Fake exports, real tax evasion: The truth behind this company's tax fraud case revealed

On March 2nd, the Second Inspection Bureau of the Chongqing Municipal Taxation Bureau of the State Taxation Administration announced that they, in cooperation with the Chongqing Customs Anti-Smuggling Bureau, lawfully investigated the case of Hongyi Biological Engineering (Chongqing) Co., Ltd. (referred to as “Hongyi Biological”) for fraudulently claiming export tax refunds.

After investigation, it was found that between 2021 and 2023, Hongyi Biological used illegal methods such as fabricating agricultural product purchases, issuing false VAT invoices, purchasing and using fake invoices, forging export product documents, and utilizing underground banks for false currency exchange to fraudulently claim export tax refunds. The tax authorities recovered 1.8316 million yuan of the illegally obtained export tax refunds and suspended processing export tax refunds for them for 19 months. Currently, the responsible individuals have also been prosecuted.

(Provided by the interviewed unit)

Suspicious High-Price Agricultural Product Invoices

Production and Operations Not Consistent with Reality

How was this discovered and investigated?

Previously, the Chongqing Ruchang District Taxation Bureau of the State Taxation Administration received risk alerts from higher authorities indicating anomalies in the agricultural product invoice data declared by Hongyi Biological. The organic red pear they purchased was priced at an average of 18.5 yuan per kilogram, exceeding normal market prices, suggesting false invoicing of agricultural products.

Tax officials retrieved the tax declaration data of the suppliers to Hongyi Biological and found that, over three years from 2021 to 2023, the suppliers issued agricultural product invoices totaling 3.46 million yuan, of which 3.05 million yuan was declared as self-produced and sold agricultural products, but the cost invoices amounted to only 473 yuan. This indicates minimal production input, making it unlikely to support the cultivation of hundreds of thousands of yuan worth of agricultural products, raising doubts about the authenticity of the suppliers’ self-production and sales.

During on-site visits, tax officials discovered that the supplier’s planting base had only 30 acres of golden pears and no organic red pear cultivation. When asked, the supplier’s person in charge admitted that there was no genuine purchase and sale of agricultural products with Hongyi Biological. After receiving a “billing fee” from Hongyi Biological’s legal representative Luo Hong, they issued false invoices for him. The suspicion of false invoicing by Hongyi Biological is evident.

Based on these circumstances, the Second Inspection Bureau of the Chongqing Municipal Taxation Bureau lawfully initiated an investigation into Hongyi Biological.

To further understand the situation, investigators lawfully retrieved relevant tax-related documents from Hongyi Biological. Analysis and comparison revealed that among their recorded invoices, 4.7968 million yuan were fake invoices, all of which had been improperly used for input tax deduction.

Investigators conducted on-site verification of Hongyi Biological, which mainly produces enzyme products for export. However, their factory had no workers operating, and the food inspection equipment and production lines had long been shut down. The operational status was severely inconsistent with the production business details marked on the purchase and sales invoices, and they completely lacked the capacity to produce enzyme products as registered.

Fake Invoices and Fictitious Input Tax

Fake Exports to Claim Refunds

During lawful inspections by the tax authorities, the Chongqing Customs Anti-Smuggling Bureau discovered that Hongyi Biological’s exported enzyme products involved forged factory inspection reports, false reporting of product specifications and ingredients, and unauthorized processing and export of unregistered agricultural products, all evading customs inspection and risking fraudulent export tax refunds. The Second Inspection Bureau of the Chongqing Taxation Bureau and the Chongqing Customs Anti-Smuggling Bureau formed a special task force to investigate Hongyi Biological.

The task force conducted on-site inspections of two upstream invoicing companies related to Hongyi Biological. They found that both companies’ legal representatives were relatives of Luo Hong, with no actual office or business operations, and were shell companies controlled by Luo Hong. Their purpose was to assist Hongyi Biological in issuing false invoices and fabricating input tax credits.

Meanwhile, clues related to the fake invoices involved Hongyi Biological pointed to individual Wang Chundong. When questioned, he admitted that he had no real business dealings with Hongyi Biological and, after receiving a “billing fee,” fabricated procurement of raw agricultural materials for the company, illegally producing and providing fake invoices.

After verifying the illegal creation of input tax credits through these false invoices, investigators further focused on Hongyi Biological’s core business—enzyme product exports—and examined the authenticity of the export tax refund process.

According to export declaration documents, investigators found that Hongyi Biological’s enzyme products were transported by land to Hong Kong. The Hong Kong company handling this export was a shell entity registered under Luo Hong’s name, with no actual business activities, serving only as a “nominal foreign trader” for fake exports. After the goods arrived in Hong Kong, no real sales occurred.

Additionally, Luo Hong also used two other companies from different provinces to fake export appearances, issuing 187 VAT invoices involving 14.75 million yuan, and used underground banks to carry out false currency exchanges.

Tax Evasion Exposed

Severe Penalties for Crossing the Line

Hongyi Biological’s carefully designed tax evasion scheme involved fake purchases and sales, false invoicing, product exports, and capital remittance, forming a complete closed loop. The group used false invoices, fake exports, and forged cross-border remittance records to create the illusion of legitimate export and receipt of funds, aiming to illegally claim export tax refunds.

Article 66, Paragraph 1 of the “Tax Collection and Administration Law of the People’s Republic of China” states: “Anyone who fraudulently claims export tax refunds through false declarations or other deceptive means shall have the amount fraudulently obtained recovered by the tax authorities, and be fined between one and five times the amount fraudulently obtained; if a crime is constituted, criminal responsibility shall be pursued according to law.”

In response to their illegal activities, the tax authorities recovered 1.8316 million yuan of the fraudulent export tax refunds from Hongyi Biological and suspended processing export tax refunds for 19 months.

Currently, Luo Hong, Luo Xintao, Zeng Xucheng, and others have been prosecuted by the First Branch of the Chongqing People’s Procuratorate at the Chongqing First Intermediate People’s Court for suspected crimes of fraudulently claiming export tax refunds and issuing false invoices; Wang Chundong has been prosecuted for suspected sale of illegally manufactured invoices by the same procuratorate.