Fake factory buildings, old equipment, "genuine" invoices?

Fake workshop, old equipment, “real” invoices?

—Exposing Shaanxi Zhuotuo Material Recycling and Reuse Co., Ltd.’s case of issuing VAT invoices without real transactions

The Third Tax Inspection Bureau of the Yulin Municipal Taxation Bureau of the State Taxation Administration, based on leads pushed by relevant departments, investigated and lawfully handled the case of Shaanxi Zhuotuo Material Recycling and Reuse Co., Ltd. issuing value-added tax (VAT) invoices without real transactions.

Upon investigation, from 2020 to 2023, Shaanxi Zhuotuo Material Recycling and Reuse Co., Ltd., without any real transactions, allowed others to issue VAT invoices for itself, and then issued VAT invoices down the supply chain to downstream enterprises in the form of collecting “invoice-issuing fees.” At the same time, the company, through false declarations, underpaid VAT and other tax and fee amounts totaling RMB 3.2484 million.

The leftover sign-in sheets and the vanished water and electricity fees

Earlier, the Third Tax Inspection Bureau of the Yulin Municipal Taxation Bureau received leads pushed by higher-level tax authorities, stating that Shaanxi Zhuotuo Material Recycling and Reuse Co., Ltd. was suspected of issuing VAT invoices without real transactions.

Preliminary checks showed that the company was registered as a biodiesel production and sales enterprise, with complete permits and licenses, and chemical instruments and equipment containers were also stored in the factory area. On the surface, everything appeared compliant. However, a 《Anjie Laundry Company sign-in sheet》 left on-site caught the attention of the inspection personnel. Based on big-data analysis of taxation, the inspection personnel found that the production site had previously been a factory area of a laundry company. After contacting the person in charge of the original laundry company to identify on-site, it was confirmed that most of the equipment currently in the factory area were old setups previously used for cleaning hotel linens.

Faced with the inspection personnel’s questioning, the负责人 of Zhuotuo company argued that the old equipment in the factory area had been renovated and that dedicated biodiesel production and processing equipment such as a measuring instrument and a transfer pump had been added. When the inspection personnel further analyzed the company’s tax-related data, they found that, even though Zhuotuo company operated as a production entity, it had no records of water or electricity expenditure—an obvious violation of business common sense.

To accurately assess its production capability, the inspection personnel visited universities multiple times and consulted experts in relevant fields about the process requirements for biodiesel production, as well as key equipment and technical parameters. After an on-site inspection, the experts pointed out that the equipment in the factory area was rudimentary; it lacked both core production equipment and specialized sealed metal containers needed to store finished products, thus completely failing to meet the basic conditions for biodiesel production.

Multiple anomalous leads above pointed to Zhuotuo company’s suspected issuance of VAT invoices without real transactions.

Cash flow records puncture the “attack-and-defense alliance”

As the investigation deepened, the inspection personnel expanded the scope of verification to Zhuotuo company’s upstream and downstream enterprises. A “mutual attack-and-defense alliance” formed among the related enterprises, with highly consistent wording, leaving no gaps in their answers to key issues such as production and operations, procurement, and sales. One of the companies even proactively provided what appeared to be complete purchase-and-sales contracts and logistics records, attempting to disguise fictitious business as real transactions.

The inspection personnel immediately adjusted their approach and, in accordance with law, obtained Zhuotuo company’s bank-account cash-flow records. They found that shortly after Zhuotuo company issued invoices to downstream enterprises each time, multiple transactions of funds were circulated through multiple personal accounts, and ultimately flowed back to the account of the payor. This anomalous fund-refund trajectory further corroborated the facts of fictitious transactions.

After integrating multiple kinds of evidence, including on-site inspections, professional assessments, and fund-flow records, the inspection personnel again conducted targeted questioning of Zhuotuo company’s upstream and downstream enterprises. Faced with an evidence chain that connected piece to piece, the involved enterprises could no longer explain themselves, and admitted that there had been no real business dealings between them and Zhuotuo company, and jointly participated in the illegal acts of issuing VAT invoices without real transactions.

The scheme disguised as an invoice racket is exposed; it cannot escape severe legal punishment

By this point, a fraudulent chain of invoice issuance—pretending to be a “biodiesel production enterprise” using the old factory area of a laundering company that had already been deregistered—had been uncovered.

Upon investigation, for the purchase costs needed to fabricate biodiesel production, Zhuotuo company, through its network of relationships, had others issue VAT invoices for purchases such as corn, industrial oil, catering waste oil, and so on, totaling 224 invoices. Of these, 214 were VAT special invoices and 10 were VAT general invoices, involving an amount totaling RMB 28.3322 million. At the same time, for the purpose of collecting “invoice-issuing fees,” without any real transactions, Zhuotuo company issued 183 VAT special invoices to 10 downstream enterprises, involving an amount of RMB 17.9664 million.

Article 21, Paragraph 2 of the 《Measures for the Administration of Invoices of the People’s Republic of China》 stipulates: No entity or individual may engage in any of the following acts of issuing false invoices: (1) issuing invoices for others or for oneself that do not match the actual circumstances of business operations; (2) having others issue invoices for oneself that do not match the actual circumstances of business operations; (3) introducing others to issue invoices that do not match the actual circumstances of business operations.

Based on the illegal facts of Shaanxi Zhuotuo Material Recycling and Reuse Co., Ltd., in January 2025, the Third Tax Inspection Bureau of the Yulin Municipal Taxation Bureau, pursuant to relevant laws and regulations such as the 《Law of the People’s Republic of China on the Administration of Tax Collection》 and the 《Measures for the Administration of Invoices of the People’s Republic of China》, determined that 183 VAT special invoices issued by the company and the 214 VAT special invoices and 10 VAT general invoices it obtained were false invoicing (i.e., issued without real transactions). It imposed a decision to recover unpaid taxes, fees, and levy fines totaling RMB 6.4103 million for the company’s tax evasion, and also imposed penalties for late payment interest in accordance with law. Currently, criminal case clues related to the crime of issuing false invoices have been transferred to public security authorities for further investigation. Meanwhile, the tax authorities have, in accordance with law, conducted investigation and verification or filed case reviews for 6 upstream invoice-issuing enterprises and 10 downstream invoice-receiving enterprises.