Editor’s Note: Recently, we have received inquiries from a number of enterprises regarding their tax credit ratings. These enterprises were notified through pop-up alerts in the Electronic Taxation Bureau that their tax credit ratings had been directly downgraded to Grade D. Why would an enterprise’s tax credit rating be directly downgraded to Grade D? What impact does a Grade D rating have on the enterprise? Will this tax credit information be publicly disclosed or made available for public inquiry? How can the tax credit rating be restored quickly? This article provides an analysis of these questions.

01  Why Is an Enterprise’s Tax Credit Rating Directly Downgraded to Grade D?

On May 16 of last year, the State Taxation Administration (STA) promulgated the Administrative Measures for Tax and Fee Payment Credit Management (STA Announcement No. 12 of 2025), which took effect on July 1, 2025. The implementation of the 2025 Measures resulted in the repeal of all nine normative documents issued by the STA since 2014 on tax credit management, making it a thorough institutional consolidation and systematic upgrade.

Pursuant to Article 18 of the 2025 Measures, if a business entity falls under any of the following circumstances, its tax credit rating shall be directly determined as Grade D:

1. Having committed tax violations such as evading the recovery of delinquent taxes, fraudulently obtaining export tax refunds, falsely issuing special VAT invoices, or fraudulently obtaining retained input tax credit refunds;
2. Having committed violations such as evading tax payments or falsely issuing invoices other than special VAT invoices, and having been referred to public security authorities or directly investigated by public security authorities;
3. Having committed tax evasion (evading tax payments) involving an amount of RMB 100,000 or more and accounting for 10% or more of the total taxes payable across all tax categories;
4. Failing to pay in full the taxes, interest, late payment surcharges, and penalties in accordance with the tax authority’s disposition within the prescribed time limit;
5. Refusing to pay taxes by means of violence or threats, or refusing or obstructing the tax authority’s lawful implementation of tax audit and enforcement actions;
6. Violating invoice management regulations, thereby causing other entities or individuals to underpay, fail to pay, or fraudulently obtain tax payments;
7. Providing false materials to fraudulently obtain tax incentives;
8. Having fraudulently obtained state export tax refunds and having had its export tax refund (exemption) eligibility suspended, with the suspension period not yet expired;
9. Having been identified as an abnormal taxpayer account (fei zhengchang hu) or an absconded (out-of-contact) taxpayer account;
10. Where a directly responsible person of an abnormal taxpayer account or an absconded (out-of-contact) taxpayer account has, after such identification, registered and assumed management responsibility for another business entity;
11. Where a directly responsible person of a Grade D business entity has, after such Grade D determination, registered and assumed management responsibility for another business entity;
12. Having been identified as a major tax-related violator on the dishonesty list;
13. Having other serious dishonesty circumstances as determined by the tax authority in accordance with law.

The practice of directly downgrading tax credit ratings is not an innovation of the 2025 Measures; similar provisions already existed in the 2014 trial version of the tax credit management measures. The specific circumstances for directly downgrading tax credit to Grade D are largely similar between the 2025 Measures and the 2014 Trial Measures. However, the key reason why enterprises have not paid much attention to this issue in the past, or have not felt its regulatory intensity or sting, lies in the fact that the 2014 Trial Measures contained a “non-assessment” rule for cases still under investigation without a conclusion and cases already subject to administrative reconsideration or litigation. The 2025 Measures, however, have deleted this rule. Let us examine the content of this deleted rule.

Article 17 of the now-repealed 2014 version of the Administrative Measures for Tax Credit Management (Trial) stipulated that taxpayers falling under any of the following circumstances shall not participate in the tax credit assessment for the current tax year:

1. The taxpayer has been under tax credit management for less than one assessment year;
2. The taxpayer has had no business operating income during the current assessment year;
3. The taxpayer is suspected of tax violations and the case has been filed for investigation but not yet concluded;
4. Tax violations have been discovered by audit or finance departments in accordance with law, and the tax authority is processing the matter in accordance with law, but the processing has not yet been completed;
5. The taxpayer has applied for administrative reconsideration or initiated administrative litigation, and the case has not yet been concluded.

Under the above-listed former provisions, if an enterprise was suspected of major tax violations such as tax evasion or false invoicing, it would not be included in the assessment scope as long as the case had not been concluded. After the tax authority determined the enterprise to have committed tax evasion or false invoicing and issued its disposition and penalty decisions to close the case, if the enterprise initiated administrative reconsideration or administrative litigation and the reconsideration or litigation case had not yet been adjudicated—i.e., no final effective decision or judgment had been rendered—the enterprise would likewise not be included in the assessment scope. Furthermore, if an enterprise was determined by the tax authority to have committed false invoicing, tax fraud, or tax evasion, and the enterprise neither initiated reconsideration nor litigation but instead voluntarily ceased all business operations and generated no income, it would paradoxically also trigger the non-assessment circumstance. Therefore, for a long period of time, the tax authorities did not routinely or on a large scale directly downgrade non-compliant enterprises to Grade D, and overall adopted a rather cautious approach. However, the 2025 Measures have not continued the aforesaid rules of the 2014 Trial Measures, which means that once the tax authority issues a disposition or penalty decision determining that an enterprise has committed violations such as tax evasion, false invoicing, or tax fraud, the enterprise’s tax credit will be directly downgraded to Grade D even if the enterprise files an appeal through administrative reconsideration or litigation.

Moreover, the 2025 Measures have not only discontinued the “non-assessment” rule of the 2014 Trial Measures but have also specifically emphasized that certain circumstances shall not preclude or affect the credit assessment. Article 19 of the 2025 Measures stipulates that the following circumstances of a business entity shall not affect its tax and fee payment credit assessment:

1. Where the business entity’s failure to timely fulfill its tax and fee payment obligations was caused by the tax authority’s own fault or force majeure;
2. Where the failure to pay or underpayment of taxes and fees was caused by unintentional errors in the application of calculation formulas or obvious clerical mistakes;
3. Where the tax authority decides not to impose administrative penalties on the business entity in accordance with relevant regulations;
4. Other circumstances recognized by the State Taxation Administration as not affecting the tax and fee payment credit assessment.

Let us analyze the third item above as an example. Suppose an enterprise engaged in the illegal act of falsely issuing invoices to outside parties in 2020, and the tax authority established the facts in 2026. However, as the violation occurred five years ago, penalties can no longer be imposed. Accordingly, the tax authority would issue a Decision of Non-Penalty, recognizing the enterprise’s false invoicing violation but refraining from imposing penalties. Under Article 18(1) and Article 19(3) of the 2025 Measures, the enterprise’s false invoicing violation falls within the circumstances warranting a direct downgrade to Grade D. Although no penalty is imposed, this does not affect the credit assessment, and the tax bureau may still directly downgrade it to Grade D.

Now consider the first and second items above. In conjunction with Article 18(4) of the 2025 Measures, an enterprise that fails to pay taxes, late payment surcharges, and interest within the time limit prescribed in the tax authority’s tax collection notice may be directly determined as Grade D. Under the Tax Collection and Administration Law, the collection limitation period for underpaid taxes caused by the tax authority’s own fault is three years, and the limitation period for underpaid taxes caused by the taxpayer’s non-willful errors is five years. If the tax authority deliberately disregards the collection limitation period provisions and forcefully issues a tax collection disposition, the enterprise may argue that the limitation period has expired and refuse to pay. However, the legitimate grounds for refusing to pay taxes cannot preclude the tax credit assessment—the behavior of not paying taxes beyond the limitation period will still result in a mandatory direct downgrade to Grade D.

It is evident that the “unimpeded assessment” clause in Article 19 of the 2025 Measures has, to a certain extent, even breached the boundaries of tax collection authority and penalty authority as prescribed by the Tax Collection and Administration Law. The statutory grounds upon which a taxpayer may legitimately refuse to pay taxes or avoid penalties due to expiration of the collection limitation period or penalty limitation period cannot block the assessment consequence of having its tax credit directly downgraded to Grade D.

In summary, the circumstances warranting a direct determination of Grade D cover virtually all common enterprise tax risk points, including tax evasion, delinquent taxes, false invoicing, and tax fraud. Under the current 2025 Measures, once the tax authority initiates a tax audit against an enterprise based on the above-listed risk indicators and ultimately issues a disposition or penalty decision determining that the enterprise has committed violations such as tax evasion, false invoicing, or tax fraud, the tax authority will immediately downgrade the enterprise’s tax credit to Grade D without considering or waiting for the enterprise to pursue legal remedies such as administrative reconsideration or administrative litigation. Therefore, from the perspective of current practice, the fundamental reason why many enterprises are being notified by the Electronic Taxation Bureau of a direct downgrade to Grade D is that the case has been closed by the tax audit bureau with a determination of violations such as tax evasion or false invoicing. When an enterprise receives a tax disposition or penalty decision—or even a non-penalty decision—from the audit bureau that identifies violations such as false invoicing or tax evasion, it means that a notification of direct downgrade to Grade D will follow shortly. The author anticipates that the phenomenon of tax authorities routinely, on a large scale, and in large numbers directly downgrading enterprises’ tax credit to Grade D will continue to increase in the future.

02  What Impact Does a “Direct Downgrade to Grade D” of Tax Credit Have on Business Operations?

Under the 2025 Measures, there are two methods for evaluating an enterprise’s tax credit: one is rating based on annual assessment indicator scores, and the other is direct grade determination. Tax credit ratings are classified into five grades: A, B, M, C, and D. This means that some enterprises may receive a Grade D rating through the normal annual assessment process due to low indicator scores, while others may receive a direct Grade D determination regardless of their annual indicator scores as a result of the aforementioned triggering events. The subsequent consequences of these two scenarios differ.

Let us first examine the similarities. Regardless of whether the Grade D rating results from annual scoring or direct determination, the tax authority will adopt the following regulatory measures:

1. Directly assigning a Grade D rating to other business entities registered and managed by the directly responsible personnel after the original business entity was rated Grade D;
2. In conjunction with the risk assessment of the business entity, imposing quota and quantity limits on the receipt of special VAT invoices, restricting the quota of fully digitalized e-invoices (shudian fapiao); for ordinary invoices, implementing a system of returning (verifying) old invoices before issuing new ones, with strict quantity limits;
3. Including the entity on the key monitoring list and strengthening credit supervision;
4. Providing the Grade D assessment result to relevant government departments in accordance with law and regulations, and adopting other strict management measures as appropriate.

Now let us examine the differences. The distinction between receiving a Grade D rating through annual scoring and receiving it through a direct downgrade lies in the following: for a direct Grade D determination, the Grade D assessment is retained until the second year, and the enterprise may not be rated Grade A in the third year; for a Grade D rating based on annual scoring, only an additional 11-point deduction is applied in the following year’s assessment. It is evident that the core difference between the two lies in the pathways and methods for restoring the tax credit rating, which we will discuss further below.

03  Will an Enterprise’s Tax Credit Rating Be Publicly Disclosed and Available for Inquiry?

As mentioned above, the primary impact on an enterprise of having its tax credit directly downgraded to Grade D is the restriction on invoice usage and enhanced risk monitoring; it does not directly restrict the enterprise’s operational capacity. However, many enterprises are concerned about whether this credit rating result is publicly available, and whether it can be accessed by trading counterparts, government departments, banks, and other entities, which would in turn cause a series of adverse effects on the enterprise. Regarding the public disclosure status of enterprise tax credit rating results, the following basic facts should be understood.

1. Tax authorities proactively disclose taxpayers with a Grade A tax credit rating. Under the 2025 Measures, the tax authority will proactively publish the list and related information of taxpayers with a Grade A tax credit rating. This practice has been in place since the implementation of the 2014 Trial Measures, and the 2025 Measures have continued this practice. Currently, this information can be publicly queried through the official websites of tax authorities at all levels, the Credit China website, and other channels.
2. Enterprises can query their own tax credit rating through multiple channels. Under the 2025 Measures, when the status of an enterprise’s tax credit assessment changes, the tax authority may use appropriate means to notify and alert the business entity. Enterprises may log in to the Electronic Taxation Bureau to check their current tax credit assessment results. On March 20, 2026, the STA issued the Opinions on Launching the 2026 “Convenient Tax Service Spring Breeze Campaign”, which mentioned that convenient credit rating inquiry services would be provided this year, allowing enterprise legal representatives and responsible persons of individually-owned businesses to centrally query the tax credit ratings of business entities under their names through the Individual Income Tax APP.
3. Tax authorities do not proactively disclose information of non-Grade A taxpayers, but there are mechanisms for targeted information sharing and gradual opening. Under the 2025 Measures, the tax credit assessment results of non-Grade A taxpayers will be gradually opened by the tax authority based on the needs of the social credit system and in accordance with memoranda of understanding, agreements, and other arrangements for credit information sharing with relevant departments. Currently, the tax department has already shared the lists and related information of enterprises rated from Grade A through Grade D with banking financial institutions through the “Bank-Tax Interaction” (yinshui hudong) mechanism.

Furthermore, the rules underlying the Grade D taxpayer disclosure system under the 2016 Memorandum of Cooperation on Joint Disciplinary Measures Against Parties Involved in Major Tax Violation Cases have all been repealed and updated. Currently, the relevant ministries have not yet signed a new memorandum of cooperation. If the memorandum is updated, whether rules for the public disclosure of Grade D taxpayer information will be simultaneously formulated warrants attention.

Although the tax authority currently only publicly discloses the list of Grade A taxpayers and has not yet publicly disclosed the list of non-Grade A taxpayers, in practice, if an enterprise participates in bidding for major projects or government procurement projects, it is often required to provide its tax credit rating records for the past few years. Trading counterparts can also check whether the enterprise is on the Grade A taxpayer disclosure list. Therefore, once an enterprise’s tax credit rating is directly downgraded to Grade D, it will inevitably have a certain negative impact on its business operations. In addition, the financial sector’s targeted information sharing mechanism currently in effect will also impair the enterprise’s creditworthiness, exposing it to capital pressure and the risk of loan termination.

04  How to Restore a Tax Credit Rating After a Direct Downgrade to Grade D?

As previously mentioned, the restoration pathway for enterprises whose tax credit has been directly downgraded to Grade D involves a very lengthy time cycle. Under the 2025 Measures, an enterprise directly determined as Grade D will retain its Grade D tax credit in the second year, and its tax credit may not be rated as Grade A in the third year. The enterprise may submit a restoration application at the earliest before the determination of the second year’s tax credit rating. Annex 6 of the 2025 Measures, the Scope and Standards for Tax and Fee Payment Credit Restoration, sets forth different restoration standards and conditions for the various circumstances of a direct Grade D determination. Please refer to the following charts for details:

Suppose an enterprise is directly downgraded to Grade D in the year 2026. Its tax credit for the year 2027 will automatically be retained as Grade D, and the enterprise may submit a restoration application during the tax credit assessment period for the year 2027. Typically, the tax authority assesses the previous year’s tax credit rating before April of each year, which means the enterprise must complete the prescribed restoration actions and submit a restoration application to the tax authority before April 2028 in order to potentially change the Grade D assessment for the year 2027. However, the restored rating cannot be directly upgraded to Grade A; the highest achievable grade after restoration is Grade B. Moreover, the tax credit assessment for the year 2028 can also only reach a maximum of Grade B. It is not until the year 2029 that the enterprise may have the earliest opportunity to restore its rating to Grade A.

In February 2026, the STA officially published a news story titled “Yunnan: Compliant Operations Drive the Upgraded Development of the Flower Industry.” The Yunnan flower enterprise featured in the report had its tax credit directly downgraded to Grade D in 2018 due to having obtained falsely issued invoices. It was not until 2023 that the enterprise was able to restore its tax credit to Grade B, and it finally achieved a Grade A rating in 2024. This illustrates the lengthy nature of the tax credit restoration pathway. Prior to the restoration, the enterprise had also faced operational difficulties including restricted access to bidding, obstacles in applying for government projects, and difficulty obtaining credit from financial institutions.

In addition to the standard restoration pathway prescribed by the 2025 Measures, enterprises may, after ascertaining the reason for the direct downgrade to Grade D—for example, where the tax audit bureau has issued a tax disposition or penalty decision finding tax evasion or false invoicing—pursue legal remedies by challenging the tax disposition and tax penalty decisions through administrative reconsideration or administrative litigation. The enterprise may argue before the reconsideration authority or the court that the audit bureau’s determination of tax evasion or false invoicing violations is not established. If the reconsideration authority or court rules in the enterprise’s favor and revokes or modifies the audit bureau’s substantive determination, the basis for the direct downgrade to Grade D would no longer exist, and the enterprise may then demand that the tax authority immediately revoke the direct Grade D downgrade. Compared with the lengthy standard restoration pathway, this approach is more effective in addressing the root cause.

The author recommends that if an enterprise is directly downgraded to Grade D following the conclusion of a tax audit, it should weigh the feasibility of both restoration pathways and, where possible, pursue both measures simultaneously to achieve a faster restoration of its tax credit rating and to fundamentally resolve the tax dispute. The author also urges enterprises to place great importance on tax compliance in the current environment of stringent tax credit regulation, to steer clear of high-risk activities such as tax evasion, false invoicing, and tax fraud, and not to incur the damage of an irreparable tax credit rating by yielding to the short-term temptation of illicit gains, which would ultimately undermine the enterprise’s sustained and healthy development.

01  Why Is an Enterprise’s Tax Credit Rating Directly Downgraded to Grade D?

On May 16 of last year, the State Taxation Administration (STA) promulgated the Administrative Measures for Tax and Fee Payment Credit Management (STA Announcement No. 12 of 2025), which took effect on July 1, 2025. The implementation of the 2025 Measures resulted in the repeal of all nine normative documents issued by the STA since 2014 on tax credit management, making it a thorough institutional consolidation and systematic upgrade.

Pursuant to Article 18 of the 2025 Measures, if a business entity falls under any of the following circumstances, its tax credit rating shall be directly determined as Grade D:

1. Having committed tax violations such as evading the recovery of delinquent taxes, fraudulently obtaining export tax refunds, falsely issuing special VAT invoices, or fraudulently obtaining retained input tax credit refunds;
2. Having committed violations such as evading tax payments or falsely issuing invoices other than special VAT invoices, and having been referred to public security authorities or directly investigated by public security authorities;
3. Having committed tax evasion (evading tax payments) involving an amount of RMB 100,000 or more and accounting for 10% or more of the total taxes payable across all tax categories;
4. Failing to pay in full the taxes, interest, late payment surcharges, and penalties in accordance with the tax authority’s disposition within the prescribed time limit;
5. Refusing to pay taxes by means of violence or threats, or refusing or obstructing the tax authority’s lawful implementation of tax audit and enforcement actions;
6. Violating invoice management regulations, thereby causing other entities or individuals to underpay, fail to pay, or fraudulently obtain tax payments;
7. Providing false materials to fraudulently obtain tax incentives;
8. Having fraudulently obtained state export tax refunds and having had its export tax refund (exemption) eligibility suspended, with the suspension period not yet expired;
9. Having been identified as an abnormal taxpayer account (fei zhengchang hu) or an absconded (out-of-contact) taxpayer account;
10. Where a directly responsible person of an abnormal taxpayer account or an absconded (out-of-contact) taxpayer account has, after such identification, registered and assumed management responsibility for another business entity;
11. Where a directly responsible person of a Grade D business entity has, after such Grade D determination, registered and assumed management responsibility for another business entity;
12. Having been identified as a major tax-related violator on the dishonesty list;
13. Having other serious dishonesty circumstances as determined by the tax authority in accordance with law.

The practice of directly downgrading tax credit ratings is not an innovation of the 2025 Measures; similar provisions already existed in the 2014 trial version of the tax credit management measures. The specific circumstances for directly downgrading tax credit to Grade D are largely similar between the 2025 Measures and the 2014 Trial Measures. However, the key reason why enterprises have not paid much attention to this issue in the past, or have not felt its regulatory intensity or sting, lies in the fact that the 2014 Trial Measures contained a “non-assessment” rule for cases still under investigation without a conclusion and cases already subject to administrative reconsideration or litigation. The 2025 Measures, however, have deleted this rule. Let us examine the content of this deleted rule.

Article 17 of the now-repealed 2014 version of the Administrative Measures for Tax Credit Management (Trial) stipulated that taxpayers falling under any of the following circumstances shall not participate in the tax credit assessment for the current tax year:

1. The taxpayer has been under tax credit management for less than one assessment year;
2. The taxpayer has had no business operating income during the current assessment year;
3. The taxpayer is suspected of tax violations and the case has been filed for investigation but not yet concluded;
4. Tax violations have been discovered by audit or finance departments in accordance with law, and the tax authority is processing the matter in accordance with law, but the processing has not yet been completed;
5. The taxpayer has applied for administrative reconsideration or initiated administrative litigation, and the case has not yet been concluded.

Under the above-listed former provisions, if an enterprise was suspected of major tax violations such as tax evasion or false invoicing, it would not be included in the assessment scope as long as the case had not been concluded. After the tax authority determined the enterprise to have committed tax evasion or false invoicing and issued its disposition and penalty decisions to close the case, if the enterprise initiated administrative reconsideration or administrative litigation and the reconsideration or litigation case had not yet been adjudicated—i.e., no final effective decision or judgment had been rendered—the enterprise would likewise not be included in the assessment scope. Furthermore, if an enterprise was determined by the tax authority to have committed false invoicing, tax fraud, or tax evasion, and the enterprise neither initiated reconsideration nor litigation but instead voluntarily ceased all business operations and generated no income, it would paradoxically also trigger the non-assessment circumstance. Therefore, for a long period of time, the tax authorities did not routinely or on a large scale directly downgrade non-compliant enterprises to Grade D, and overall adopted a rather cautious approach. However, the 2025 Measures have not continued the aforesaid rules of the 2014 Trial Measures, which means that once the tax authority issues a disposition or penalty decision determining that an enterprise has committed violations such as tax evasion, false invoicing, or tax fraud, the enterprise’s tax credit will be directly downgraded to Grade D even if the enterprise files an appeal through administrative reconsideration or litigation.

Moreover, the 2025 Measures have not only discontinued the “non-assessment” rule of the 2014 Trial Measures but have also specifically emphasized that certain circumstances shall not preclude or affect the credit assessment. Article 19 of the 2025 Measures stipulates that the following circumstances of a business entity shall not affect its tax and fee payment credit assessment:

1. Where the business entity’s failure to timely fulfill its tax and fee payment obligations was caused by the tax authority’s own fault or force majeure;
2. Where the failure to pay or underpayment of taxes and fees was caused by unintentional errors in the application of calculation formulas or obvious clerical mistakes;
3. Where the tax authority decides not to impose administrative penalties on the business entity in accordance with relevant regulations;
4. Other circumstances recognized by the State Taxation Administration as not affecting the tax and fee payment credit assessment.

Let us analyze the third item above as an example. Suppose an enterprise engaged in the illegal act of falsely issuing invoices to outside parties in 2020, and the tax authority established the facts in 2026. However, as the violation occurred five years ago, penalties can no longer be imposed. Accordingly, the tax authority would issue a Decision of Non-Penalty, recognizing the enterprise’s false invoicing violation but refraining from imposing penalties. Under Article 18(1) and Article 19(3) of the 2025 Measures, the enterprise’s false invoicing violation falls within the circumstances warranting a direct downgrade to Grade D. Although no penalty is imposed, this does not affect the credit assessment, and the tax bureau may still directly downgrade it to Grade D.

Now consider the first and second items above. In conjunction with Article 18(4) of the 2025 Measures, an enterprise that fails to pay taxes, late payment surcharges, and interest within the time limit prescribed in the tax authority’s tax collection notice may be directly determined as Grade D. Under the Tax Collection and Administration Law, the collection limitation period for underpaid taxes caused by the tax authority’s own fault is three years, and the limitation period for underpaid taxes caused by the taxpayer’s non-willful errors is five years. If the tax authority deliberately disregards the collection limitation period provisions and forcefully issues a tax collection disposition, the enterprise may argue that the limitation period has expired and refuse to pay. However, the legitimate grounds for refusing to pay taxes cannot preclude the tax credit assessment—the behavior of not paying taxes beyond the limitation period will still result in a mandatory direct downgrade to Grade D.

It is evident that the “unimpeded assessment” clause in Article 19 of the 2025 Measures has, to a certain extent, even breached the boundaries of tax collection authority and penalty authority as prescribed by the Tax Collection and Administration Law. The statutory grounds upon which a taxpayer may legitimately refuse to pay taxes or avoid penalties due to expiration of the collection limitation period or penalty limitation period cannot block the assessment consequence of having its tax credit directly downgraded to Grade D.

In summary, the circumstances warranting a direct determination of Grade D cover virtually all common enterprise tax risk points, including tax evasion, delinquent taxes, false invoicing, and tax fraud. Under the current 2025 Measures, once the tax authority initiates a tax audit against an enterprise based on the above-listed risk indicators and ultimately issues a disposition or penalty decision determining that the enterprise has committed violations such as tax evasion, false invoicing, or tax fraud, the tax authority will immediately downgrade the enterprise’s tax credit to Grade D without considering or waiting for the enterprise to pursue legal remedies such as administrative reconsideration or administrative litigation. Therefore, from the perspective of current practice, the fundamental reason why many enterprises are being notified by the Electronic Taxation Bureau of a direct downgrade to Grade D is that the case has been closed by the tax audit bureau with a determination of violations such as tax evasion or false invoicing. When an enterprise receives a tax disposition or penalty decision—or even a non-penalty decision—from the audit bureau that identifies violations such as false invoicing or tax evasion, it means that a notification of direct downgrade to Grade D will follow shortly. The author anticipates that the phenomenon of tax authorities routinely, on a large scale, and in large numbers directly downgrading enterprises’ tax credit to Grade D will continue to increase in the future.

02  What Impact Does a “Direct Downgrade to Grade D” of Tax Credit Have on Business Operations?

Under the 2025 Measures, there are two methods for evaluating an enterprise’s tax credit: one is rating based on annual assessment indicator scores, and the other is direct grade determination. Tax credit ratings are classified into five grades: A, B, M, C, and D. This means that some enterprises may receive a Grade D rating through the normal annual assessment process due to low indicator scores, while others may receive a direct Grade D determination regardless of their annual indicator scores as a result of the aforementioned triggering events. The subsequent consequences of these two scenarios differ.

Let us first examine the similarities. Regardless of whether the Grade D rating results from annual scoring or direct determination, the tax authority will adopt the following regulatory measures:

1. Directly assigning a Grade D rating to other business entities registered and managed by the directly responsible personnel after the original business entity was rated Grade D;
2. In conjunction with the risk assessment of the business entity, imposing quota and quantity limits on the receipt of special VAT invoices, restricting the quota of fully digitalized e-invoices (shudian fapiao); for ordinary invoices, implementing a system of returning (verifying) old invoices before issuing new ones, with strict quantity limits;
3. Including the entity on the key monitoring list and strengthening credit supervision;
4. Providing the Grade D assessment result to relevant government departments in accordance with law and regulations, and adopting other strict management measures as appropriate.

Now let us examine the differences. The distinction between receiving a Grade D rating through annual scoring and receiving it through a direct downgrade lies in the following: for a direct Grade D determination, the Grade D assessment is retained until the second year, and the enterprise may not be rated Grade A in the third year; for a Grade D rating based on annual scoring, only an additional 11-point deduction is applied in the following year’s assessment. It is evident that the core difference between the two lies in the pathways and methods for restoring the tax credit rating, which we will discuss further below.

03  Will an Enterprise’s Tax Credit Rating Be Publicly Disclosed and Available for Inquiry?

As mentioned above, the primary impact on an enterprise of having its tax credit directly downgraded to Grade D is the restriction on invoice usage and enhanced risk monitoring; it does not directly restrict the enterprise’s operational capacity. However, many enterprises are concerned about whether this credit rating result is publicly available, and whether it can be accessed by trading counterparts, government departments, banks, and other entities, which would in turn cause a series of adverse effects on the enterprise. Regarding the public disclosure status of enterprise tax credit rating results, the following basic facts should be understood.

1. Tax authorities proactively disclose taxpayers with a Grade A tax credit rating. Under the 2025 Measures, the tax authority will proactively publish the list and related information of taxpayers with a Grade A tax credit rating. This practice has been in place since the implementation of the 2014 Trial Measures, and the 2025 Measures have continued this practice. Currently, this information can be publicly queried through the official websites of tax authorities at all levels, the Credit China website, and other channels.
2. Enterprises can query their own tax credit rating through multiple channels. Under the 2025 Measures, when the status of an enterprise’s tax credit assessment changes, the tax authority may use appropriate means to notify and alert the business entity. Enterprises may log in to the Electronic Taxation Bureau to check their current tax credit assessment results. On March 20, 2026, the STA issued the Opinions on Launching the 2026 “Convenient Tax Service Spring Breeze Campaign”, which mentioned that convenient credit rating inquiry services would be provided this year, allowing enterprise legal representatives and responsible persons of individually-owned businesses to centrally query the tax credit ratings of business entities under their names through the Individual Income Tax APP.
3. Tax authorities do not proactively disclose information of non-Grade A taxpayers, but there are mechanisms for targeted information sharing and gradual opening. Under the 2025 Measures, the tax credit assessment results of non-Grade A taxpayers will be gradually opened by the tax authority based on the needs of the social credit system and in accordance with memoranda of understanding, agreements, and other arrangements for credit information sharing with relevant departments. Currently, the tax department has already shared the lists and related information of enterprises rated from Grade A through Grade D with banking financial institutions through the “Bank-Tax Interaction” (yinshui hudong) mechanism.

Furthermore, the rules underlying the Grade D taxpayer disclosure system under the 2016 Memorandum of Cooperation on Joint Disciplinary Measures Against Parties Involved in Major Tax Violation Cases have all been repealed and updated. Currently, the relevant ministries have not yet signed a new memorandum of cooperation. If the memorandum is updated, whether rules for the public disclosure of Grade D taxpayer information will be simultaneously formulated warrants attention.

Although the tax authority currently only publicly discloses the list of Grade A taxpayers and has not yet publicly disclosed the list of non-Grade A taxpayers, in practice, if an enterprise participates in bidding for major projects or government procurement projects, it is often required to provide its tax credit rating records for the past few years. Trading counterparts can also check whether the enterprise is on the Grade A taxpayer disclosure list. Therefore, once an enterprise’s tax credit rating is directly downgraded to Grade D, it will inevitably have a certain negative impact on its business operations. In addition, the financial sector’s targeted information sharing mechanism currently in effect will also impair the enterprise’s creditworthiness, exposing it to capital pressure and the risk of loan termination.

04  How to Restore a Tax Credit Rating After a Direct Downgrade to Grade D?

As previously mentioned, the restoration pathway for enterprises whose tax credit has been directly downgraded to Grade D involves a very lengthy time cycle. Under the 2025 Measures, an enterprise directly determined as Grade D will retain its Grade D tax credit in the second year, and its tax credit may not be rated as Grade A in the third year. The enterprise may submit a restoration application at the earliest before the determination of the second year’s tax credit rating. Annex 6 of the 2025 Measures, the Scope and Standards for Tax and Fee Payment Credit Restoration, sets forth different restoration standards and conditions for the various circumstances of a direct Grade D determination. Please refer to the following charts for details:

Suppose an enterprise is directly downgraded to Grade D in the year 2026. Its tax credit for the year 2027 will automatically be retained as Grade D, and the enterprise may submit a restoration application during the tax credit assessment period for the year 2027. Typically, the tax authority assesses the previous year’s tax credit rating before April of each year, which means the enterprise must complete the prescribed restoration actions and submit a restoration application to the tax authority before April 2028 in order to potentially change the Grade D assessment for the year 2027. However, the restored rating cannot be directly upgraded to Grade A; the highest achievable grade after restoration is Grade B. Moreover, the tax credit assessment for the year 2028 can also only reach a maximum of Grade B. It is not until the year 2029 that the enterprise may have the earliest opportunity to restore its rating to Grade A.

In February 2026, the STA officially published a news story titled “Yunnan: Compliant Operations Drive the Upgraded Development of the Flower Industry.” The Yunnan flower enterprise featured in the report had its tax credit directly downgraded to Grade D in 2018 due to having obtained falsely issued invoices. It was not until 2023 that the enterprise was able to restore its tax credit to Grade B, and it finally achieved a Grade A rating in 2024. This illustrates the lengthy nature of the tax credit restoration pathway. Prior to the restoration, the enterprise had also faced operational difficulties including restricted access to bidding, obstacles in applying for government projects, and difficulty obtaining credit from financial institutions.

In addition to the standard restoration pathway prescribed by the 2025 Measures, enterprises may, after ascertaining the reason for the direct downgrade to Grade D—for example, where the tax audit bureau has issued a tax disposition or penalty decision finding tax evasion or false invoicing—pursue legal remedies by challenging the tax disposition and tax penalty decisions through administrative reconsideration or administrative litigation. The enterprise may argue before the reconsideration authority or the court that the audit bureau’s determination of tax evasion or false invoicing violations is not established. If the reconsideration authority or court rules in the enterprise’s favor and revokes or modifies the audit bureau’s substantive determination, the basis for the direct downgrade to Grade D would no longer exist, and the enterprise may then demand that the tax authority immediately revoke the direct Grade D downgrade. Compared with the lengthy standard restoration pathway, this approach is more effective in addressing the root cause.

The author recommends that if an enterprise is directly downgraded to Grade D following the conclusion of a tax audit, it should weigh the feasibility of both restoration pathways and, where possible, pursue both measures simultaneously to achieve a faster restoration of its tax credit rating and to fundamentally resolve the tax dispute. The author also urges enterprises to place great importance on tax compliance in the current environment of stringent tax credit regulation, to steer clear of high-risk activities such as tax evasion, false invoicing, and tax fraud, and not to incur the damage of an irreparable tax credit rating by yielding to the short-term temptation of illicit gains, which would ultimately undermine the enterprise’s sustained and healthy development.