CHINA Law and Practice Contributed by: Mei Zhang, DaHui Lawyers
Tax Fraud Fraudulently obtaining export tax refunds constitutes a serious offence that undermines national fiscal rev - enue and is subject to severe legal consequences. The penalties for such acts are set out in Article 204 of the Criminal Law, summarised as follows: • If the amount involved is large, the perpetrator(s) will be sentenced to fixed-term imprisonment of no more than five years or criminal detention, and will also be fined no less than once, but not more than five times the amount defrauded. • If the amount involved is huge, or if there are other serious circumstances, the perpetrators will be sentenced to fixed-term imprisonment of no less than five years, but not more than ten years and will also be fined no less than once, but not more than five times the amount defrauded. • If the amount involved is especially huge, or if there are other especially serious circumstances, the perpetrators will be sentenced to fixed-term imprisonment of no less than ten years and up to life imprisonment, and will also be fined up to five times the amount defrauded or be sentenced to confiscation of property. Related offence: issuing false invoices Under Article 205 of the Criminal Law, penalties for issuing false invoices are specified as follows: • Whoever generates false VAT invoices or any other invoices to defraud a tax refund for exports or to offset tax money, will be sentenced to prison for a maximum of three years, or criminal detention, and will also be fined at least RMB20,000, but not more than RMB200,000. • If an egregious amount of money is involved or if there are other serious circumstances, the perpe - trator will be sentenced to fixed-term imprisonment of at least three years but not more than ten years, and will also be fined at least RMB50,000, but not more than RMB500,000. • If the amount of money involved is huge, or if there are other especially serious circumstances, the perpetrator will be sentenced to fixed-term impris - onment of at least ten years, or life imprisonment, and will also be fined at least RMB50,000, but not
more than RMB500,000 or be sentenced to confis - cation of property. Tax Evasion According to Article 201 of the Criminal Law, if a tax - payer or withholding agent evades payment of tax through deception or concealment such as false dec - larations or failure to declare, the following penalties will apply: • Anyone who evades a substantial amount of tax, exceeding 10% of the tax payable and over RMB10,000 but under RMB100,000, or who com - mits tax evasion again, after having been twice subjected to administrative sanctions by the tax authorities for tax evasion, will be sentenced to imprisonment for up to three years or detention, and will also be fined. • Anyone who evades a huge amount of tax, exceeding 30% of the tax payable and over RMB100,000, will be sentenced to prison for three to seven years, and will also be fined. Exemption from criminal liability If, before the public security authorities file a case, the taxpayer has paid the outstanding taxes and delin - quent payment fees and accepted administrative pen - alties after the tax authorities have issued a notice of tax recovery in accordance with the law, no criminal liability will be pursued. However, this does not apply to those who have been criminally punished for tax evasion or have been given more than two penalties by the tax authorities within the past five years. 6.3 Interaction Between Tax and Criminal Procedures According to Chinese law and the division of powers, general tax-related violations are punished by the tax authorities, while tax-related crimes are handled by the judicial system. If the tax authorities determine that a tax-related violation also constitutes a crime, they should transfer the case to the public security authorities. Legal Basis for Case Transfer The transfer mechanism is grounded in the following key provisions:
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