Recently, in the case of Mr. Z, who was suspected of issuing fraudulent VAT invoices and was represented by our firm’s attorney Li Song, the investigative authorities determined that there was no evidence of criminal activity and decided to terminate the investigation. The termination of the investigation means that the case has been concluded at the investigative stage, and the client has not committed a crime and bears no criminal record. With this outcome, Mr. Z felt a great weight lifted from his shoulders, expressing relief at regaining his innocence and peace of mind regarding his future. The case has been fully resolved, and the work of the King&Capital Law Firm has received full recognition from the client and his family.
Looking back on the case, after accepting the family’s retainer, the defense attorney was unable to review the case files because the investigation was still ongoing. The defense attorney therefore traveled to the location multiple times to meet with Mr. X, who was under criminal detention at the detention center. While providing legal assistance, the attorney gathered information about the case from him and communicated with the investigating officers in accordance with the law to understand the details of the case. Through these efforts, it was determined that Mr. Z had only played an introductory role in the overall conduct, had no knowledge of the actual operations upstream or downstream, and did not possess the requisite criminal intent.
In response, the defense attorney submitted an application for release on bail and a written defense brief, requesting that the investigating authorities modify the coercive measures in this case, and presented a written legal opinion stating that Z might not have committed a crime. The main points of the opinion were as follows:
Z played only an introductory role in the overall conduct, had no knowledge of the actual operations upstream or downstream, and did not necessarily possess criminal intent subjectively. Furthermore, according to the latest relevant judicial interpretations, the act of falsely offsetting input tax amounts constitutes an offense under the crime of tax evasion. Since the issuance of fraudulent VAT special invoices varies in terms of subjective intent, consequences, and social harmfulness, it requires differentiated treatment. According to the “Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harm to Tax Administration” (Fa Shi [2024] No. 4) (hereinafter referred to as the “Interpretation”), the fraudulent offsetting of input tax credits should be regarded as one of the “means of deception or concealment” under the crime of tax evasion. If, in this case, the taxpayer who received the invoice, within the scope of their tax obligations, offsets input tax credits through fraudulent means to reduce tax payments, even if they employed the method of fraudulent issuance and offsetting, but their subjective intent was still to avoid or reduce tax payments, then in accordance with the principle of consistency between subjective intent and objective conduct, they should be charged with the crime of tax evasion.
In practice, there is significant controversy regarding the interpretation and application of the crime of issuing fraudulent special VAT invoices; however, the most critical distinction between this crime and the crime of tax evasion lies in whether the subjective intent is based on the intent to defraud the state of tax revenue or on the purpose of evading tax obligations. In its interpretation and application of the “Interpretation,” the Supreme People’s Court explicitly states: “Where a taxpayer, within the scope of their tax obligations, reduces tax liability by claiming input tax credits based on fraudulent invoices, even if the means employed involve the issuance of fraudulent invoices, the subjective intent remains to evade or reduce tax liability. In accordance with the principle of consistency between subjective intent and objective conduct, such acts should be treated as tax evasion. This is also the rationale behind Article 1, Paragraph 1, Item 3 of the Interpretation, which lists ‘falsely offsetting input tax’ as one of the ‘means of deception or concealment’ constituting the crime of tax evasion.” It is evident, therefore, that the Criminal Law defines the crime of tax evasion based on the essence of evading tax obligations. Regardless of whether the perpetrator employs fraudulent or concealment methods in advance to avoid or reduce tax payments, or whether they first pay taxes and then fraudulently reclaim the paid amounts, the Criminal Law classifies both as tax evasion, rather than classifying the latter as tax fraud. By the same token, although the act of falsely claiming input tax credits to evade taxes involves fraudulent practices, the underlying motive remains to avoid or reduce tax payments. In other words, the taxpayer’s purpose in falsely claiming input tax credits is, ultimately, to evade taxes within the scope of their taxable obligations.” It is argued that if the company involved in this case, within the scope of its tax obligations, reduces its tax liability by falsely inflating input tax credits for deduction, Even if the means employed involved fraudulent issuance and deduction, the subjective intent was still to reduce tax liability. Therefore, based on the principle of the unity of subjective and objective elements, the act should be treated as tax evasion.
Furthermore, since Z acted as an intermediary in this case, the defense counsel argued that the act of introducing others to issue fraudulent invoices is not independent in nature. It occupies a secondary and auxiliary role in the overall criminal process of issuing fraudulent tax invoices and constitutes an act of assistance that lacks independent criminal significance. In determining the criminal liability for the act of introducing others to issue fraudulent invoices, the primary and secondary roles of the act must be assessed comprehensively and flexibly in light of the full circumstances of the case. The determination of principal and accessory roles should be analyzed by evaluating whether the introducer was the initiator of the criminal intent or the organizer of the crime, as well as the extent of their role throughout the entire criminal process. It is essential to examine whether the introducer acted proactively or was merely commissioned; whether they actively facilitated communication and coordination between the recipient and the issuer, or merely provided introductions and information. Based on the facts, nature, circumstances, and degree of social harm of the act of introducing others to issue fraudulent invoices, the specific conduct of the introducer throughout the entire criminal process must be comprehensively considered, and this should serve as the basis for conviction and sentencing.
In this case, Z acted upon the request of others. The invoice recipient, seeking to profit by evading national taxes, sought the broker’s assistance to introduce and connect them with an issuer possessing the necessary qualifications to issue invoices, thereby achieving the goal of issuing fraudulent tax invoices. In this scenario, the introducer did not act on their own initiative but passively followed others’ instructions or persuasion to facilitate introductions. They did not participate in the issuance of fraudulent invoices but merely served as a conduit between the parties involved, thereby receiving a small share of the profits or a fixed brokerage fee. Consequently, they did not play a decisive role in the issuance of fraudulent tax invoices. Their subjective intent and objective conduct should be evaluated strictly in accordance with the principle of legality in criminal law.
Subsequently, the public security authorities did not seek approval for Z’s arrest and decided to release him on bail pending investigation, allowing Z to regain his freedom temporarily. During the subsequent investigation, the defense attorney continued to assist Z in organizing the case-related accounts and other tasks, further strengthening his understanding and conviction regarding the defense arguments. Several months after being released on bail, the investigative authorities ultimately determined that there were no criminal facts against Z and issued a “Decision to Terminate the Investigation.” The termination of the investigation not only constitutes a legal exoneration but also serves as the greatest solace for the client’s physical and mental anguish. Beyond the immense sense of relief, the client felt a profound sense of vindication as the injustice was cleared. After months of tension, his nerves finally relaxed, and he regained the confidence and resilience to move forward with his life. With this, the case was successfully concluded. The defense attorney identified the key breakthrough in the case through professional advocacy, effectively advanced the proceedings, and ultimately achieved a substantive acquittal, fully demonstrating the professional competence and sense of responsibility of a criminal defense attorney.
Translated with DeepL.com (free version)
