Editor's Note: On December 8, 2025, the State Taxation Administration held a press conference, mentioning that "it will further strengthen monitoring and inspection of local governments' illegal tax introduction and rebates to create 'policy depressions' and illegal recruitment of 'shell companies' to engage in 'invoice economy'. Once problems are discovered, they will be handled promptly, and relevant local governments and their competent departments will be urged to abolish or revise illegal tax-related clauses in investment promotion agreements. We will resolutely resist acts that undermine the unity of the tax system and resolutely prevent and control the disruption of market order by 'invoice economy'." In recent years, tax authorities and judicial organs across the country have investigated and handled a large number of cases involving the establishment of shell companies in tax havens to issue false invoices, including major cases with involved amounts ranging from billions to tens of billions of yuan. Not only do the invoice issuers face imprisonment, but a large number of invoice recipients are also implicated and held legally responsible. With the introduction of the new judicial interpretation on tax-related matters in 2024, the crime of illegally selling special VAT invoices has returned to judicial perspective, providing a powerful legal weapon for cracking down on the invoice economy. Now, the State Taxation Administration has once again named the "invoice economy", indicating that industries highly dependent on invoice issuance platforms will still face severe tax-related risks. This article intends to analyze the tax-related issues in relevant industries to provide reference for readers.

I. Basic Logic of the Operation of "Invoice Economy"

(i) Detachment from Real Business as the Essential Feature

The invoice economy refers to an economy where invoice issuance is the main business activity. Its essential feature is detachment from real business, or most businesses lack authenticity, with profits basically generated solely through invoice issuance. Detachment from real business manifests in two specific forms: first, the complete absence of real business, where false business content is fabricated by signing fake contracts and creating false fund flows for accounting purposes, thereby issuing invoices. This situation generally constitutes the act of "issuing false invoices without actual goods". Second, the existence of real business, but artificially fabricating transaction subjects by adding parties not involved in the business to the transaction links, thereby obtaining invoices. This situation generally constitutes the act of "issuing false invoices by fabricating transaction subjects".

(ii) Illegal Recruitment and Surplus Invoices as the Basic Profit Drivers

Since the invoice economy is detached from real business and does not profit from actual goods or service transactions, it is determined that the operation of the invoice economy is based on embezzling national tax interests and earning "tax spreads". Specifically, invoice-issuing enterprises issue invoices to help invoice-receiving enterprises deduct VAT and claim pre-tax deductions for corporate income tax. The invoice-receiving enterprises pay invoice fees to the invoice-issuing enterprises. As long as the invoice fees are lower than the tax benefits obtained by the invoice-receiving enterprises, the latter will profit from this. At the same time, although invoice-issuing parties engage in false invoice issuance and artificially increase their tax obligations, they reduce their actual tax burden through other means, making the invoice fees exceed the actual tax burden incurred by issuing invoices. The difference constitutes the profit of the invoice-issuing parties. At present, the means to reduce the actual tax burden can be basically divided into two models: one relies on illegal investment promotion policies, that is, after artificially increasing tax obligations, the invoice-issuing parties fully perform their tax payment obligations, but directly offset the tax costs through illegal fiscal rebates; the other relies on surplus invoices accumulated by retail enterprises, that is, the invoice-issuing parties first purchase invoices from retail enterprises to accumulate surplus input tax, which can be used for deduction and pre-tax deduction when issuing false invoices, enabling them to issue invoices without actually bearing tax costs.

(iii) Illegal Agency Issuance as a New Means of Embezzling Funds

For the act of "issuing false invoices without actual goods", since the business content is purely false invoice issuance, the relevant funds flow solely for the purpose of accounting and invoice issuance, thus there must be fund reflux. In the past, invoice-issuing parties generally used the name of shareholder loans to embezzle funds and return them to invoice-receiving parties, but this model is relatively crude and carries high tax risks. In recent years, with the popularization and development of personal invoice agency policies, most invoice-issuing parties embezzle funds by falsely issuing invoices for themselves through fraudulently using personal identity information to apply for agency issuance. According to the requirements of the agency issuance policy, the types of invoices that can be issued through agency mainly include agricultural product purchase invoices and ordinary VAT invoices. Among them, agricultural product purchase invoices have become the preferred choice for illegal agency issuance in the agricultural product industry due to their characteristics of reverse invoicing and self-issuance and self-deduction, while other industries mainly rely on agency issuance of ordinary invoices. For the act of "issuing false invoices by fabricating transaction subjects", since the fabricated transaction links are artificially added to the real business chain, and the false invoicing chain is grafted with the real business chain, there is usually no fund reflux.

II. Why Has the "Invoice Economy" Become an Industry Dependency?

The invoice market is also a supply and demand market. Due to the different tax issues existing in various industries, different degrees of industry-wide dependence on the invoice economy have been formed, spawning various types of invoice issuance industrial chains. The specific demands of invoice-receiving parties can be divided into four categories:

(i) Making Up for the Lack of Source Invoices

This type of demand is more common in the transportation and logistics industry, renewable resource recycling industry, and agricultural product purchase industry. These industries are characterized by being at the front end of the industrial chain, with most suppliers being individuals. The transportation and logistics industry needs to organize a large number of individual transport capacities to undertake transportation tasks; the renewable resource recycling industry needs to connect with freight yards, where the main suppliers of waste are individual waste suppliers; the agricultural product purchase industry needs to go deep into rural areas to purchase goods from farmers and rural economic organizations. Due to the fact that suppliers are individuals with insufficient tax awareness and lack the willingness to apply for agency invoice issuance from tax authorities, and in the past, the process of agency invoice issuance was relatively cumbersome in some remote areas due to backward economic development, various reasons have led to the lack of source invoices. Enterprises not only cannot meet their deduction needs, but also cannot obtain compliant financial vouchers for bookkeeping and cost recording. Although agricultural product purchase invoices have the characteristics of self-issuance and self-deduction, at present, tax authorities in various regions basically require that purchase invoices be used within the province or even the city, and do not allow self-issuance of purchase invoices for cross-provincial agricultural product purchase businesses. In addition, many places have certain restrictions on the invoicing limit of purchase invoices, which cannot meet the daily needs of enterprises. Furthermore, purchase invoices are only applicable to transactions of purchasing self-produced agricultural products from farmers, not to transactions of purchasing from intermediaries, which also leads to the problem of lack of source invoices.

(ii) Evading Personal Income Tax

This type of demand is more common in labor-intensive industries, financial industry, internet technology industry, and live streaming industry. These industries are characterized by being asset-light, creating value through personal labor services, and having a very high proportion of labor costs. Since most laborers have established labor relations with enterprises, although labor costs can be claimed as pre-tax deductions, personal income tax must be paid in accordance with comprehensive income. In some industries, the per capita labor cost is high, which may directly push the tax rate up to 45%, resulting in a heavy personal income tax burden. If the employing enterprise converts the labor provided by individuals into VAT taxable services and obtains special invoices, it can still fully claim the deduction at the corporate income tax level, completely avoid the personal income tax liability, and also deduct more VAT.

(iii) Restrictions Imposed by Industry Unspoken Rules

This type of demand is more common in the pharmaceutical industry and industries supplying goods and services to government organs and institutions. These industries are characterized by long-standing unspoken rules, requiring cooperation with specific suppliers to obtain projects from customers and sell products. However, some suppliers do not actually provide real businesses, but build business structures by improperly transferring interests to customers or having kinship relations with customers. If the supplier is exposed, the relevant invoices are likely to be identified as false invoices, implicating the invoice-receiving party.

(iv) Evading Consumption Tax

This type of demand is more common in the energy industry, including two major fields: petroleum refining and coal chemical industry. These industries are characterized by products mainly being consumption tax taxable consumer goods such as gasoline, diesel, and naphtha, or including taxable consumer goods. The consumption tax on refined oil products is levied based on quantity, independent of pricing. However, the market pricing of gasoline and diesel is regulated by the National Development and Reform Commission, and it is not a completely free pricing market. This makes it difficult to fully pass on the consumption tax burden. In the past, the consumption tax burden accounted for as high as 1/3 of the gasoline price, and the energy industry generally needed to bear a relatively heavy consumption tax liability. Taking refining and chemical enterprises as an example, state-owned refining and chemical enterprises not only have to strictly implement national pricing, but also assume many additional social responsibilities, such as building gas stations in remote areas. Many projects have social attributes and may be unprofitable economically. However, state-owned enterprises also have profit assessment indicators, and if they fully bear the consumption tax burden, they will be unable to complete the indicators. For private local refining enterprises, after the partial liberalization of crude oil import quotas in 2015, local refining enterprises began to widely participate in the refining and chemical industry. However, their cost control cannot compete with state-owned enterprises, and their upstream and downstream industrial chains are far less mature than the state-owned system. Therefore, they can only reduce costs and increase efficiency through consumption tax. Special VAT invoices not only serve the functions of VAT deduction and pre-tax deduction for corporate income tax, but also assume an important function of inputting refined oil product inventory since the launch of the refined oil invoice module in 2018, and are considered as consumption tax deduction vouchers. For the purpose of evading consumption tax, the energy industry also has a strong demand for special invoices.

III. Criminal Liability Faced by All Parties in the "Invoice Economy"

In the past, most invoice-issuing parties and invoice-receiving parties that met the conviction standards were convicted of the crime of falsely issuing special VAT invoices. In 2024, with the issuance of the new judicial interpretation on tax-related matters by the Supreme People's Court and the Supreme People's Procuratorate, as well as the subsequent writing of the understanding and application of the judicial interpretation by the Supreme People's Court, the characterization of invoice-issuing parties and invoice-receiving parties has begun to change.

(i) Invoice-Issuing Parties: Coexistence of the Crime of Falsely Issuing Special Invoices and the Crime of Illegally Selling Special VAT Invoices

For the act of "issuing false invoices without actual goods", according to the interpretation of the Supreme People's Court, the invoice-issuing party issuing special invoices in exchange for invoice fees is essentially equivalent to trading invoices as commodities, which first constitutes the act of illegally selling special VAT invoices. Since the crime of illegally selling special VAT invoices is a behavioral offense, this act can be characterized as such, which is the basic principle for characterizing this type of act. In practice, invoice-issuing platforms represented by flexible employment platforms and online freight platforms have a wide range of downstream customers, and the risk of being identified as illegal sales is extremely high. The sentencing grades for illegal sales and false issuance are basically the same. At the same time, as a behavioral offense in the usual sense, conviction for the crime of illegal sales does not require bearing the burden of proof such as whether there is the purpose of defrauding tax deductions or whether tax losses have been caused, and the threshold for conviction is lower than that for false issuance.

Of course, there are exceptions to the principle. A basic feature of illegal invoice trading is that the invoice-issuing party is a shell company with no or basically no real business, no intentional collusion with the invoice-receiving party, and engages in the invoice-selling business solely to earn invoice fees, usually accepting any invoice-purchasing demand. Therefore, if the evidence in the case can prove that the invoice-issuing party is not an "open-to-all" false issuer but has specific invoice-receiving objects, and at the same time has a comprehensive understanding of why the invoice-receiving party accepts false invoices, the purpose and harmful consequences of the invoice-receiving party after obtaining the false invoices, and does not obtain illegal interests, it can be considered that the two parties have pre-conspiracy, and the invoice-issuing party issues false invoices based on the pre-conspiracy. In this case, the invoice-issuing party does not have the intention to earn invoice fees but has the intention to assist the invoice-receiving enterprise. In such cases, the invoice-issuing and invoice-receiving parties constitute a joint crime, and the invoice-issuing party cannot be characterized separately, but should rely on the characterization of the invoice-receiving party.

For the act of "issuing false invoices by fabricating transaction subjects", there has always been a factual dispute in the past: does fabricating a transaction link equal a false transaction link? What is the standard for judging whether a business is real or false? First of all, it should be clarified that fabrication is not forgery. Issuing false invoices by fabricating transaction subjects does not mean forging a transaction in the absence of a real transaction, but adding a subject that is not involved in the transaction link to the transaction link. Since the subject has been added to the transaction link, there is a great dispute as to whether the authenticity of the business can be directly denied. Especially since the Civil Code recognizes the way of constructive delivery, the authenticity of the business cannot be judged solely based on the physical flow of goods. Therefore, there have been many obstacles in the characterization of such acts in the past. Taking the refined oil retail industry as an example, gas stations legally obtain invoices when purchasing gasoline and diesel, but when selling, because consumers do not need invoices, gas stations will generate surplus input tax. Gas stations cooperate with shell companies and adjust their business model to a model where gas stations sell oil to shell companies, and shell companies then sell oil to consumers, allowing shell companies to participate in the transaction link. Shell companies purchase goods from gas stations and obtain invoices, but do not issue invoices to consumers, concealing their income, thereby forming surplus input tax, and then issuing false invoices to the outside world for profit. Of course, the transaction chain can be infinitely extended to include the downstream enterprises of shell companies. In this case, it can be said that the transaction link of the shell company is fabricated, but it seems impossible to directly conclude that the business of the shell company obtaining invoices is false.

To solve this problem, the new judicial interpretation specifically adds a provision that "issuing special VAT invoices by fabricating transaction subjects for businesses that are legally not eligible for tax deduction..." constitutes a false issuance act. Consumers' purchase of oil is a business that is not eligible for tax deduction. In such a business, fabricating a shell company as the transaction subject and obtaining special invoices can be directly characterized as a false issuance act. This resolves a factual dispute through legal provisions. Therefore, most acts of "issuing false invoices by fabricating transaction subjects" can be directly characterized as false issuance acts. For retail enterprises, if they are unaware of the downstream structure, they are considered to have their invoices maliciously embezzled by downstream parties and do not constitute a crime. For shell companies, their acts can be identified as false issuance, and further analysis should be conducted to determine whether they meet the conditions for exemption from criminal liability for false issuance and confirm their criminal liability.

(ii) Invoice-Receiving Parties: Transformation from the Crime of Falsely Issuing Special Invoices to Minor Crimes Such as the Crime of Illegally Purchasing Special VAT Invoices and the Crime of Tax Evasion

Due to the different demands and harmful consequences of invoice-receiving parties, their characterization is not uniform. However, the new judicial interpretation generally shows the guiding spirit of protecting entity enterprises, and the criminal liability of entity invoice-receiving enterprises has been reduced. In particular, the criminal act of tax evasion has added an item of "tax evasion by falsely deducting input tax", providing an important legal basis for converting false issuance into tax evasion. Under the guidance of this opinion, the liability of invoice-receiving parties has gradually transformed from false issuance to minor crimes.

First of all, at the level of falsely deducting VAT, according to the understanding and application of the Supreme People's Court, the so-called tax evasion by falsely deducting input tax does not exclude the situation of false invoice issuance. Regardless of whether the invoice-receiving enterprise has actual procurement business, as long as the false invoices obtained do not exceed the scope of its tax liability, it can be considered that its subjective purpose is to evade tax payment, and it should not be convicted of false issuance, but should be identified as the act of tax evasion by falsely deducting input tax. For the part of underpaying corporate income tax, consumption tax, etc. by obtaining false invoices, all belong to the tax evasion act of falsely listing expenses and making false tax declarations, and should be characterized as tax evasion acts. At the same time, the crime of tax evasion applies the administrative pre-procedure. If the invoice-receiving party fully pays the arrears of taxes, late payment fees, and fines within the time limit determined by the tax authority, criminal liability will no longer be pursued.

On the other hand, even if the obtained false invoices exceed the scope of tax liability, it does not mean directly constituting the crime of false issuance. It is also necessary to analyze in combination with the exemption clauses for the crime of false issuance, that is, whether the invoice-receiving party has the purpose of defrauding tax deductions and whether tax losses have been caused due to the deduction. If there is no such purpose or loss, the act of the invoice-receiving party paying invoice fees to purchase invoices can be convicted solely of the crime of illegally purchasing special VAT invoices. If it also results in underpayment of corporate income tax and other taxes, it is an act of achieving the purpose of tax evasion by illegally purchasing special VAT invoices, and should be characterized as tax evasion. For example, if an enterprise sets up its own shell small-scale taxpayer to falsely issue special invoices to itself for the purpose of embezzling funds, since small-scale taxpayers adopt the simple tax calculation method and cannot deduct input tax, the small-scale taxpayer must pay VAT in full according to the output tax regardless of the amount of invoices issued. The VAT deducted by the invoice-receiving party is the additional VAT paid by the invoice-issuing party. The increase and decrease offset each other, and it is impossible to cause VAT losses. Even if the falsely increased input tax obtained by the invoice-receiving party through false invoices is higher than its tax liability, it is impossible to cause tax losses due to fraud. Therefore, if it results in underpayment of corporate income tax, it can be convicted of tax evasion.

IV. Administrative Liability Faced by Invoice-Receiving Parties in the "Invoice Economy"

For invoice-receiving parties, although the criminal risk has been reduced, the administrative liability cannot be ignored. First of all, they need to pay the arrears of taxes and late payment fees. In addition, both issuing false invoices without actual goods and agency issuance are considered as false issuance under administrative law in accordance with tax law regulations, and can be handled as tax evasion. The invoice-receiving party also needs to bear a fine of 0.5 to 5 times the underpaid tax. In terms of paying the arrears of taxes, for invoice-receiving parties that obtain falsely issued special VAT invoices and agricultural product purchase invoices, they cannot use the invoices as vouchers for input tax deduction and pre-tax deduction. They usually need to pay the arrears of VAT and add late payment fees. For other taxes and the act of obtaining falsely issued ordinary invoices, the obligation to pay the arrears shall be determined according to different circumstances:

First, for invoice-receiving parties that obtain false invoices due to the lack of source invoices, if they have actually incurred true, reasonable, and relevant expenses and obtained false invoices for cost recording, it is essentially an act of agency invoice issuance. According to tax law regulations, they can require the real seller to issue supplementary invoices. If the real seller cannot be contacted and the conditions specified in the tax law are met, they can use self-made vouchers specified by law for pre-tax deduction without making tax adjustments to corporate income tax.

Second, for invoice-receiving parties whose main purpose is to evade personal income tax, since salary expenses are already eligible for pre-tax deduction, converting them into invoice-based expenses does not falsely increase the scope of pre-tax deduction. Therefore, no further adjustment to corporate income tax shall be made for invoice-receiving parties that do not overstate costs. However, such invoice-receiving parties reduce their personal income tax withholding obligations through false invoice issuance. In many cases of tax evasion of personal income tax investigated and handled in recent years, the method of converting income nature has been adopted, that is, converting comprehensive income with a maximum tax rate of 45% into operating income, and combining with local verified collection policies for operating income to reduce the actual tax rate to less than 10%. The prerequisite for converting to operating income is to package laborers into third-party subjects and convert labor into VAT taxable services, which requires an invoice-issuing party to issue invoices on their behalf. The invoice-issuing party then embezzles funds by splitting income and fraudulently using personal identity information to apply for agency invoice issuance, pays salaries to laborers, and fails to fully perform the withholding obligation. Therefore, the invoice-receiving party shall also bear the responsibility of supplementary withholding of personal income tax. If the invoice-receiving party fails to perform the withholding obligation, the laborers need to declare and pay the arrears of personal income tax by themselves.

Third, for invoice-receiving parties that obtain false invoices due to industry unspoken rules, there is great dispute in practice. The main reason is that under the influence of the industry background, many invoice-issuing parties use information asymmetry or their positional advantages to package themselves as channel partners. At the same time, the funds for accounting basically do not form reflux, but are directly withdrawn by the invoice-issuing party and used for the final purpose. For the invoice-receiving party, in order to obtain business, they have to cooperate with the invoice-issuing party, entrust the invoice-issuing party to carry out marketing or provide other services, and cannot judge the authenticity of the invoice-issuing party's business. From the perspective of the invoice-receiving party, their main demand is to obtain cooperative projects, and they subjectively believe that they have actually paid marketing and service fees. Objectively, the relevant funds have indeed been disbursed without reflux, forming the real cost of the enterprise. There is a cognitive deviation between the invoice-issuing and invoice-receiving parties. If the invoice-issuing party provides services through illegal means such as interest transfer when it can provide legal services, this should not be directly attributed to the invoice-receiving party, and it is inappropriate to impose penalties on the invoice-receiving party.

Fourth, for invoice-receiving parties whose main purpose is to evade consumption tax, if there is no corresponding real business in the invoice issuance chain, they also need to pay the arrears of corporate income tax. In addition, for the consumption tax excessively deducted due to falsely increasing inventory by obtaining false invoices, they also need to bear the obligation to pay the arrears. Furthermore, since most of such invoice-receiving parties aim to evade consumption tax, some invoice-receiving parties, after inputting the falsely obtained invoices into the inventory, consume the falsely increased input tax and costs through falsely increasing unissued income. In this special case, since the invoice-receiving party falsely enters and exits goods, it does not actually cause excessive VAT deduction or excessive corporate income tax deduction, and no adjustment to VAT and corporate income tax shall be made.