Editor's Note: Based on the deduction mechanism of VAT interlocking and invoice chain, the upstream false opening often leads to the risk that the invoices obtained by downstream bill-receiving enterprises face the transfer-out of input. There are many disputes about whether the downstream bill-receiving enterprises can file a reconsideration of the upstream documents based on their interests when the upstream enterprises have not filed a relief procedure for the documents that they have falsely opened. Recently, a provincial high court tried a similar case. The court held that the downstream bill-receiving enterprise had an interest in the tax treatment decision falsely made by the upstream tax bureau, and the bill-receiving enterprise had the right to file a reconsideration on the upstream treatment decision. This paper analyzes the case and further discusses the relief path of the bill-receiving enterprise for readers' reference.

I. the latest case: the decision made by the upstream tax authorities has had a direct and final impact on the rights and obligations of the drawee, and the drawee can file a reconsideration accordingly.

Applicant for retrial (plaintiff of first instance and appellant of second instance): Company A.

Respondent (defendant in the first instance and appellee in the second instance): A Municipal Taxation Bureau.

On August 15th, 2022, the Second Inspection Bureau of A Municipal Taxation Bureau (hereinafter referred to as the Second Inspection Bureau) made a decision to deal with the case involving the outsider Company B, and determined that Company B was a runaway and lost company, and was a member of a fraudulent gang, and conducted an out-of-stock transaction in the form of charging a billing fee. From June 2017 to December 2019, it issued 1,456 special VAT invoices that were inconsistent with the actual business conditions, which was characterized as fraudulent issuance. Company B did not file an administrative reconsideration after the decision on handling the case was served. Company A, the retrial applicant, is one of the drawees, and its competent inspection bureau has suspended its tax inspection, and no decision has been made on Company A as of the retrial.

On December 6, 2022, Company A applied to the A Municipal Taxation Bureau for reconsideration, arguing that the false nature of the case-related handling decision made it impossible to deduct 60 special VAT invoices obtained from Company B, which actually affected its rights and obligations, and requested the reconsideration organ to cancel the case-related handling decision; On December 9th, A Municipal Taxation Bureau made a decision not to accept the case, arguing that Company A was not the administrative counterpart of the case-related handling decision, and the case-related handling decision did not directly deprive or restrict its rights or give it obligations, and Company A had no interest in the case-related handling decision. Company A refuses to accept the decision and brings a lawsuit to the court.

The courts of first and second instance held that Company A was not the administrative counterpart of the case-related handling decision, and the case-related handling decision did not have a final impact on the rights and obligations of Company A, and the rights and obligations of Company A were uncertain before the downstream tax authorities made a handling decision. Company A's ultimate tax-related obligations shall be subject to the decision made by the downstream tax authorities. If it refuses to accept this, it can apply for reconsideration or bring a lawsuit, that is, the legitimate rights and interests of Company A can be fully guaranteed in the relief procedure for its own documents. Therefore, Company A has no legal interest in the case-related decision, and the A Municipal Taxation Bureau refuses to accept the application for reconsideration put forward by Company A, and finds that the facts are clear and the applicable law is correct, so it rejects the claim of Company A..

The retrial court held that, according to the relevant regulations, the taxpayer's false special VAT invoice shall not be used as a legal and valid tax deduction certificate for VAT to offset its input tax. That is, if the upstream tax authorities make a decision that the special VAT invoice issued by the billing enterprise is falsely invoiced, it will usually lead to the fact that the special VAT invoice obtained by the recipient enterprise cannot be used as a legal and effective deduction voucher for VAT, and the actual impact on the recipient enterprise has been produced according to the law, which has a direct causal relationship with the decision to identify the false invoice. Even if the downstream tax authorities verify that there is a real transaction, they will generally be confined to the false identification made by the upstream tax authorities, and can only assume that the drawee enterprise has obtained it in good faith, and will still make a decision to pay the tax. Accordingly, the decision made by the upstream tax authorities to identify false invoices has had a direct and final impact on the rights and obligations of the drawee enterprises. If the drawee enterprises are not given the right to apply for reconsideration of this decision, the drawee enterprises will not be able to realize effective relief of their rights. In this case, the invoice issued by Company B held by Company A has become a non-compliant invoice due to the decision of handling the case, and the final impact that the above-mentioned invoice can not be used to offset the input tax according to law has actually occurred. It cannot be considered that the downstream tax authorities have not made a decision to determine the specific amount of tax payment, which means that it has not had a final impact on Company A, otherwise the scope of interested parties will be limited to administrative counterparts. It is an effective way for Company A to apply for reconsideration according to the decision of handling the case, so it should be recognized as an applicant for reconsideration. The retrial court finally revoked the judgments of the first and second instance, revoked the decision of inadmissibility made by the A Municipal Taxation Bureau, and ordered the A Municipal Taxation Bureau to accept the application for administrative reconsideration filed by Company A within five days from the effective date of the judgment.

II. the key question: Is there an interest relationship between the decision to identify the upstream fraudulent issuance and the bill-receiving enterprise?

In the case of false issuance, based on the deduction function of VAT invoices, the upstream is deemed to be false issuance, which often affects the legitimacy of the invoices of downstream invoice-receiving enterprises, and then causes the invoice-receiving enterprises to face the risks of VAT input transfer, income tax adjustment and late payment fees. In the foregoing circumstances, the invoice non-compliance risk of the drawee enterprise comes from the decision made by the upstream tax authorities that the invoice is falsely drawn up. Whether the drawee enterprise can file a reconsideration on this specific administrative act and claim that the invoice drawn by the upstream enterprise does not constitute false drawing up depends on two points. First, it is necessary to clarify whether other interested parties except the administrative counterpart can be applicants for administrative reconsideration. Second, whether the decision made by the upstream tax authorities affects the rights and obligations of the drawee enterprise and whether the drawee enterprise constitutes an interested party.

First of all, other interested parties can be the applicants for administrative reconsideration. Article 14 of the Administrative Reconsideration Law stipulates that "a citizen, legal person or other organization applying for administrative reconsideration according to this Law is an applicant", and the applicant can file an application for administrative reconsideration within 60 days from the date when he knows or should know about the relevant administrative act. Article 30 further stipulates the conditions for accepting reconsideration, including having a clear applicant and a qualified respondent, the applicant having an interest in the specific administrative act, and having specific administrative reconsideration requests and reasons. In the field of taxation, Article 24 of the Rules for Tax Administrative Reconsideration clearly states that "a citizen, legal person or other organization whose rights are directly deprived, restricted or endowed with obligations by a specific administrative act, who is not the administrative counterpart of the specific administrative act, may apply for administrative reconsideration separately when the administrative counterpart does not apply for administrative reconsideration", which recognizes the qualifications of other interested parties as reconsideration applicants. In the case described in the case, although the drawee enterprise is not the administrative counterpart of the decision made by the upstream tax authorities, it does not mean that it must not apply for reconsideration against the decision involved in the case, but it may still obtain the qualification of reconsideration applicant based on the identity of the interested party.

Secondly, the key to determine the interest relationship is that the administrative act applied for reconsideration has or may lead to the impairment of the applicant's rights or the increase of his obligations. In the previous case, the retrial court held that the determination of interest should meet the following four conditions at the same time: first, the applicant must advocate the interests of rights or similar rights, not the reflected interests; Second, the rights and interests belong to the applicant rather than others, nor to the public interest; Third, the possibility of damage to the rights and interests is inevitable or foreseeable, not subjective; Fourth, the rights and interests claimed by the applicant are protected by administrative laws and regulations, not outside the scope of legislative purpose protection. In the case, the upstream tax authorities characterized the invoice issued by the billing enterprise as false, and the specificity of the buyer and the seller on the invoice determined the uniqueness of the invoiced enterprise, that is, the drawee has the right to deduct the tax indicated on the invoice according to law because he obtained the invoice issued by the billing party, and this right is specific and belongs only to the drawee. According to Article 9 of the Provisional Regulations on Value-added Tax and the Announcement on Taxpayers Falsely Issuing Special VAT Invoices (State Taxation Administration of The People's Republic of China Announcement No.33, 2012), the falsification made by the upstream tax authorities will cause the rights and interests of the invoiced enterprises to be damaged, that is, the falsification of the invoiced enterprises by the upstream tax authorities will have a direct and predictable impact on the rights and obligations of the invoiced enterprises. Therefore, the upstream tax authorities' fraudulent treatment of the billing enterprise has actually affected the downstream bill-receiving enterprise, which is an interested party of the specific administrative act and can file a reconsideration according to law.

Finally, regarding the burden and standard of proof of "interest" when an interested party files a reconsideration, the retrial court points out that the plaintiff has the obligation to prove that he has an interest in the sued administrative act when he files an administrative lawsuit, but this burden of proof should only be preliminary and superficial. There is no need for the prosecutor to provide exact evidence to prove that there are legitimate rights and interests and that the legitimate rights and interests have been violated at the prosecution stage, and the prosecutor's right to file a lawsuit cannot be denied on substantive grounds such as that the rights and interests of the prosecutor may not be legitimate. In the case of fraudulent issuance, if the drawee can prove that the fraudulent issuance of invoices by the billing enterprise includes the invoices obtained by it and there is a possibility of paying back taxes, it shall be deemed that the drawee has fulfilled the burden of proof of interest and has the right to apply for reconsideration as an interested party.

In addition, in the "Administrative Trial Lecture Hall" in April, 2024, the judge of the Supreme Administrative Court said, "The tax authorities have determined that the issuing enterprise has falsely issued a VAT invoice and made a tax treatment decision. Does the receiving enterprise have the right to apply for administrative reconsideration as an interested party?" The answer to this question also points out that the above tax treatment decision may have a practical impact on the rights and obligations of the drawee enterprise as a taxpayer, and the drawee enterprise has an interest in the above tax treatment decision and has the right to apply for administrative reconsideration; And from the perspective of giving full play to the role of administrative reconsideration as the main channel to resolve administrative disputes, it is pointed out that it is not appropriate to strictly limit the qualifications of applicants for administrative reconsideration in law enforcement practice.

III. judicial practice: the bill-receiving enterprise files a reconsideration and lawsuit against the decision of the upstream enterprise, and files a lawsuit against the certified bill.

In the current practice of illegal invoice cases, due to the different case situations, the invoice-receiving enterprises have different relief methods. For example, some bill-receiving enterprises either fail to meet the reconsideration premise of "pre-clearing before tax payment" for the processing decision requiring them to pay back taxes, or, for example, the tax bureau has not made a processing decision on them in this case, and instead file a reconsideration or lawsuit against the processing decision that the upstream tax authorities have falsely made, and in some cases, the bill-receiving enterprises file a relief procedure against the Notice of Confirmed Falsification made by the upstream tax authorities.

In the case of filing a reconsideration or lawsuit against the upstream processing decision, the situation of applying for reconsideration has been discussed above, and in terms of litigation, there are also referee opinions in practice that recognize the litigation status of the drawee enterprise in such cases. For example, in the case of No.8 on No.13 bank in Yu (2024), the upstream tax authorities determined that the billing enterprise had made a false statement and made a decision on the tax treatment involved in the case, and sent a Letter of Investigation on Tax Illegal Cases and a Notice of Confirmed False Statement to the competent tax authorities of the drawee enterprise. After that, the drawee inspection bureau made a decision to require it to pay back the tax, and the drawee enterprise failed to pay back the tax and did not file a reconsideration or lawsuit. Since then, the drawee has filed a lawsuit against the decision made by the upstream tax authorities, arguing that the upstream tax authorities have illegally determined that the invoices issued by the invoicing enterprises are false, which has damaged the legitimate rights and interests of its input tax deduction, and it has the right to bring a lawsuit to the people's court as an interested party. After the rulings of the first and second instance were rejected, the retrial court held that, according to Announcement No.33, the special VAT invoice issued by the drawer was deemed to be false, so the special VAT invoice obtained by the drawee could not be used as a legal and effective tax deduction voucher for VAT to offset its input tax. Although the drawee is not the administrative counterpart of the tax treatment decision, the tax treatment decision involved in the case has a practical impact on its legitimate rights and interests as a taxpayer, and it has an interest in the tax treatment decision involved in the case.

With regard to the relief of the Notice of Confirmed Falsification, in the "Administrative Trial Lecture Hall" held by the Supreme Court in March this year, the judge of the Supreme Administrative Court pointed out that "a lawsuit filed against the Notice of Confirmed Falsification issued by the tax authorities is not within the scope of administrative litigation if the trustee only uses it as a clue to tax violations and the Notice of Confirmed Falsification has no external effect. If the trustee takes it as the main basis for making a decision on handling or punishment, and it has external effect, it should decide whether to include it in the scope of accepting the case according to the circumstances, such as the directness and economy of the right relief. That is to say, the Notice of Confirmed False Issuance is actionable in the case of external effect, and the qualification of the subject of litigation of the drawee enterprise can be further judged in combination with the specific circumstances such as whether the downstream tax authorities have handled or punished the drawee enterprise.

IV. Summary

Judging from the current judicial practice, the drawee enterprises have more diverse remedies for the damage of rights and interests caused by the upstream being found to be falsely opened. In addition to the above-mentioned remedies for the upstream related documents, some local courts have added the upstream tax authorities as a third party to participate in the proceedings in the trial of the decision of the drawee enterprises, so that the upstream and downstream tax authorities can jointly determine the facts of falsely opened, effectively breaking the information barrier caused by the tax authorities' segmented jurisdiction and law enforcement, and solving the circular dilemma of the rights relief of the parties in such cases. For taxpayers