On 2 July 2014, the SAT issued SAT Bulletin  No. 39 (“Bulletin 39”) to clarify what constitutes the unlawful activity of issuing a fraudulent special VAT invoice. Bulletin 39 took effect from 1 August 2014.
Generally, the issuance of a fraudulent special VAT invoice refers to issuing a special VAT invoice that is not consistent with the actual business transaction. A fraudulent special VAT invoice cannot be used as a legal crediting certificate for input VAT. In addition, the issuance of a fraudulent special VAT invoice may be subject to administrative or criminal liabilities.
In practice, some local tax authorities have been too aggressive and applied the concept of the “issuance of fraudulent special VAT invoices” too broadly. Bulletin 39 aims to correct this misapplication. Under Bulletin 39, the SAT clarified that a taxpayer issued VAT invoice should not be deemed as an “issuance of a fraudulent special VAT invoice” if the following conditions are met:
The taxpayer issuing the invoice has sold goods or provided VATable services to the taxpayer receiving the invoice;
The taxpayer issuing the invoice has collected payment for the goods sold or VATable services provided, or obtained a voucher for claiming the payments from the taxpayer receiving the invoice; and
The relevant content of the VAT special invoice is consistent with the goods sold or VATable services provided, and the VAT special invoice is legally obtained and issued by the taxpayer in its own name.
According to Bulletin 39, issuing a special VAT invoice for a “sale before purchase”, which refers to a seller selling goods and issuing the VAT special invoice before the seller obtains legal ownership of the goods, should not constitute the issuance of a fraudulent special VAT invoice if the three conditions under Bulletin 39 are all satisfied. Previously, “sale before purchase” was viewed by some local authorities as the issuance of fraudulent special VAT invoice. Note that the issuance of a VAT invoice by a taxpayer does not necessary constitute an “issuance of a fraudulent special VAT invoice” when the conditions listed under Bulletin 39 are not met.
Bulletin 39 shows that the SAT is being more prudent in determining the issuance of fraudulent special VAT invoices.