'Yin and yang' contracts identified as tax evasion

China's top judicial authorities have identified so-called "yin and yang" contracts as tax evasion in a newly released legal document, in order to maintain the market order and serve high-quality social development.

The identification has been highlighted in a judicial interpretation on handling tax-related offenses, which was jointly issued by the Supreme People's Court and the Supreme People's Procuratorate on Monday.

It is the first time that the judicial authorities clearly deem the "yin and yang" contracts as a behavior of tax evasion, aiming to help prosecutors and judges solve tax-related cases more effectively and apply the laws more accurately.

Yin and yang contracts, or twin contracts, refer to two documents being produced for the same agreement. One expresses the parties' true intentions, while the other, with a lower sum to minimize taxation, is presented to tax agencies.

Naming the contract as a new type of tax-related crime and saying it was frequently found in the entertainment industry, Teng Wei, chief judge of the SPC's No 4 Criminal Adjudication Tribunal told a news conference that the judicial interpretation is a strong legal basis for tackling relevant cases.

In response to the recent years' rapid growth of export tax refund fraud, she added that the interpretation also lists eight circumstances in which documents can be defined as scams.

For example, fraudulently using others' export businesses to declare export tax rebates, or falsely reporting the functions and uses of export products are considered to be export tax refund fraud in line with the interpretation.

In recent years, China has stepped up efforts to combat tax-related violations and crimes, making every effort to safeguard the national tax security.

Data provided by the SPC showed on Monday that Chinese courts concluded 30,765 tax-related criminal cases in the past five years, with 48,299 people given sentences.

Chinese police solved more than 16,000 cases involving taxation last year, helping the country recover 3.7 billion yuan ($514 million) in economic losses, according to the Ministry of Public Security.

Prosecutors nationwide have also attached great importance to the tax field, accusing 54,176 people of tax-related crimes from January 2019 to December 2023, Yu Shuangbiao, said an official from the SPP.

He revealed that a major crime the defendants were prosecuted focused on the export tax refund fraud, adding that taxation regulation is facing new challenges in new areas, including e-commerce and livestreaming.

To solve the problems, Chinese taxation departments have tightened the supervision, Fu Liping, an official from the State Taxation Administration, said on Monday.

In 2023, for instance, tax agencies investigated and punished 135,000 entities suspected of illegally paying taxes, recovering 181 billion yuan in tax losses, she said.

Meanwhile, 8,228 suspects were captured under the cooperation of the tax departments and public security bureaus, she added.