The company failed to obtain invoices as required, resulting in other enterprises underpaying taxes, and was fined CNY 820,000 by tax authorities!

Shanghai Company A, a foreign enterprise, and Company B, another foreign enterprise, are affiliated companies under the same group. Since 2021, Company A has been leasing the idle factory buildings of Company B for business operations. Both parties signed a formal written lease contract with an annual rent of CNY 850,000.

After paying the rent according to the lease contract, Company A, at the request of its headquarters, did not ask Company B to issue rental invoices for three consecutive years in order to help Company B pay less corporate income tax. The amounts not invoiced were CNY 510,000, CNY 360,000, and CNY 330,000, respectively. Subsequently, the tax authorities found that the illegal actions of Company A led to Company B underpaying taxes by more than CNY 1.6 million.

According to Article 39 of the "Invoice Administration Regulations," those who violate invoice management regulations, causing other units or individuals to fail to pay, underpay, or defraud taxes, shall have their illegal income confiscated by the tax authorities and may be fined up to one times the amount of unpaid, underpaid, or defrauded taxes. Ultimately, Company A was fined CNY 820,000 by the tax authorities in accordance with the law.

Dongjin Reminder:

Transactions between related enterprises are a key area of supervision for tax authorities. Related enterprises must adhere to the authenticity of transactions and market fair prices, ensuring the consistency of contract flow, invoice flow, and fund flow, known as the "three flows in unison." Otherwise, not only will the goal of paying less tax not be achieved, but it may also lead to severe penalties, causing more economic losses and damaging the company's credit!

If any enterprise has any questions, Dongjin is always ready to provide consultation.

Mike Chang

Partner

mikechang@shanghaiinvest.com