Lifang & Partners was recently retained in a major criminal case involving suspected false issuance of VAT special invoices. The team—led by Peng Ruoyu, partner in the Beijing office, and Li Bing, partner in the Shenzhen office, with team lawyers Wu Xinnan and Pan Jiameng—represented the defendants. After more than a year of work and a public first-instance trial, the procuratorate withdrew the prosecution, and both defendants received non-prosecution decisions. This was a strong result: while not unheard of, obtaining a non-prosecution decision after a first-instance trial is difficult to achieve in Chinese criminal practice.

Case Background

The two defendants were shareholders and senior executives of a private equity investment fund. To reduce its corporate income tax liability, the company conspired with a third-party company to falsely issue VAT special invoices. More than 50 such invoices were issued, involving over RMB 1 million in VAT, and were used to claim tax deductions. As a result, the company underpaid corporate income tax by more than RMB 10.69 million. The public security authorities have transferred the case to the procuratorate for review and prosecution on suspicion of the crime of falsely issuing VAT special invoices.

Defense

Our team entered the case during the public security investigation, sought bail pending trial for the clients, and pressed the company to pay all back taxes, late fees, and fines in full.

At the review-for-prosecution stage, defense counsel repeatedly engaged the prosecutor and argued that the conduct did not constitute falsely issuing VAT special invoices, but tax evasion, and should not be prosecuted.

After two remands for supplementary investigation, the procuratorate changed the charge and indicted both defendants for illegally purchasing VAT special invoices.

At first instance, defense counsel maintained the not-guilty position. After the hearing, the procuratorate withdrew the prosecution and recently granted both defendants non-prosecution decisions.

Significance

The case reflects the practical challenges in applying tax-crime legislation, judicial practice, and criminal policy. The defense addresses the boundary between invoice-related offenses, making it highly relevant in practice.

The non-prosecution outcome was hard-won and is a recent highlight for Lifang’s criminal team in economic crime defense. The team will continue to provide practical, prudent criminal legal services grounded in professional expertise.