The Latest Regulations for unbilled income in VAT filing


Date:  2018-08-31    Autor:   WU, Jack

Keyword: Unbilled income, white list management

According to “Circular of the State Administration of Taxation on Issuing the Operating Rules for the Administration of Checking Value-added Tax Returns (for Trial Implementation)(ShuiZongFa[2017] No.124)”, from 1st May 2018, a new comparison method for value-added tax was formally adopted. The operating rules were known as the strictest VAT filing comparison in history. A bit careless will cause the lock of tax-control equipment, which would result in the inability to issue invoices and increase the non-cash cost of the Company. Here is our interpretation of the 124th article, we try to help the Company avoid such potential risks:

A. Scope and Contents of Tax Returns Checking

(I)              Scope of information to be checked

1.     information on value-added tax returns and materials attached thereto (hereinafter referred to as "tax returns").

2.     Value-added tax invoices issued by general VAT payers and small-scale VAT payers.

3.     information on input VAT deduction vouchers obtained by general VAT payers

4.     information on taxpayers' tax paid into the treasury.

5.     record-filing information on VAT preference.

6.     other information required for tax return checking.

(II)            Checking contents

Items

Contents

1. checking of tax returns receipt

checking the logical relationship within a tax return or between/among  two or more tax returns

2. tax return checking

checking invoices, vouchers, record-filing qualifications and  other information against tax returns

3. tax return and tax checking

checking the tax payable declared in the current period against  the tax paid into the Treasury in the current period

According to the background of the Circular 124, the above comparison requirements are further requests from the State Administration of Taxation to the provincial and municipal tax bureaus after the operation of the Golden Taxation System for nearly one year. The document also clearly requires that tax authorities shall set up an exception handling post which mainly responsible for the verification of abnormal comparison results and related processing.

This is also the transformation of tax authorities from “easy entry and strict out” to “strict entry and strict out”.Under the background of big data, the tax authorities should have collected enough analytical data to implement the comparison measures.

We recommend that all financial personnel should ensure that the declared data is accurate and obtain complete proof materials for future reference and inspection.

B. Rules for Tax Return Checking

(I)              General VAT payers

Items

Contents

1.     Output checking

The total amounts or taxes indicated on invoices (excluding  tax-exempted invoices) issued in the current period the total sales amount or taxes,  respectively, declared in the current period.
 Where a taxpayer declares a tax-free sales amount or sales amount subject to  the preferential VAT policy of refund upon collection, the competent tax  authority shall check the record-filing information on its VAT preference,  unless it is exempted from record-filing formalities according to provisions.

2. Input checking

(1) The total amounts or taxes indicated on special input VAT  invoices certified or confirmed in the current period the total input VAT  amounts or taxes on the special invoice used for declaration deduction for  the current period in the tax return concerned.

(2) The total taxes indicated on the customs importation special  VAT payment certificate as checked to be in line with the tax return the  tax amount on the customs importation special VAT payment certificate used  for declaration deduction for the current period in the tax return concerned.

(3) The total VAT amount indicated on the obtained certification  of payment of taxes withheld and remitted the tax amount on the  certification of payment of taxes withheld and remitted used for declaration  deduction for the current period in the tax return concerned.

(4) The total input VAT amount indicated on the obtained  Certification of Export Goods for Domestic Sales the tax amount on the  certificate of input VAT deduction for foreign trade enterprises used for  declaration deduction for the current period in the tax return concerned.

(5) Where the input VAT amount is calculated and deducted based  on the amounts indicated on the relevant vouchers according to policies, the  calculated input VAT amount the amount on the corresponding voucher used for declaration deduction  for the current period in the tax return concerned.

(6) The input VAT amount to be transferred out as indicated in a  table of information of negative special VAT invoices the input VAT amount indicated in the table of information of  negative special invoices whose input VAT is transferred out in the tax  return concerned.

(7) The input VAT amount to be transferred out in a tax return  shall not be less than zero.

3. Payable tax reduction payment checking
The payable tax reduction payment declared in the current period shall be  less than or equal to the reduction payment for the current period as in line  with policies.

4. Prepaid tax checking
The amount of prepaid tax incurred in the current period in a return shall be  less than or equal to the prepaid tax amount.

5. Special rules

(1) The headquarters and branches subject to collected VAT  payment may be exempted from receipt and tax return checking.

(2) Taxpayers filing tax returns on a quarterly basis shall  collect and check the quarterly data.

(II)            Small-scale VAT payers

Items  / Contents

1. The amount of special VAT invoice issued in the current  period the sales amount on the special VAT invoice filled in in the  tax return concerned.

2. The amounts of standard VAT invoices issued in the current  period the sales amounts on the standard VAT invoices filled in in the  tax return concerned.

3. The prepaid tax amount in a tax return the actually prepaid tax  amount.

4. Where a taxpayer declares a tax-free sales amount, the  competent tax authority shall check the record-filing information on its VAT  preference, unless it is exempted from record-filing formalities according to  provisions.

The tax payable declared by a taxpayer in the current period shall be less than or equal to the tax amount actually paid into the treasury.

C. The tax equipment will be locked in the following 3 situations:

According to the information of the local tax officers we received, and the No. 124 Circular, “the tax bureau can set the declaration comparison rules for the specific items of the declaration according to the VAT risk management”, the following cases areset as specific items of declaration, once it happens, the tax equipment will be locked and will cause the inability to invoice:

From May 1st onwards, a new method of comparison of VAT will be officially implemented. In the following three cases, the tax equipment will be locked and cannot be invoiced.

(I)              The tax equipment will be locked if the unbilled income column is filled with negative numbers

In the past, lawless elements used the “unbilled income” column to fill in negative numbers arbitrarily, resulting in “violent sinfulness” of illegal acts. Therefore, the ShuiZongFa [2017] No.124 file amended this defect accordingly. After the implementation of this rule, if the unbilled income is reported as negative, the comparison will be abnormal. After the tax control equipment is locked, the taxpayer must go to the tax authorities, and the tax authorities will set up an abnormal handling post to verify the abnormal comparison results. Unauthorized taxpayer tax control equipment can be unlocked after verification.

According to the principle of VAT liability, as long as the taxable behavior occurs, that is, the taxpayer has received the payment or has obtained the credentials of sales payment, even if the invoice has not been issued, the tax liability has already occurred which resulting in unbilled income. However, if an invoice is issued for this transaction in the future, since the same transaction should not be subject to taxation twice, the taxpayer should subtract the declared unbilled income from the total invoiced sales for the current period when reporting the VAT.

Prior to Circular 124, taxpayers could resolve unusual issues by filling in negative numbers in the “Unbilled Income” column in the Schedule 1 of the VAT tax return. However, there arelogical draw backs in this way of reporting. Therefore, Circular No. 124 of the General Tax Administration of the People's Republic of China (2017) modifies this defect. Thus, after May 1st, taxpayers need to pay attention to the following matters when reporting unbilled income:

1.     During the period of non-billed tax liability, the value-added taxis still to be listed in the "unbilled income" column with positive sales number, while the taxpayer should retain relevant evidence, such as contracts, collection records, etc., for future verification.

2.     If the unbilled income is invoiced in the future, during the period of invoicing, the declared VAT shall not be entered as negative in “unbilled income”, but shall be calculated by subtracting the declared unbilled income from the invoiced sales, and fill in the appropriate column for "Invoicing income"

3.     Regarding on the abnormal comparison caused by the second operation, since it cannot be reported online,it will need to be reviewed according to the requirements of the tax authority.Additionally, the taxpayer should submit corresponding evidence to prove that the difference is consistent with the amount of unbilled income which declared in the previous period and apply for normal reporting and unlock tax equipment

At the same time, we have noticed that Document No. 124 also stipulates that “the competent tax authorities may add taxpayers who have special circumstances such as the collection method and the invoice issue into white list in conjunction with the application of the registration comparison, and determine according to the actual situation. White list is implemented with dynamic management.” Therefore, we recommend that enterprises who do such business frequently shall declare white listmanagement as early as possible to save time on the monthly tax trips to the tax bureau.

(II)            The tax equipment will be locked if the amount in column of input VAT to be transferred out is negative

In the past, taxpayers filled in“negative numbers” in column of input VAT to be transferred out to increase input VAT and reduce tax payments. After the promulgation of the new regulations, if the amount of input VAT to be transferred out is negative, the tax equipment will be locked and lead to abnormal comparisons. The taxpayer must go to the tax authority for verification and unlock the tax equipment if there are no problems after inspections. Otherwise, the invoice cannot beissued.

(III)           The tax equipment will be locked if the declaration of tax-free sales or immediate rebate policy is not recorded in tax office

Except for the policy of small and micro-exemption of value-added tax, taxpayers who enjoy other VAT exemptions shall fill necessary procedures in tax office before making the declaration.Otherwise, the tax equipment will be locked and lead to abnormal comparisons.  The taxpayers should go tothe tax authorities for unlocking. Although such kind of abnormal comparison will be unlocked by tax authorities directly. While the round-trip to tax authorities is time-costing and inconvenience and the locking of tax equipment will give rise to unable for invoice issuing. It is recommended that the taxpayers should apply for relevant tax favorable procedures before filing tax exemption declaration.

Service Could be provided by ECOVIS Ruide China

As you can see, the appearance of Circular 124 means that the era of big data comparison has finally arrived. It also means that financial personnel need to be more cautious. If you have any questions concentrating on Circular 124 or have demand for corporate tax returns, please feel free to contact our professional staff.


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