SPC asks courts to target dual contracts to curb tax evasion

China's top court has reiterated the importance of cracking down on crimes related to tax collection and management, calling for stronger judicial efforts to safeguard national tax revenues and maintain market order.

The Supreme People's Court released on Monday eight notable tax-related cases, emphasizing the need to reinforce tax compliance and guide lawful tax practices through judicial measures. It urged courts nationwide to focus on combating the use of dual contracts for tax evasion purposes and the profiteering from reselling invoices through online platforms.

"Fiscal system is the foundation and a crucial pillar of national governance. Taxation is not only the primary source of fiscal revenue but also an essential tool for macroeconomic regulation," the top court said. Crimes that undermine tax collection and management, it noted, infringe upon national tax interests, destabilize fiscal stability, disrupt economic order and threaten social justice.

In one case of the Xinjiang Uygur autonomous region, a court sentenced an individual surnamed Mao to three years in prison and fined him 50,000 yuan ($7,035) for using "yin and yang contracts" to evade taxes. The real estate company where Mao worked was also fined 500,000 yuan for the same offense.

Yin and yang contracts, or dual contracts, involve producing two documents for the same agreement. One reflects the parties' true intentions, while the other lists a lower amount to reduce taxation and is submitted to tax authorities.

In March 2024, the SPC and the Supreme People's Procuratorate declared such contracts as a tax evasion method in a judicial interpretation aimed at helping judges and prosecutors address increasingly covert and difficult to detect illegal practices.

The top court said prosecuting those who use dual contracts acts as a strong deterrent. "The decision by the Xinjiang court clearly signals to the public the crucial need to adhere to tax laws and engage in honest business practices. This also aids in the broader prevention of similar offenses," it said.

In another case, a former logistics company owner surnamed Shen, from Lishui in Zhejiang province, was sentenced to 10 years imprisonment and fined 250,000 yuan for using his firm's online platform to illegally issue more than 18,000 value-added tax invoices to over 2,700 businesses between June 2019 and April 2021.

The Lishui court said Shen provided VAT invoices not only to enterprises that had completed transportation services but lacked invoices, but also to companies with no actual transportation business that nonetheless needed invoices.

"Platform economy is a new economic model that relies on internet services as the main vehicle, data as the key production element, next-generation information technology as the core driving force, and network information infrastructure as significant support," the top court said.

It noted that developing the platform economy is vital for expanding domestic demand, stabilizing employment and improving livelihoods, but stressed that "platforms are not beyond the law, and platform companies must operate in compliance with legal regulations".

Highlighting the Lishui ruling, the court said the judgment not only punishes illegal activity but also helps clean up the platform economy. "Enterprises should draw lessons from this case, bolster their self-regulation, and ensure that their online platforms, intended for fostering innovation, do not become channels for tax-related violations and crimes," it said.

caoyin@chinadaily.com.cn