What should a company do if it is investigated for fraudulent transactions and false invoices? First, distinguish between genuine transactions, falsely reported input tax, and criminal liability.

After receiving a notice from the IRS, some cases quickly present several phrases that cause great anxiety for companies: "No actual transaction."

"False invoices".

"Falsely reporting input tax amount".

"Falsely listed costs".

"Suspected of tax evasion."

At this point, many companies would assume that as long as the IRS says, "There's a problem with this invoice," the company is automatically established.

• pay an overdue tax;
• Fine;
• Commercial Accounting Law;

Even tax evasion is a criminal offense.

However, this cannot be directly equated with law.

What we should really confirm first is:Did the transaction actually take place?Does the goods or services actually exist?Did the payment actually flow?Who issues the invoice?Who is the actual counterparty in the transaction?Why did the company obtain this voucher?as well as:How much did the person in charge, finance, accounting, and business personnel know, and what did they do?The real difficulty in handling fraudulent transaction cases lies in the fact that the same seemingly problematic invoice may represent completely different legal situations.

First, the first step: divide the cases into four completely different categories.

Don't see the message: "There's a problem with the invoice."

They wrote all of them as fake transactions.

We need to divide them into at least four categories first.

Category 1: The transaction is genuine, and the supporting documents are correct.

The company does indeed purchase goods or services from Company A.

A. Actual performance of the contract.

The company made payment to A.

A also issues invoices in accordance with the law.

This is the simplest scenario.

The second category: The transaction did occur, but there is a problem with the counterparty on the voucher.

For example, the company does indeed:

• Purchased the goods;
• Service received;
• Payment has been made;

There is a need for business operations.

However, the person who actually provides the goods or services may be different from the person who issues the invoice.

The task at this point is to address:Actual transaction + source of voucherThe problem.

You cannot directly say: "There was absolutely no transaction."

They are confused.

Category 3: There is no actual transaction, only the receipt or issuance of an invoice.

For example:

• No goods available;
• No service available;
• No actual performance of the contract;

Only invoices and accounting records are available.

In this case:

• pay an overdue tax;
• Administrative penalties;
• Accounting;

Criminal risk is usually completely different from the second category.

Category 4: The transaction is real, but the IRS disputes the costs, fees, or legal nature of the transaction.

For example:

• The service was provided;
• Money has been paid;

The invoice also exists.

However, the IRS believes:

• Unrelated to business operations;
• The fees are unreasonable;
• It should not be listed in this year;
• It belongs to capital expenditure;

The transaction terms are not standard.

This is:Transaction characterization/tax recognitionquestion.

You can't just label it as a "fake transaction".

Label.

When it comes to IRS determinations and subsequent remedies, it should be fromTax lawyers, IRS audits and administrative remediesFrom this perspective, we should first distinguish between the facts of the transaction and the legal responsibilities at each level.

II. Why is "whether the transaction actually occurred" the most important first question?

Because genuine fake transactions usually lack a complete fulfillment chain.

For example, the company's accounts record: consulting fees of 5 million yuan.

The IRS might ask: Who is the consultant?

Why is service needed?

Where is the contract?

What services are offered?

Who actually carries it out?

Where are the results?

Who in the company conducts the inspection?

How is the decision made regarding the 5 million yuan?

Where is the money being transferred?

Did it flow back to the company or related parties?

If only:

• An invoice;
• A payment;

An accounting entry, yet no actual service can be found; this increases the risk of a case.

3. How can we prove that a transaction actually took place?

Don't just submit the invoice.

At least establish:

contract

Who signed the contract with whom?

Orders/Work Requirements

Why does the company need this deal?

Performance

What did the goods or services actually do?

deliver

When will the goods be delivered, delivered, or the service completed?

acceptance

Who confirmed completion?

bill

Who opened it?

Payment

To whom does the company make payments?

Bank cash flow

Where does the money ultimately go?

Accounting

How to record the transaction?

Business results

What has the company truly achieved?

This is a complete one:Chain of evidence for the transaction.

When the company first receives the notification, it can first understand...This is the first explanation of how to prepare after receiving a tax audit or tax adjustment notice from the State Taxation Administration..

4. Does "payment" prove that it is not a fake transaction?

uncertain.

A bank remittance only proves that the money has moved.

It cannot be proven on its own:

• Reason for payment;
• Contract details;
• Whether the service is actually provided;
• Transaction price;
• Ultimate beneficiary;

Is there any capital repatriation?

Therefore, if the company answers, "We have proof of remittance, so the transaction must be genuine,"...

That's usually not enough.

It is necessary to:Payment + Contract + Performance + CertificateLet's watch it together.

5. Does having an invoice prove that a real transaction has taken place?

No, not exactly.

An invoice is an important document for transactions.

However, the invoice itself is not the only proof that the transaction was actually performed.

If the IRS already has this information:

• The invoice issuer was unable to provide the goods;
• The company has no employees;
• No stock available;
• No source of goods;
• No service record;

The funds were quickly returned after being transferred, solely based on the statement: "The other party has issued an invoice."

It is usually impossible to fully answer all questions.

Therefore, the core of the invoice dispute remains:Does the invoice reflect a genuine business activity?

6. If there is actual purchase of goods, but the invoice is not issued by the actual trading partner, is it the same as a completely fake transaction?

They cannot be directly regarded as completely identical.

in force"Value-added and non-value-added business tax lawsArticle 51 stipulates supplementary tax payments and administrative penalties for falsely reporting input tax amounts.

However, the law also makes special provisions for situations where a receipt is obtained from a non-actual trading partner, but there is indeed a fact of purchase.

This in itself demonstrates that the law does not address situations where "a transaction did occur, but the source of the evidence is problematic."

And: "There was absolutely no transaction."

They are regarded as completely identical facts.

Therefore, in cases like this, the most important thing is to prove:

• The goods are genuine;
• Who provides it;
• Who delivered it;
• Who receives the payment;
• How to obtain an invoice;

Why did the company believe that the voucher could be used at that time?

7. What is "falsely reporting input tax" in business tax?

When a business operator declares business tax, the input tax amount that meets the regulations can be deducted from the output tax amount in accordance with the law.

However, if a company submits an input tax credit application without a legal basis for deduction, it may result in the problem of falsely reporting input tax.

According to the current "Value-Added and Non-Value-Added Business Tax Law"Article 51If a taxpayer evades taxes by falsely reporting input tax, in addition to recovering the tax owed, the law stipulates that a fine of up to five times the amount of tax evaded shall be imposed.

Note: This is:Less than five times.No: "It will definitely be a five-fold fine."

The actual penalty should still be determined in accordance with the law and the circumstances of the case.

8. Does the exclusion of input tax amount equate to criminal tax evasion by the company?

no.

The different legal effects must be separated.

For example:

First layer

Can input tax be deducted?

Second floor

Did this result in tax evasion?

Third layer

Is the administrative penalty valid?

Fourth floor

Did the company's person in charge intentionally evade taxes through fraudulent means or other improper methods?

These four layers are not the same issue.

so:Input was removedCannot directly jump to:The criminal offense of tax evasion has been established.

9. The fictitious costs and expenses of corporate income tax are another issue.

For example, company declaration:

• Consulting fees;
• commission;
• Marketing expenses;
• Procurement costs;

Service fee.

If the IRS believes:

• The transaction does not exist;

Alternatively: Costs and expenses cannot be recognized by law, and may be further adjusted: taxable income.

Therefore, the same case of "false invoices" may simultaneously affect both business tax and corporate income tax.

The analysis cannot end with just calculating the 5% business tax from a single invoice.

10. The IRS says "inflated costs," how should the company respond?

Don't just say, "The company really did spend money."

The correct answer should be: What is this fee for?

What does this have to do with the company's business?

Who is the actual counterparty in the transaction?

How should the contract be stipulated?

Who provides the service?

What were the results?

How does the company conduct acceptance testing?

Why is the price reasonable?

How does the company make payments?

How should an accountant record this information?

If it's a commission, then you need to specify who referred you.

Which transaction will be facilitated?

How are commissions calculated?

If it is a consulting fee, you need to explain what work the consultant actually did.

11. If the company issuing the invoice is actually a nominee company, will the risk increase?

possible.

But we still need to return to the question of: the company's actual transactions and subjective perceptions.

The IRS or prosecutors may investigate:

• Does the invoicing company have actual business operations?
• Are there any employees?
• Have you received any inventory?
• Do you have office space?
• Has the transaction proceeds been returned?
• The relationship between the two responsible persons;
• Who introduced me to the invoice?

Does the company know the source of the invoice?

Just because the counterparty in a transaction was later found to have problems does not mean we should completely ignore how much our company actually knew.

However, if there is already evidence showing that the company knowingly obtained the necessary documents for declaration even though there was no transaction, the risk of the case is completely different.

12. Why is the return of funds often a major warning sign?

For example, a company pays 10 million yuan to a certain trading counterparty.

But after passing through several accounts, the funds returned to:

• company;
• Company head;
• shareholder;

Related companies.

At this point, the IRS or prosecutors might question whether the apparent transaction was merely a means to create:

• cost;
• cost;

Input tax amount.

However, cash flow repatriation cannot replace a complete transaction analysis.

It should still be confirmed why the funds returned.

Are there any other claims or debts?

Are they different transactions?

Was there any real consideration?

Therefore, the cash flow is:Very important evidence,But it's not the only evidence.

13. If the company's responsible person "doesn't know how the accountant does it," does that mean they are definitely not criminally liable?

That's not the right way to put it.

The actual authority of the person in charge varies depending on the size of the company.

It should be confirmed: Who decided on the transaction?

Who should find the counterparty in the transaction?

Who approved the payment?

Who is requesting an invoice?

Who knows if the transaction was actually fulfilled?

Who decides how to submit the application?

If the person in charge truly only handles business decisions and does not participate in detailed accounting reporting, then evidence analysis is still required.

Conversely, if evidence shows that the person in charge was the decision-maker regarding the transaction and invoicing arrangements, it cannot be simply stated that "this is an accounting treatment."

Cut off all responsibility.

14. Could finance or accounting personnel also be criminally liable?

It's possible, but we can't just look at professional titles.

Need to confirm: Was I simply making the payment based on accurate information, or was it:

• Knowing that there was no transaction;
• Knowing that the voucher was false;
• Accounting vouchers are still prepared;
• Enter false information;

Or assist in completing false accounting entries.

Therefore, internal company cases must be classified:

• Person in charge;
• Finance Manager;
• Chief Accountant;
• Accountant in charge;
• business;

The individual roles of the actual decision-makers in transactions.

fifteen,"Business Accounting LawWhy does Article 71 frequently appear in cases involving false invoices?

The current Commercial Accounting ActArticle 71,right:

• Business Manager;
• Chief accountant;
• The accounting personnel in charge;

Those who are legally entrusted to handle accounting matters on behalf of others are subject to criminal liability for specific false accounting acts.

For example: knowingly stating something is untrue.

• Accounting vouchers are still being prepared;

Or it may be recorded in the ledger.

And using other improper methods to produce false results in accounting matters or financial statements.

Therefore, cases involving false invoices cannot be judged solely by the tax amount.

It is also necessary to confirm: what accounting results will be generated after this voucher is entered into the company's accounting system.

Related responsibilities can also be referred toCommercial Accounting Law, Liability for False Documents and Books.

When processing accounting data electronically, please also refer to the "..."Article 72 of the Commercial Accounting Act》

16. Does having a single false invoice necessarily constitute a violation of Article 71 of the Commercial Accounting Law?

You can't say it like that directly.

Further analysis is needed:

• Identity of the actor;
• Does it fall under the scope of Article 71?
• Whether the vouchers or ledgers are actually inaccurate;
• Did I have prior knowledge of this?
• What was actually done?

Does it meet the specific legal requirements?

Therefore: "The IRS removes invoices."

This does not mean that "a criminal offense under the Commercial Accounting Law is automatically established."

The standards of proof and legal requirements differ between the two.

When the person in charge is under investigation, further information can be obtained.What to do if a company's head is sued under the Commercial Accounting Law?.

17.Tax Collection LawWhen might Article 41 appear?

The current Tax Collection LawArticle 41The issue being addressed is: the taxpayer's claim that...Deception or other improper methodsCriminal liability for tax evasion.

Therefore, the real analysis required for criminal cases is:

• There were no results of tax evasion;
• What method should be used?
• Is it fraud or other improper method?
• Did the perpetrator have criminal intent?

What I actually participated in.

The fact that the tax amount has been reassessed does not automatically constitute a criminal offense.

18. How severe are the criminal liabilities under Article 41?

According to Article 41 of the current Tax Collection Act, under normal circumstances, the offender shall be sentenced to imprisonment for not more than five years and fined not more than NT$10 million.

If an individual evades more than NT$10 million in taxes, or if a profit-making enterprise evades more than NT$50 million in taxes, the law stipulates that the individual shall be imprisoned for not less than one year and not more than seven years, and shall also be fined not less than NT$10 million and not more than NT$100 million.

Therefore, the risks of major corporate tax cases will be completely different once they progress from tax investigation to criminal tax evasion.

19. When a company commits a crime, is it the company that is sentenced, or the person in charge?

This question cannot be answered in just one sentence.

Tax Collection LawArticle 47For taxpayers such as companies, how should criminal penalties be applied?

• Company head;

And the actual person in charge of the business when the nominal person in charge and the actual person in charge of the business are different.

However, actual criminal liability still needs to be confirmed:

• Who is actually in charge of the business?
• Who participated in the transaction;
• Who knows about the invoice or accounting issues?

Who has criminal intent?

Therefore, do not use "Registration Person in Charge".

These three words are directly equivalent to: "Definitely guilty."

It cannot be because: "He is only the actual person in charge, not the person who registered."

They assumed there was no risk.

20. Is there a criminal risk involved in issuing fake invoices to others?

Possibly.

A case cannot be judged solely on the party using the invoice.

If a company knowingly issues false receipts for others when no actual transaction has occurred:

• Enter into the account;
• False cost listing;
• Falsely reporting income;

Tax evasion may involve other issues such as:

• Commercial Accounting Law;
• Tax collection law;

Even criminal issues such as helping others evade taxes.

However, it should still be based on:

• Individual behaviors;
• Level of awareness;
• trade;

Tax analysis.

Do not use: "Invoicing company"

The conviction was automatically completed with just three words.

21. Why should we also pay attention to Article 43 of the Tax Collection Law?

in forceArticle 43right:

• Instigation;

Those who assist others in committing acts under Articles 41 or 42 are criminally liable.

Therefore, if a person is not the actual taxpayer but is accused:

• Providing false credentials;
• Arrange fake transactions;

Assisting in tax evasion may still involve legal issues related to aiding and abetting tax evasion.

Each participant must still undergo individual analysis.

22. What is the difference between "the company simply received the wrong invoice" and "the company bought the invoice"?

The difference can be very large.

Case A

The goods actually arrived.

The company did make the payment.

However, due to upstream arrangements or other reasons, the issuer of the invoice obtained is different from the actual counterparty in the transaction.

Case B

There are no goods or services at all.

After the company pays the fee,

• Simply obtain an invoice;

The funds may even flow back to the company.

The latter is:

• Transaction authenticity;
• Subjective intent;
• Tax evasion;

The risks associated with accounting liability are usually quite different.

Therefore, the first thing to ask in a case is:Where exactly are the goods or services?

23. If the IRS identifies a company as a "non-actual transaction counterparty," what should the company prepare as its first step?

At least organize:

• Who negotiated the transaction;
• Who provides the goods/services;
• Who signed the contract;
• Who issues the invoice?
• Who receives the payment;
• Where do the goods come from?
• Who delivered it;
• How did the company and the invoicing company get to know each other?
• Why did the company obtain this invoice?

Was there any reason at the time to believe that the invoice issuer was the legitimate counterparty in the transaction?

Don't just answer, "We don't know."

Don't try to patch up loopholes by modifying the transaction story afterwards.

24. If there was indeed a purchase of goods, is there absolutely no legal punishment?

That's not the correct way to summarize it.

The current business tax law does have relevant regulations and exceptions for specific situations where invoices are issued by non-actual trading partners, but there is indeed a purchase of goods.

But is that actually the case?

• pay an overdue tax;
• Punishment;
• Exemption from punishment;

Other evidentiary liabilities still need to be determined based on the complete facts and legal requirements.

Therefore, do not say: "We have stocked up."

Simplified to: "Everything will be alright."

What really needs to be confirmed:

• Who issues the invoice;
• Who delivers the goods;
• Who receives the payment;
• How to obtain vouchers;

Whether the relevant business operators have been dealt with in accordance with the law.

25. If a company discovers a problem on its own, can it file a supplementary report and make up the difference itself?

Please pay close attention to the following:Time point.Article 48-1 of the Tax Collection Law stipulates that for those meeting the following conditions:

• Automatic reporting;

There are important regulations regarding supplementary payments.

The core premises include: Case:

• No report has been filed yet;

It was not investigated by tax authorities or investigators designated by the Ministry of Finance.

When certain conditions are met, the law provides for special effects on relevant administrative penalties and even criminal liability.

Therefore, the legal status of a company is completely different depending on whether it discovers the error in its declaration through its own internal controls or only tries to file a supplementary declaration after receiving an investigation notice from the IRS.

This should be assessed as early as possible, rather than waiting until an investigation notice is received before taking action.

26. If I have already received an investigation notice from the IRS, can I still treat it as a simple "automatic filing"?

It cannot be preset.

Article 48 of 1The applicability of, and:

• Has the case been reported?

Whether the investigation has already begun by tax authorities or designated investigators is highly relevant.

So if the IRS has already:

• Issue an adjustment notice;
• Please provide an explanation;

Start investigating specific transactions; don't assume that, "If I pay the taxes now, I can definitely avoid penalties by filing an automatic return."

We need to accurately confirm: the start time of the investigation and: the legal requirements.

27. What is the last thing a company should do after it is investigated?

don't want:

• Delete email;
• Delete LINE;
• Modify the invoice attachments;
• Backfilling contract;
• Replace any previously missing acceptance records;
• Require the counterparty to rewrite the documents;
• Employees were required to provide consistent, false statements.
• Remove ledger data;

The accounting records were redone to make it look like the original version.

These actions may further escalate existing tax disputes.

• Accounting;
• evidence;

Criminal risk.

The correct approach is:Preserve the original data.If it needs to be done again now:

• Case description;
• Fact compilation;
• Account reconciliation statement;

All must be clearly labeled: Made Now.

It cannot be disguised as an original past document.

28. Why is it necessary to conduct "three-stream comparison" in cases of fake transactions?

At least establish:

Logistics/Service Flow

How are goods or services moved?

Cash flow

How is money moved?

Vouchers/Accounting Flow

How should invoices, contracts, and accounting records be kept?

Ideally, the three lines should be able to explain each other.

if:

• Logistics is provided by Company A;
• Payment was made to B;

If the invoice is issued by C, then the reason should be explained clearly first.

This is the core of many fake transaction cases.

29. Add a fourth point: "Decision-making flow"

Sometimes, it's not enough to only look at third-rate cases in major corporate cases.

We also need to confirm: Who decided on the transaction?

Who chooses the counterparty in a transaction?

Who decides to make the payment?

Who approved the invoice?

Who is required to record this in the books?

Who provides the information to the accountant?

Therefore, it is best to establish:Logistics + Cash Flow + Document Flow + Decision FlowFour lines of evidence.

This is the only way to distinguish them:

• company;
• Person in charge;
• finance;
• Accounting;

Each business has its own responsibilities.

30. How should supplementary tax payments, fines, commercial accounting laws, and criminal liability for tax evasion be distinguished?

Establish the most important conclusion:

First level: Transactions/Taxation

Is the transaction real or fake?

What is the correct tax amount?

Second level: Administrative penalties

Are there any violations?

Was there any intent or negligence?

Are the basis and multiplier of the penalty legal?

Third level: Criminal liability for commercial accounting

Did you knowingly create false vouchers, record false information, or make financial statements false?

Fourth level: Criminal liability for tax evasion

Did they deliberately evade taxes through fraud or other improper means?

The fourth layer cannot be automatically established just because it is based on the same invoice.

31. If a case has been transferred from the IRS to a criminal investigation, what are the differences in the handling procedures?

If the case has already occurred:

• Bureau of Investigation notification;
• District Attorney's Office summons;
• search;
• Seizure;

The case strategy must be adjusted once the defendant is identified as a criminal defendant.

At this point, we can no longer simply ask:

• How much tax should be paid?

The fine will be several times the original amount.

Further processing is needed:

• Suspected of a crime;
• Subjective intent;
• The role of each defendant;
• Responsibilities of company leaders;
• Accountant responsibilities;
• Search and seizure;
• record;
• Detention risk;

Criminal evidence.

Further reading:Company executives summoned by the investigation bureau or company searched.

32. What role might an accountant play in a sham transaction case?

External accountants may assist in:

• Bookkeeping;
• declare;
• Verification;
• visa;

Provide tax advice.

However, it needs to be confirmed: What information did the company provide?

Do accountants know the true transaction structure?

Do accountants simply record transactions based on documents, or do they participate in the design of transactions?

Did the company conceal any important facts?

Did the accountant raise any questions?

This information may have the following impact:

• The company's and responsible person's subjective perception;
• Duty of care;

Even individual responsibility.

Don't simplify it to: "The accountant did it, so the company has no responsibility."

Don't simplify it to: "Accountant visa means accountants must be responsible."

33. If the National Taxation Bureau has already determined the tax payment and penalty, can one still argue that "it was not a fake transaction"?

If it is still within the statutory administrative remedy period, it can be done through:

• Re-examination;
• Appeals;

The administrative lawsuit should present complete claims and evidence.

But the prerequisite is: don't miss the deadline.

Therefore, if the case has already been received:

• pay an overdue tax;
• Fine;

When making a review decision, you should also refer to the following complete guide: review, appeal and administrative litigation after receiving back taxes or fines from the National Taxation Bureau.

When a disciplinary action has been taken, it should be confirmed simultaneously.Review, appeal and administrative litigation after receiving back taxes and fines.

34. How does Fidelity Law Firm handle fraudulent transactions, false invoices, and major tax cases?

The real difficulty in fraudulent transaction cases is not just tax law.

Typically involves:

• Commercial transactions;
• English or Chinese contract;
• Bank cash flow;
• bill;
• Accounting voucher;
• General ledger;
• Financial statements;
• Company internal controls;
• Directors and responsible persons;
• External accountants;
• Administrative procedures;

criminal responsibility.

When handling these types of cases, Fidelity Law Firm establishes:Transaction flow+Logistics/Service Flow+Cash flow+Vouchers/Accounting Flow+Decision FlowThen:

• pay an overdue tax;
• Administrative penalties;
• Business accounting responsibilities;

Tax evasion should be handled separately from criminal liability.

Attorney Li Yusheng previously served as the assistant manager of the legal department at Deloitte Touche Tohmatsu, where he worked extensively with corporate finance, accounting, and management teams on corporate, financial, tax, and legal issues.

What's really needed in these kinds of cases is:They can understand transactions, understand accounts, and ultimately handle administrative and criminal liabilities.

Common issues related to fake transactions, false invoices, and tax evasion