Cops bust five groups trading VAT invoices

Shanghai police have busted five criminal rings that helped about 5,900 companies around the country dodge 590 million yuan ($96.22 million) in taxes, officials said at a press conference Wednesday.

"The case is the largest one of its kind," said Zhu Lei, a senior official from the investigation department of the Shanghai Local Taxation Bureau. "It involved the largest number of companies and the largest amount of dodged taxes since 2008."

The criminal rings served as middlemen for companies looking to trade value-added tax (VAT) invoices, which affect how much tax a corporation has to pay.

The suspects controlled more than 70 shell companies in Shanghai whose only business was buying and selling the invoices, according to the Shanghai Public Security Bureau's economic investigation division.

The shell companies bought the invoices for 3 percent of their face value from roughly 1,400 legitimate companies that had unclaimed invoices.

"The initial companies had accumulated a large amount of unclaimed invoices because not every customer asked for one," said Guan Wenji, an official from the taxation authority. "They sold the invoices to the shell companies to earn extra money."

The shell companies then exchanged the invoices to the taxation authorities for new ones that they could sell to other companies looking to reduce their tax liability.

The shell companies sold the invoices at prices ranging from 6 percent to 9 percent of their face value. They had sold invoices with a total face value of 4.4 billion yuan by the time they got caught.

Guan said that the shell companies could tailor the amount and category of the invoices to their clients' needs. They had clients in 28 provinces and regions.

The companies that ended up buying the invoices could then use them to reduce the amount of tax they had to pay.

"It was difficult to detect what the shell companies were doing because they used to be legitimate companies that conducted actual business," said Huan Shaofeng, a chief detective of the economic investigation division.

Zhu said that the tax authorities suspected there was something amiss with the shell companies because there was such a difference between what they bought and what they produced.

Most of the roughly 20 suspects are from Zhejiang Province. Shanghai police arrested them in Zhejiang on July 16 with the assistance of local police.

Huan said that the suspects made a fortune from the operation. The authorities will continue to investigate the companies that sold the invoices to the shell companies. They also aim to get the companies that bought the invoices to pay the taxes they avoided.