Editor’s Note:China’s road transportation industry continues to rely heavily on individual drivers and self-employed operators as the principal carriers that actually perform transportation services. In practice, transportation enterprises acting as intermediaries in the transportation chain are often unable to obtain invoices from individual drivers. At the same time, they are required to issue transportation service invoices to consignors. This mismatch—output VAT invoices without corresponding input VAT invoices—can result in a substantial tax burden. In recent years, new business models have emerged, including asset-light carrier operations conducted through online freight platforms. However, deficiencies such as non-standardized business processes and inadequate tax compliance systems have contributed to frequent cases involving the fraudulent issuance of invoices. By examining the principal invoice-related tax risks in the transportation industry, this article provides corresponding compliance recommendations for transportation enterprises.

01 Causes of Invoice-Related Tax Risks in the Transportation Industry and Regulatory Trends

Recently, the tax authorities in Jiangxi Province disclosed two representative cases involving tax violations in the transportation industry. In the first case, a transportation enterprise fraudulently issued special value-added tax invoices to external parties and charged invoicing fees despite there being no genuine underlying transportation transactions. In the second case, a transportation enterprise engaged in legitimate business operations accepted fraudulently issued invoices to inflate its costs and reduce its tax liabilities because it lacked sufficient supporting documentation for its actual expenses. The coordinated disclosure of these two cases sends a clear signal that the tax authorities will continue to intensify their scrutiny of fraudulent invoicing and tax evasion in the transportation industry.

The causes of tax-related risks in the transportation industry are multifaceted. First, although the industry relies heavily on numerous individual drivers and self-employed operators, their willingness to issue invoices remains extremely low, resulting in a high overall tax burden for the industry. China’s road transportation sector continues to operate under a structure in which a large number of natural persons and self-employed drivers serve as the actual carriers. However, many individual drivers have limited tax awareness. Moreover, applying to the tax authorities for invoices on an ad hoc basis generally requires temporary tax registration. Individual drivers therefore have little incentive to voluntarily file tax returns and pay the relevant taxes. At the same time, consignors typically require transportation enterprises to issue transportation service invoices subject to a 9% VAT rate. Transportation enterprises caught in the middle of the transaction chain consequently incur output VAT without corresponding input VAT credits, thereby bearing a substantial tax burden. Second, some online freight platforms have inadequate tax compliance systems and non-standardized business processes. The asset-light carrier model adopted in the transportation industry is generally operated through online freight platforms. However, deficiencies in the tax compliance frameworks and operational procedures of certain platforms may give rise to significant tax risks. For example, waybills retained by an online freight platform may fail to satisfy regulatory requirements, transportation routes may be untraceable, or inadequate payment technology may prevent freight charges from being settled in real time, potentially resulting in circular or backflow transactions. Third, multi-party operating arrangements involving individual drivers, transportation enterprises, and online freight platforms may also raise questions regarding the commercial rationale and authenticity of the underlying transactions.

As tax administration becomes increasingly digitalized and intelligent, tax supervision of the transportation industry has evolved into a look-through review of enterprises’ operational capacity, cost structures, transportation records, and fund flows. Tax authorities may identify irregularities by cross-checking an enterprise’s revenue, costs, tax filings, upstream and downstream invoices, and the typical expense structure of the industry. They may then conduct further verification by examining contracts, vehicle and driver information, transportation routes, waybills, transportation documents, and bank transaction records. Because logistics transactions involve multiple business entities, once an invoicing enterprise or online freight platform is found to have engaged in fraudulent invoicing, the associated risks may be transmitted along the invoice chain to downstream invoice recipients. Against the backdrop of increasingly extensive cross-regional tax investigations and strengthened whole-chain supervision, transportation enterprises should reassess their business models, invoice chains, and practices for retaining supporting documentation and transaction evidence.

02 Tax Risks Arising from Invoices Issued by Transportation Enterprises

(I) Issuing Invoices Without Genuine Underlying Transactions or Beyond the Scope of Actual Business

The principal tax risk associated with invoices issued by transportation enterprises is a discrepancy between the information stated on the invoices and the actual business transactions. Depending on the extent of the discrepancy, the main circumstances include issuing invoices where no genuine transportation services have been provided, and issuing invoices in excess of the scope or value of transportation services actually provided.

First, a transportation enterprise may fabricate transactions and issue invoices to external parties despite having no genuine underlying transportation business. For example, in the false-invoicing case involving Jiangxi Tengbang and Guobang Logistics, the two companies issued invoices without actually providing transportation services. By fabricating transportation contracts, they charged “invoicing fees” ranging from 4% to 7.5% of the invoiced amounts and fraudulently issued 2,161 special VAT invoices with a total value of RMB 201 million. Following an investigation, the tax authorities found a clear mismatch between the companies’ operational capacity and the scale of invoices issued, as well as abnormalities in their cost structures. In addition, after the invoice recipients paid the purported “freight charges,” the funds were returned through personal bank accounts after the invoicing fees had been deducted. In May 2024, the tax authorities determined that the relevant invoices had been fraudulently issued and referred the case to the public security authorities. In November of the same year, both de facto controllers were sentenced to ten years’ imprisonment for the crime of fraudulently issuing special VAT invoices. Second, genuine transportation services may have been provided, but the amount or particulars stated on the invoices exceed the scope of the actual transactions. For example, although an invoice recipient may have conducted genuine transportation activities, it may seek to reduce its tax liabilities by inflating the number of transportation trips, cargo tonnage, transportation distance, or settlement price, thereby causing the transportation enterprise to issue invoices exceeding the scope or value of the actual services provided. In such circumstances, the portion of the invoiced amount exceeding the genuine transaction may be characterized as fraudulent invoicing.

In addition, in recent years, tax-related cases involving online freight platforms—such as a Sichuan-based company referred to as “Yida” and the Xi’an-based “Yunmoudi” platform—have successively entered administrative or criminal proceedings. These cases commonly involve substantial amounts, numerous invoice recipients, cross-regional business operations, and the rapid transmission of risk along the invoice chain. In practice, some platforms have deviated from the proper business function of online freight services, reducing transportation services that they should have undertaken to mere invoice-issuing services. Typical practices include fraudulently issuing invoices in the absence of genuine transportation transactions, as well as retrospectively entering into the platform transportation services that invoice recipients had already completed offline, solely for the purpose of matching or issuing invoices on their behalf. Some cases also involve perfunctory platform reviews, the rapid inflow and outflow of purported freight payments, and the return or circular flow of funds. Where the tax authorities determine that a platform merely provided invoice-issuing services without genuine underlying transactions, the relevant parties may be held administratively or even criminally liable for fraudulent invoicing. The resulting risks may also extend further downstream to the enterprises receiving the invoices.

(II) Retrospectively Obtaining Invoices for Completed Transactions

In practice, some transportation enterprises enter directly into transportation contracts with individual drivers. The drivers complete the transportation assignments and receive the corresponding freight payments, thereby bringing the transportation services to an end. However, because the individual drivers are unable to provide invoices, the transportation enterprises may, when required to issue invoices to their customers, make a second payment of the freight charges through another transportation enterprise or freight platform in order to obtain invoices as supporting documentation for input VAT credits and corporate income tax deductions. Where such arrangements involve the rapid inflow and outflow of freight payments or the return of funds, they are also likely to be characterized as fraudulent invoicing. It should be clarified, however, that a “retrospectively obtained” invoice in this context refers to an invoice obtained only after the transportation enterprise and the individual driver have fully completed the transportation transaction, including the carriage of the goods and payment of the freight charges.

By contrast, in certain business arrangements, an individual driver may conduct transportation activities through affiliation with a freight platform, forming a driver–freight platform–transportation enterprise structure. Where the freight platform manages the transportation information and pays the freight charges to the driver, the arrangement should not be characterized as the retrospective issuance or procurement of an invoice merely because the platform uploads the transportation information to its system after the transportation service has taken place.

03 Different Tax Treatments for Invoice-Receiving Enterprises Suspected of Fraudulent Invoicing

In practice, once an upstream enterprise is found to have fraudulently issued invoices, the tax authorities will typically conduct coordinated investigations or initiate formal tax inspections of downstream invoice recipients along the invoice chain. Based on prevailing practice, invoice-receiving enterprises may principally face the following different tax treatments:

(I) Invoices Issued by an Upstream Enterprise Under a Genuine Affiliation Arrangement: Lawful Receipt of Invoices by the Invoice Recipient

Where an individual driver and a freight platform or other relevant entity have genuinely agreed to establish an affiliation arrangement, and can demonstrate that their business activities were conducted in accordance with that arrangement and that the relevant procedures satisfied the applicable requirements, the legality of the invoice issued by the freight platform as the affiliated entity should be recognized. In such circumstances, the invoice recipient has lawfully obtained the invoice and is not required to make any corresponding tax adjustment.

(II) Treatment as a Bona Fide Acquisition, with the Invoice Recipient Required Only to Pay Additional VAT

Where a genuine transportation transaction exists between the invoice recipient and the invoice issuer, the seller, service description, amount, VAT amount, and other particulars stated on the invoice are consistent with the actual transaction, and there is no evidence that the invoice recipient knew or should have known that the invoice had been fraudulently issued, the tax authorities may treat the case as a bona fide acquisition of a fraudulently issued special VAT invoice. In such circumstances, the relevant input VAT generally may no longer be credited. Any input VAT that has already been credited must be reversed, but no late-payment surcharge will be imposed. For corporate income tax purposes, where the enterprise can demonstrate that the transportation expenses satisfy the requirements of authenticity, relevance, and reasonableness for pre-tax deduction, it should be permitted to deduct the expenses on an actual basis before tax.

(III) Treatment as the Acquisition of a Non-Compliant Invoice, Requiring Input VAT Reversal and the Imposition of Late-Payment Surcharges

Some invoice recipients may have genuinely received transportation services but may be unable to fully satisfy the conditions for treatment as a bona fide acquisition because of defects relating to the identity of the invoice issuer, the manner in which the invoice was obtained, or the transaction process. At the same time, where the tax authorities lack sufficient evidence to establish that the enterprise had the subjective intent to engage in fraudulent invoicing, improperly claim input VAT credits, or inflate costs, the enterprise may instead be found to have obtained a non-compliant VAT deduction document. In such circumstances, the enterprise will generally be required to pay the underpaid VAT, reverse the relevant input VAT credits, and pay late-payment surcharges.

(IV) Receipt of Fraudulently Issued Invoices Characterized as Tax Evasion or Fraudulent Invoicing, Potentially Triggering Criminal Liability

Where an invoice-receiving enterprise obtains invoices for the purpose of avoiding or reducing tax liabilities by paying service fees, providing vehicle and driver information, retrospectively entering orders, preparing false contracts, or using similar means, and then uses those invoices to claim input VAT credits or inflate deductible costs, its conduct may be characterized as tax evasion. In such circumstances, the enterprise may be required to pay the underpaid tax and late-payment surcharges and may also be subject to administrative fines. Where, in the absence of genuine underlying transactions, an invoice-receiving enterprise initiates a request for invoices for the purpose of fraudulently claiming tax credits, negotiates the applicable “invoice fee rate,” fabricates contracts and settlement documents, or arranges for funds to be returned, the tax authorities may characterize the conduct as fraudulent invoicing under the Measures for the Administration of Invoices. Where the conduct is suspected of constituting a criminal offense, the case will also be referred to the public security authorities.

Once criminal proceedings are initiated, the enterprise and the relevant responsible persons may face charges such as fraudulently issuing special VAT invoices, illegally purchasing special VAT invoices, or other tax-related offenses. The specific charge will depend on factors including the objective facts, the parties’ subjective intent, the extent of their participation, and the amount of tax loss caused.

04 Tax Compliance Recommendations for Transportation Enterprises

(I) Improving the Tax Compliance Management Framework

Logistics enterprises should, in light of their operational scale and the complexity of their business activities, clearly define the responsibilities of their business, finance, legal, and tax functions in relation to contract review, transportation management, fund payments, and invoice administration. For material transactions, new business models, and matters involving unusual invoices, enterprises should establish a cross-functional review mechanism. Where an enterprise lacks sufficient in-house expertise, it may engage external tax professionals to participate in the risk review process.

In addition, logistics enterprises with branches, subsidiaries, or regional operating entities should strengthen centralized management and oversight by their headquarters and regularly review or conduct spot checks on the business operations and tax compliance of their subordinate entities. Fraudulent invoicing, tax evasion, or similar violations committed by a branch or other subordinate entity may not only give rise to liability for that entity itself, but may also adversely affect the parent company’s tax credit standing, operational management, and overall risk assessment.

(II) Establishing a “One Shipment, One File” Transportation Evidence Chain

Logistics enterprises should retain a complete set of supporting documents for each individual shipment or clearly identifiable batch of shipments. Such documents may include transportation contracts, freight orders, vehicle and driver information, loading, unloading and receipt records, transportation tracking data, toll and passage records, freight settlement documents, bank payment records, and invoice verification records. Different transportation models need not mechanically maintain an identical set of documents. However, each enterprise should establish a body of mutually corroborating evidence capable of demonstrating who undertook the business, who actually performed the transportation services, how the services were completed, how the freight charges were calculated, and to whom the payments were ultimately made. The particulars stated on each invoice should also correspond to the relevant underlying transaction on a transaction-by-transaction basis. An enterprise should not rely solely on the fact that the goods were actually transported as proof of invoice compliance. It must also ensure that the description, quantity, amount, and VAT stated on the invoice are consistent with the relevant contracts, orders, transportation records, and settlement documents.

(III) Conducting Substantive Due Diligence on Freight Platforms

When cooperating with a freight platform, a logistics enterprise should focus on determining the platform’s actual role in the relevant transactions—namely, whether it acts as the actual carrier, organizes transportation capacity, or merely provides information-matching, settlement, or tax-related services. The enterprise should also verify whether the platform genuinely accepts transportation engagements, organizes and dispatches vehicles and drivers, assumes carrier liability, and bears the risk of cargo loss or damage. In addition, enterprises conducting transportation activities through freight platforms should ensure that the platform orders, vehicle and driver information, transportation tracking records, payments made by the enterprise, and invoiced amounts are mutually consistent and can be cross-verified.

(IV) Establishing Mechanisms for Periodic Self-Review and the Resolution of Tax Disputes

Transportation enterprises should periodically review their business models, the issuance and receipt of invoices, the collection and payment of funds, and the recognition and deduction of costs. Where defects are identified in business processes or there is a potential underpayment of tax, the enterprise should promptly improve and supplement the relevant supporting evidence in light of the specific circumstances and assess whether it is necessary to file a supplementary tax return and pay any additional tax due. Where an enterprise discovers that an invoice issued by an upstream enterprise has been classified as an abnormal VAT deduction document, or receives a notice of a coordinated tax investigation or formal tax inspection, it should promptly suspend any new business cooperation with the relevant party. It should also comprehensively collect and properly preserve contracts, orders, transportation tracking records, proof of delivery, settlement documents, and bank transaction records, and reconstruct the relevant business process and flow of funds on a transaction-by-transaction basis.

For payments that may be regarded as returned or circular funds, the enterprise should ascertain their genuine purpose and commercial rationale and prepare the corresponding supporting documentation. For material matters that may involve fraudulent invoicing, tax evasion, or similar violations, the enterprise should seek assistance from professional advisers at an early stage, promptly review the underlying transactions, and conduct a comprehensive risk assessment. The enterprise should separately evaluate the risks of additional tax payments, administrative penalties, and criminal liability, and activate the appropriate tax dispute resolution mechanism according to the circumstances of each case.