Warning! The latest officially disclosed four cases of tax fraud through improper claiming of incentives – these practices must be avoided

Editor's Note: Preferential tax policies are an important institutional arrangement for a country to guide industrial development, support market entities, and encourage technological innovation. Accurately understanding and applying relevant preferential policies is both a right of taxpayers and a legal obligation they must fulfill. Recently, the State Administration of Taxation announced four inspection cases involving multiple industries, including pharmaceutical technology, shipbuilding, information technology, and energy. These cases cover major policy types such as the additional deduction for research and development (R&D) expenses, corporate income tax preferences for small low-profit enterprises, and tax reductions and exemptions for small-scale taxpayers. These cases provide specific samples for observing common understanding deviations and operational issues in the actual implementation of tax incentives. This article will analyze the key points that need attention when applying the aforementioned policies based on these cases and discuss possible changes in related tax treatments under the framework of new laws and regulations, such as the 2026 new Value-Added Tax (VAT) regulations.

I. Case Summaries: Four Inspection Cases Involving the Handling of Tax Preferences

The recently announced cases involve relatively large amounts and are highly representative, reflecting the tax authorities' continuous focus on the accuracy of applying preferential policies.

Case 1: R&D Expense Classification Case of a Pharmaceutical Technology Company

From 2020 to 2023, the company classified purchased technological achievements as entrusted R&D expenses and included some expenditures not directly or sufficiently related to R&D activities in actual entrusted R&D projects. These were then claimed as R&D expenses for additional deduction, resulting in the underpayment of corporate income tax. In June 2025, after verification, the tax authorities determined that some of its expense classifications did not comply with policy regulations and that the related treatment constituted false tax declarations. They lawfully decided to recover the taxes, levy late fees, and impose a fine totaling 17.1599 million yuan.

Case 2: Income Recognition Case of a Ship Machinery Manufacturing Company

From 2021 to 2023, the company collected part of its payments for goods through personal accounts belonging to the legal representative's close relatives. This portion was not recorded in the company's financial books or tax returns. Simultaneously, the company inflated salary expenses by listing fictitious personnel, thereby under-withholding individual income tax. These operations allowed it to continuously meet the criteria for a small low-profit enterprise. In June 2025, the tax authorities lawfully recovered the underpaid VAT, corporate income tax, and individual income tax, levied late fees, and imposed a fine totaling 3.5758 million yuan.

Case 3: Business Entity Arrangement Case of a Technology Company

From 2022 to 2024, the company arranged for business that should have been directly operated by itself to be undertaken, invoiced, and paid (partially through personal accounts) by several individually owned businesses it controlled. This allowed it to simultaneously benefit from the VAT exemption policy for small-scale taxpayers and the corporate income tax preference for small low-profit enterprises. In September 2025, based on the principle of "substance over form," the tax authorities determined that the substance of the related business should be attributed to the company, lawfully recovered the taxes, levied late fees, and imposed a fine totaling 2.8613 million yuan.

Case 4: Cost and Expense Recording Case of an Energy Company

From 2020 to 2023, the company obtained VAT special invoices inconsistent with actual transportation business by paying invoice fees. These were used to inflate transportation costs, claim input tax credits, and reduce taxable income. In February 2025, the tax authorities determined that its actions constituted falsifying costs and making false declarations. They lawfully recovered the taxes, levied late fees, and imposed a fine totaling 3.3879 million yuan.

II. Analysis of Common Scenarios: Typical Problems in Applying Four Types of Tax Preferences

Based on recent cases, the following typical problems are prone to occur during the application of these four common types of tax preferential policies:

(A) Problems in Applying Tax Preferences for Small Low-Profit Enterprises

According to the "Announcement on Further Supporting the Development of Small and Micro Enterprises and Individual Businesses with Tax and Fee Policies" (Ministry of Finance and State Administration of Taxation Announcement No. 12, 2023), to benefit from tax preferences for small low-profit enterprises, three conditions must be met simultaneously: annual taxable income does not exceed 3 million yuan; the number of employees does not exceed 300; and total assets do not exceed 50 million yuan. In practice, common deviations from these conditions include:

1. Incomplete Income Recognition: Some enterprises collect operating payments through personal bank accounts of legal representatives, shareholders, or employees, private accounts on third-party payment platforms, or cash. These are not fully included in the company's official accounting or completely reflected in relevant tax returns, leading to inaccurate calculation of taxable income.
2. Non-compliant Cost and Expense Recording: Mainly manifested as obtaining invoices unrelated to genuine business activities for bookkeeping; recording personal or family consumption expenses as company expenses; transferring profits through non-arm's length related-party transaction pricing; and fabricating employee compensation expenses.
3. Artificial Adjustment of Qualification Indicators: Near the end of a tax period, using temporary arrangements (e.g., short-term loans to increase paid-in capital, signing short-term contracts to inflate employee numbers) to adjust key indicators like total assets or the number of employees to meet the formal recognition criteria.

(B) Problems in Applying Tax Preferences for Small-Scale Taxpayers

The management rules for small-scale taxpayers were adjusted around the implementation of the 2026 new VAT regulations, imposing clearer requirements on taxpayer compliance.

Policy Key Points: The new rules (Implementation Rules of the VAT Law and supporting announcements) eliminate the optional space that might have existed after exceeding the threshold. Except for "non-enterprise units" that also meet specific conditions, enterprises and individual businesses whose annual taxable sales continuously exceed 5 million yuan must register as general taxpayers. Furthermore, the effective date of general taxpayer status is explicitly defined as "the first day of the period in which the prescribed standard is exceeded," unaffected by when the taxpayer completes registration, thus eliminating the practical room for delaying registration to postpone applying the new status.

Under this regulatory framework, common compliance deviations or legacy issues include:

1. Non-standard Splitting of Business and Income: Establishing multiple market entities that are legally independent but substantively controlled to split a single continuous business into multiple transactions, keeping each entity's sales below the threshold or tax exemption standard.
2. Incomplete Income Declaration and Irregular Account Usage: Based on income splitting, continuing to collect part of the income through personal accounts without declaring it, or failing to include all income in statutory account books during the operation period.
3. Improper Fulfillment of General Taxpayer Registration Obligations: Failing to register as a general taxpayer promptly after sales exceed the standard; or, under the old rules, delaying registration to postpone applying general taxpayer status and tax rates. Under the new rules, such operations have no room and may lead to retroactive tax adjustments for sales during the period when the standard was exceeded.

(C) Problems in Applying the R&D Expense Super Deduction Policy

1. Inaccurate Definition of R&D Activities and Expense Classification: Packaging routine technical support, minor production process adjustments, or general production processes as innovative R&D projects; classifying salaries of personnel not directly involved in R&D, general material consumption, depreciation of shared equipment, etc., as R&D expenses.
2. Questionable Authenticity of Entrusted R&D Expenses: Defining purchased technological achievements as entrusted R&D projects; in entrusted R&D transactions with related parties, the pricing does not match the workload, lacking reasonable commercial substance.
3. Inappropriate Application of Industry Preferences: During tax registration or preference application, the main business activity does not belong to an industry category eligible for a higher super deduction ratio (e.g., manufacturing), but the application is filed under such an industry name to claim a higher deduction ratio.

(D) Common Methods Related to Tax Preferences for Specific Industries

Problems also exist in areas such as the immediate VAT refund for software products, deduction using agricultural product purchase invoices, and preferences for the integrated circuit industry, often due to an inaccurate understanding of policy requirements or implementation deviations. Examples include: applying for the immediate VAT refund after merely modifying purchased software; falsely reporting the quantity or price of agricultural products purchased; using falsified purchase invoices to claim excess tax credits; and submitting project documents, investment proofs, and other key qualification information that significantly differs from the actual situation when applying for periodic corporate income tax reductions or exemptions.

III. Clarifying Legal Consequences: Primary Legal Liabilities for Non-compliant Use of Tax Preferences

According to the "Law on the Administration of Tax Collection" and other laws and regulations, non-compliant use of tax preferential policies may lead to the following legal liabilities:

(A) Reassessment of Relevant Qualifications and Impact on Tax Credit Rating

Tax authorities have the right to reassess according to law and may revoke an entity's obtained tax preference qualifications (e.g., High and New Technology Enterprise, Software Enterprise, Small Low-Profit Enterprise status) and recover the taxes already enjoyed under the preferences. Simultaneously, related actions may lead to a downgrade in the tax credit rating, subsequently affecting invoice procurement, export tax rebates, financing and credit, and participation in government procurement.

(B) Back Payment of Taxes, Late Fees, and Potential Retroactive Adjustments

In addition to paying back the underpaid taxes, late fees must be legally levied. For cases involving the identification of small-scale taxpayer status, the 2026 new VAT regulations introduce a new handling principle: sales verified during an inspection need to be traced back to the period when the tax liability arose, and the cumulative sales for the consecutive 12 months must be recalculated accordingly. If the recalculation shows the taxpayer had already reached the general taxpayer standard previously, they may be retroactively recognized as a general taxpayer from the period when the standard was exceeded. Consequently, the tax payable on all sales during the retroactive period would need to be recalculated based on the applicable VAT rate for general taxpayers.

(C) Determination of Tax Evasion and Administrative Penalties

If the relevant actions constitute "making false tax declarations" as stipulated in Article 63 of the "Law on the Administration of Tax Collection," they may be characterized as tax evasion, subject to a fine of 50% to five times the amount of underpaid tax. Under the new handling rules, as the basis for tax calculation may change, the penalty amount could also be adjusted accordingly.

(D) Transfer of Cases Suspected of Crimes

If the means used to improperly claim preferences involve actions such as falsely issuing special VAT invoices, and the threshold for criminal prosecution is met, the tax authorities will transfer the case to judicial authorities according to law. The relevant entities and individuals may face criminal liability.

IV. Management Insights and Optimization Directions: Building an Effective Mechanism for Applying Tax Preferences

To ensure the accurate application of tax preferential policies and prevent potential tax risks, relevant entities can continuously optimize their tax management systems from the following aspects:

(A) Improve Internal Systems and Process Controls

It is recommended to establish and continuously improve internal control systems covering the entire process of applying for, accounting for, declaring, and retaining documents for tax preferences. Key measures include:

1. Formulate Specific Management Rules: For each tax preference the enterprise intends to claim (e.g., R&D super deduction, SME preferences), develop specific internal operating guidelines clarifying policy application conditions, departmental responsibilities, approval nodes, and compliance requirements.
2. Ensure Business-Finance Consistency: Strengthen coordination between business, procurement, R&D, and finance departments to ensure that economic contracts, transaction substance, fund receipts and payments, invoice vouchers, accounting records, and tax declarations can mutually verify and are logically consistent, safeguarding the accuracy of tax treatment at the source.
3. Standardize Accounting and File Management: Strictly follow accounting standards and tax policy requirements for revenue recognition and cost/expense classification and allocation (especially for R&D). Completely preserve all supporting documents related to claimed preferences for future inspection.

(B) Targeted Management for Key Areas

For areas with frequent problems, more targeted management measures are recommended:

1. Dynamic Management of Taxpayer Status: Establish a monthly or quarterly rolling monitoring mechanism for taxable sales. For enterprises with annual sales approaching the 5 million yuan threshold, proactively assess the potential impact on tax burden, input deduction, and compliance requirements upon conversion to a general taxpayer, and prepare for business and financial transition.
2. Standardized Management of R&D Activities: Implement full-cycle management for R&D projects, including project approval, process tracking, and completion evaluation. Clearly define the boundaries of R&D activities, establish internal statistical systems for R&D personnel timesheets, material requisitions, and equipment usage to ensure the authenticity, accuracy, and verifiability of R&D expense classification.
3. Compliance Management of Related-Party Transaction Pricing: Ensure business dealings with related parties have reasonable commercial purposes and adhere to the arm's length principle. Pricing policies should be fair, and appropriate supporting documentation should be prepared.

(C) Proactive Risk Assessment and Self-Inspection

In a dynamic tax regulatory environment, it is advisable to establish a regular tax health check mechanism: On one hand, conduct periodic compliance self-inspections, regularly assessing against applicable tax preference conditions, checking income completeness, cost/expense compliance, adherence to qualification indicators, and document completeness. On the other hand, closely monitor updates to tax laws and regulations, assess their potential impact on the entity's tax situation and claimed preferences, and make necessary adjustments. Additionally, for uncertain issues in policy implementation, seek guidance through official channels. For historical omissions found during self-inspection, proactively use opportunities provided by tax authorities for self-correction to mitigate potential late fees and penalties.

Conclusion

The recently published cases demonstrate that when enjoying tax preferential policies such as R&D expense super deductions, preferences for small and micro enterprises, and benefits for small-scale taxpayers, it is crucial to accurately define the policy's scope of application, ensure consistency between the substance and form of business, and maintain complete relevant records. With the implementation of new regulations like the 2026 VAT Law, the relevant tax handling rules, especially those concerning taxpayer status conversion and the handling of historical tax matters, will become clearer and more detailed. For market entities, deeply understanding the policy's original intent and legal boundaries, and establishing a sound internal tax compliance management system, are the foundations for ensuring the accurate and effective application of preferential policies. This is also an inevitable requirement for achieving stable and sustainable development within an increasingly refined tax legal environment.