Recently, in the case of Mr. X, who was suspected of issuing fraudulent VAT invoices and was represented by our firm’s attorney Li Song, the procuratorate ultimately decided not to prosecute after nearly two years of litigation. The moment the client received the notice of non-prosecution, the weight that had been on his mind for so long finally lifted, and he felt a great sense of relief. The prolonged anxiety, unease, and torment vanished, replaced by the relief of regaining his innocence and peace of mind regarding his future. Through in-depth analysis and professional, efficient handling of the case, the defense attorney effectively safeguarded the client’s stability in both work and personal life.
I. Swift Intervention During the Investigation Phase Secures Client’s Temporary Release
After accepting the case, the defense attorney visited the detention center multiple times to meet with Mr. X, who was under criminal detention, to gather case details. Through lawful communication with the investigating officer, the following facts of the case were established:
Mr. X was an employee in the finance department of Company A. At the time of the incident, acting on the instructions of the company’s management, X liaised with an intermediary and, as directed by the intermediary, made payments totaling over 3 million yuan (including tax) to Company B—a sum that included nearly 300,000 yuan in taxes. Subsequently, Company B issued special VAT invoices to Company A, and the relevant invoices were all claimed as tax credits the following month. Several years later, Company B was placed under criminal investigation for issuing fraudulent invoices to multiple companies, and this case entered the judicial process.
After confirming the facts with Mr. X, the defense attorney determined that while there was little dispute regarding the factual circumstances of the case, there was room for interpretation regarding the legal characterization of the offense. Furthermore, Mr. X possessed multiple mitigating factors that could lead to a lighter or reduced sentence. Based on this, the attorney actively coordinated the repayment of the tax arrears, and by the time the case entered the pre-arrest review period, all taxes involved had been fully repaid. Simultaneously, the defense attorney submitted relevant defense arguments to the procuratorate, articulating their position and conducting extensive defense work regarding the legal characterization of the crime, the amount involved, and the circumstances of the offense.
Ultimately, on the final day of the arrest review period, the procuratorate decided not to approve the arrest of Mr. X, and his coercive measures were changed to release on bail pending trial. The defense attorney’s work was highly praised by both the family and the suspect himself.
II. Further Analysis During the Prosecution Review Stage: Submitting Opinions on Legal Characterization and Seeking Exoneration
After reviewing the case files, the attorney confirmed that the facts of the case were consistent with the allegations made by the investigative authorities. However, the attorney argued that this was a typical case of “purchasing special VAT invoices to offset input tax,” which should be classified as tax evasion. Based on this premise, the attorney submitted the following legal opinions:
(1) This Case Should Not Be Classified as the Crime of Issuing False Special VAT Invoices
The crime of issuing false special VAT invoices requires differentiated treatment due to variations in subjective intent, severity of consequences, and social harmfulness. This case is a relatively typical “purchasing special invoices to offset input tax” case. 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”), this case should be classified as suspected tax evasion rather than the crime of issuing fraudulent VAT special invoices.
In practice, there is significant controversy regarding the interpretation and application of the crime of issuing fraudulent VAT special 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 has clarified: “Where a taxpayer, within the scope of their tax obligations, reduces tax payable by falsely offsetting input tax credits—even if the means employed involve the issuance of fraudulent invoices—but the subjective intent remains to evade or reduce tax liability, the case should be treated as tax evasion in accordance with the principle of the unity of subjective and objective elements. 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, the act of falsely claiming input tax credits for the purpose of tax evasion, although it involves fraudulent claims, is ultimately motivated by the intent to avoid or reduce tax liability. In other words, the taxpayer’s purpose in falsely claiming input tax credits is, at its core, to evade taxes within the scope of their taxable obligations.”
Company A, the entity involved in this case, is a business with legitimate tax obligations and a long-standing, stable operation as a private enterprise; it is not a shell company. Within the scope of its tax obligations, the company reduced its tax liability by inflating input tax credits. Even though it employed the means of issuing fraudulent invoices for tax credits, its subjective intent was still to reduce tax liability. Furthermore, the act of falsely claiming input tax credits merely served to evade a portion of the corporate income tax it was obligated to pay. In accordance with the principle of unifying subjective intent and objective conduct, the case should be prosecuted as tax evasion rather than the crime of issuing fraudulent special VAT invoices; otherwise, there would be a clear mismatch between the offense, culpability, and punishment.
(2) Regardless of the charge, the circumstances surrounding X’s case warrant exemption from criminal punishment
First, X qualifies as an accessory to the crime. He merely passively followed the arrangements and instructions of his superiors, participating in the relevant acts out of necessity. He was not the instigator of the criminal intent nor did he actively seek to bring about the harmful consequences. His primary duties remained within the scope of normal financial work, and the income he received from Company A constituted lawful compensation for his labor; he did not derive any additional economic benefits from the relevant facts. Furthermore, throughout the entire process, X only participated in the portion involving the routing of funds and did not participate in the invoicing or tax credit deduction processes. In judicial practice, individuals who, acting under the arrangements of the actual controller, provide assistance such as routing funds, reviewing documents, or forging contracts during the process of issuing fraudulent VAT special invoices—but who are not the initiators of the criminal intent nor the principal perpetrators of the fraudulent issuance and play a secondary role—should be deemed accomplices. Consequently, they may be eligible for a lighter, reduced, or exempted punishment.
Second, Mr. X has demonstrated circumstances such as voluntary surrender and a willingness to plead guilty and accept punishment; considering the case details, he may be exempted from criminal punishment.
Third, Company A has been actively cooperating with tax inspection authorities and has fully paid the back taxes and surcharges. Given that the damaged legal relationships have been remedied to a certain extent, leniency may also be granted to the individuals involved.
III. After the Storm Comes the Calm: Client Secures Decision of Non-Prosecution
Before the expiration of the review and prosecution phase, the procuratorate, after a comprehensive review of the facts, evidence, and the professional defense arguments submitted by the attorney, issued a decision of non-prosecution against X. X went from anxiety and unease to a sense of immense relief, and from fear of imprisonment to finally receiving the decision of non-prosecution. The client truly felt the warmth of the rule of law and the power of professional defense. The lawyer’s effective defense prevented criminal prosecution, safeguarding the client’s innocence and freedom. The successful resolution of this case not only embodies judicial fairness but also serves as a powerful testament to the value of professional criminal defense.
