Foshan Textile Enterprises: Use “small stitches” to weave a dense tax risk prevention and control network

Since January 2023, many textile companies have flown to various parts of the world to obtain new orders and negotiate new investments. The development of the textile industry continues to “heat up.” When serving taxpayers, the Foshan Taxation Bureau of the State Administration of Taxation discovered that some textile companies have neglected tax compliance while expanding production and exploring overseas markets. For textile enterprises, daily tax management must start with details and “finely stitch together” to weave a solid tax risk prevention and control system.

Risk point 1: The invoicing party does not match the actual supplier

The entry threshold for the textile industry is not high, competition in the industry is fierce, and “price wars” occur from time to time. When some companies purchase relatively low-priced materials or services, suppliers may be unable to issue invoices directly. These suppliers may use a third party to “facilitate” the invoices, resulting in a discrepancy between the invoice issuer and the actual supplier.

Textile enterprise Company A purchased a batch of cotton yarn from supplier Company A at a low price. Company A’s salesperson Li informed Company A that the invoice would be provided by Company B. Under Li’s “guidance”, Company A signed a “contract” with Company B, paid the “payment” to Company B or a natural person of Company A through bank transfer, and obtained a special value-added tax invoice issued by Company B. Subsequently, Company A records all the invoices into its account and declares the input VAT deduction. After tax inspection, it was found that Company A’s behavior constituted the acceptance of false VAT invoices.

In view of this, it is recommended that textile enterprises use formal channels to inquire about the establishment time, business scope and other relevant information of the transaction party, and try to pay for goods through non-cash methods such as bank transfers. At the same time, attention should also be paid to checking whether the payee is consistent with the actual transaction party to ensure that the invoice content is consistent with the transaction business.

Risk point 2: Mismatch between raw materials and product quantities

Textiles are mainly consumed by individuals, and most individuals are not used to asking for invoices from merchants. Therefore, some textile companies adopt some non-compliant practices and underreport sales revenue, resulting in risks such as underpayment of value-added tax and corporate income tax.

Some customers of Textile Enterprise Company B do not need to issue VAT invoices. For this part of the sales income, Company B did not declare taxes. During the data analysis process, the tax authorities found that there was an obvious mismatch between the number of raw materials purchased and the products sold. The output calculated based on electricity consumption was significantly different from the number of products declared in tax returns. After conducting risk checks on the company, the tax authorities discovered that the company had underreported sales revenue. After counseling, Company B corrected its declaration of relevant income, paid back taxes and corresponding late fees, totaling more than 500,000 yuan.

It should be reminded that taxpayers must declare and pay taxes based on the actual income obtained. Even if the buyer does not need to issue an invoice, he must truthfully declare value-added tax, income tax and other taxes based on the sales revenue without invoices. For the behavior of concealing sales revenue, tax authorities can use tax big data and third-party data to conduct precise analysis based on the production and operation characteristics of the industry, identify risk suspicions, and carry out verification.

Risk point three: Illegal deduction of loan service fees

Some large and medium-sized textile companies have inventory of raw materials that occupy a large amount of funds. In order to broaden the sources of funds and relieve financial pressure, some textile companies will sell and lease back equipment. As a result, some companies illegally deduct the input tax that corresponds to loan service expenditures during tax treatment.

Due to capital needs, Textile Enterprise Company C sold its textile equipment to a financial leasing company in 2020, and then paid “rent” on a monthly basis, continued to use these textile equipment, and used the special value-added tax invoice as a deduction voucher. The corresponding input tax is deducted. After inspection by the tax authorities, the special value-added tax invoice obtained by Company C did not comply with the invoice management regulations, and it was required to pay back taxes and late payment fees totaling 300,000 yuan.

According to the Interim Regulations on Value-Added Tax and the “Notice of the Ministry of Finance and the State Administration of Taxation on Comprehensively Launching the Pilot Program of Replacing Business Tax with Value-Added Tax” (Caishui [2016] No. 36), taxpayers who accept loan services must pay the lender The input tax on investment and financing advisory fees, handling fees, consulting fees and other expenses directly related to the loan shall not be deducted from the output tax.

For the purpose of financing, an enterprise sells assets to an enterprise engaged in financing sale and leaseback, and then leases back the asset, which is a financing sale and leaseback. After the business tax-to-VAT reform, taxpayers engage in financing sale-leaseback business of fixed assets, and the rent paid is of an interest nature, and the corresponding input tax cannot be deducted from the output tax. Interest paid by taxpayers on loans to purchase equipment and rent paid for fixed assets under financing sale and leaseback shall not be deducted from the output tax. Taxpayers should understand the relevant tariff collection policies in advance to avoid tax declaration errors.

Risk point 4: Providing false filing documents

Some small and medium-sized textile export companies provide false filing documents in order to enjoy the value-added tax refund (exemption) policy, which leads to export problems.Report on non-compliance with case document management.

Textile enterprise D Company is a production-oriented export enterprise and a general taxpayer of value-added tax. In May 2020, Company D exported a batch of knitted fabrics and a batch of denim to Thailand through water transportation, and applied for export refund in June 2020. (duty free. Among them, the customs declaration number for knitted fabrics is XXX001, and Company D altered a sea bill of lading for filing purposes; the customs declaration number for denim is XXX002, and the freight forwarder designated by the Thai merchants is responsible for the cargo transportation and export business. Company D did not export this batch. The goods are documented and recorded. To this end, the tax authorities have dealt with the above issues in accordance with regulations: export goods corresponding to customs declaration number The tax exemption will be processed, the tax exemption and refund declaration data will be offset, and the input tax amount will be transferred out according to regulations.

Export goods provided by export enterprises with false registration documents are not subject to VAT refund (exemption) and tax exemption policies, and must be treated as domestically sold goods and levied VAT. Export enterprises that fail to register documents in accordance with regulations (except for the case where the enterprise does not have relevant registration documents due to the nature of the transaction method of export goods) are not allowed to declare tax refund (exemption), and tax exemption policies are applicable. If a tax refund (exemption) has been declared, the negative declaration shall be used to offset the original declaration. Enterprises should attach great importance to the management of filing documents, be aware of the document filing regulations, and clarify the relevant export document requirements with customers before transactions to avoid the occurrence of incomplete or false documents.

Risk point five: Failure to retain “deemed foreign exchange collection” materials

While the export trade of the textile industry is booming, the problem of international payment arrears will inevitably arise. Some textile companies are unable to collect foreign exchange in time when they are owed payment, which will lead to both financial and tax risks.

Textile Enterprise E Company is a production-oriented export enterprise and a general taxpayer of value-added tax. The tax authorities inspected it in August 2022 and found that the company exported denim worth a total of US$25 million from January to December 2021, and all applied for export tax refunds (exemptions). Among them, Vietnamese merchants have difficulty in capital turnover due to the impact of the COVID-19 epidemic. They owe Company E 8 million U.S. dollars in remittance and have not yet paid the remittance, and Company E has not retained materials related to “deemed receipt of remittance” in accordance with relevant regulations. According to relevant regulations, the tax authorities guided Company E to offset the tax exemption, offset and refund declaration data for the goods for which no foreign exchange was collected.

For export goods for which taxpayers apply for tax refund (exemption), they shall collect foreign exchange before the deadline for export tax refund (exemption) declaration. Failure to collect foreign exchange within the prescribed time limit, but in compliance with the “Announcement of the State Administration of Taxation on Further Facilitating the Handling of Export Tax Refund Matters Related to Promoting the Stable Development of Foreign Trade” (Announcement of the State Administration of Taxation, No. 2022 9) Attachment 1 “Reasons for Deemed Collection of Foreign Exchange and List of Evidence Materials”, if the taxpayer retains the “Form of Foreign Exchange Collection for Exported Goods” and evidence materials, it will be considered as a collection of foreign exchange; all foreign exchange collections are due to the export contract. If the final date is after the deadline for tax refund (exemption) declaration, the collection of foreign exchange shall be completed before the date for collection of foreign exchange stipulated in the contract. If the taxpayer is indeed unable to collect foreign exchange and does not meet the regulations for deemed foreign exchange collection, the VAT exemption policy will apply to the exported goods.

While choosing foreign investors carefully, export enterprises can prevent the risk of export foreign exchange collection by obtaining export credit insurance compensation, using letters of credit or collection settlements based on the characteristics of the region or merchants, and increasing the proportion of advance payments from merchants.

AAA

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