Recently, the State Administration of Taxation ("SAT") has issued the Announcement on Relevant Issues concerning the Determination and Handling of Issuance of Special Value-added Tax Invoices by Evading (Unreachable) Enterprises (the "Announcement") which shall come into force as of the promulgation date.
Based on the definition of an evading (unreachable) enterprise, the Announcement expressly states that where it falls either of two circumstances during the period of existence and operation, one of which is that such the enterprise either evades or disappears directly and doesn't file a tax return, or although it files a tax return, it fills out relevant columns on the VAT Return to prevent the tax authority from making examination and comparison and makes false declaration, special VAT invoices issued during the corresponding period shall be treated as the abnormal proofs for offsetting against value-added tax (the "abnormal proof"). The Announcement provides that where a general VAT taxpayer receives an abnormal proof and has not declared for VAT credits or for export tax rebate yet, it is not allowed to offset against VAT or handle procedures for tax rebate temporarily; where the taxpayer has already declared for tax credits, the input VAT shall be transferred out with no exception. The enterprise may not continue to declare for tax credit or handling procedures for export tax rebate until current provisions on the deduction of input VAT or export tax rebate are satisfied upon verification.