VAT by individual business household A. Individual business household A faces the risk of constituting tax evasion and is required to make up for the VAT, the urban construction tax and surcharges, and to pay the corresponding late payment fees and fines ranging from 0.5-5 times the amount of the underpaid VAT and urban construction tax. Further, multiple individual business establishments set up by Natural Person B have no actual business with downstream enterprises, and issuing invoices to downstream enterprises is an act of false invoicing, and the multiple individual business establishments face the risk of being fined up to 500,000 yuan, and Natural Person B faces the criminal risk of the crime of false invoicing, such as if Natural Person B manipulates the individual business establishments to falsely issue VAT invoices, and the amount of falsely invoiced tax is more than 5 million yuan, it may face the risk of more than ten years' imprisonment or even life imprisonment.

In addition, for Natural Person B, as the owner of Individual Business Enterprise A, which is the taxpayer of the individual income tax, by splitting the income and abusing the approved collection method, the amount of income was lowered and a lower tax rate or collection rate was applied, resulting in underpayment of the individual income tax, and he faced the risk of constituting tax evasion, and he was required to make up for the individual income tax, pay the corresponding late payment fee and a fine of 0.5-5 times of the underpaid individual income tax. In particular, for network entertainers, they should pay individual income tax according to the tax items of “income from wages and salaries” and “income from remuneration for labor services”, and they should pay individual income tax through the individual entrepreneurs who will pay “income from wages and salaries” and “income from remuneration for labor services” to the individual entrepreneurs. The conversion of “income from wages and salaries” and “income from remuneration for labor services” into “business income” through individual entrepreneurs and the use of approved levies will also lead to underpayment of personal income tax and the risk of paying back personal income tax, late payment fees and fines.

It should be reminded that if, after the tax authorities have issued a notice of recovery in accordance with the law, the tax authorities fail to pay the full amount of tax due within the prescribed period or the period of approval of deferred or installment payment, pay the late payment fee, and fulfill the administrative penalty decision made by the tax authorities in full, they may also face the criminal risk of the tax evasion crime.

(ii) Downstream enterprises of individual businessmen: the risk of paying back taxes, paying late fees and fines, and the risk of being suspected of the criminal offense of fraudulent invoicing

As a downstream enterprise of an individual industrial and commercial enterprise, accepting the VAT invoices falsely issued by multiple individual industrial and commercial enterprises set up by Natural Person B. If accepting the falsely issued special invoices, according to Article 9 of the current Provisional Regulations on Value-added Tax and Article 12 of the Measures for the Administration of Vouchers for Deduction before Enterprise Income Tax, they cannot be used as the legitimate vouchers for deducting VAT inputs and deducting the cost of EIT, and they need to be made as the transfer of inputs, and are exposed to the risk of It is necessary to transfer the input tax amount and face the risk of paying the VAT, urban construction tax and surcharges, enterprise income tax and the corresponding late payment fees. Even if the downstream enterprises accept the false general invoices, they also face the risk of paying back the enterprise income tax and paying the corresponding late payment fees.

In particular, if the tax authorities have evidence to prove that the downstream enterprise knows that Natural Person B has set up multiple individual businesses to deal with it and accepts the invoices falsely issued by multiple individual businesses, it may also face the risk of being fined for tax evasion, or even be recognized as an accomplice of the false invoicing crime committed by Natural Person B, and face the criminal risk of the false invoicing crime.

IV.Conclusion

From the current trend of tax supervision, the tax authorities continue to maintain a high-pressure crackdown on the illegal application of tax incentives through the splitting of income by individual industrial and commercial households, conversion of the nature of income, and false invoicing. Since this year, the State Administration of Taxation has exposed a number of cases of tax evasion using this method. For the actors, at the tax administration level, the subjective intention of the actors to evade tax is obvious, and it is difficult to have room for defense; at the criminal level, if they can pay back the tax, late fees and fines in accordance with the law, they can avoid being pursued for the criminal responsibility of tax evasion, and if they are suspected of constituting the crime of false invoicing, they can be held liable for the criminal responsibility of the crime of tax evasion when they did not cause fraudulent tax offsetting and did not cause any loss or fraudulently offsetting tax. If it is suspected of constituting the crime of fraudulent opening, it can be defended in terms of not causing the loss of fraudulent tax credit and not having the purpose of fraudulent tax credit. For the downstream enterprises, there is more space for defense, and they can claim to the tax authorities that they have not accepted the false invoicing intentionally, should not be transferred to the public security, and do not constitute tax evasion, pre-tax deduction for income tax, approved levy for income tax, obtaining the false invoices in good faith, and do not pay the late payment fee for VAT and other points of view.