China Reports Major VAT Evasion Across Multiple Firms

On November 17, 2025, the Chinese State Taxation Administration released three tax announcements on several VAT fraud cases. The cases were discovered by the Tax Authorities across China and involve various methods by which taxable persons evaded taxes and defrauded the state.

Overview and Key Insights from VAT Fraud Cases

The Nanning Municipal Tax Service uncovered a tax evasion scheme by Guangxi Gugugou Business Secretary Co., Ltd., which had been hiding its real revenue by spreading income across related companies and repeatedly shifting employees between them. By doing so, the company wrongfully qualified for preferential tax treatments intended only for small VAT taxable persons and small and micro businesses.

Moreover, between 2020 and 2022, the company underpaid more than CNY 1.18 million (around USD 166,000). In May 2024, the Tax Authority issued a formal penalty decision ordering the recovery of all unpaid taxes, including late payment penalties and interest, resulting in the collection of CNY 2.5 million (approximately USD 352,000).

The second case of a tax evasion scheme was detected by the First Inspection Bureau of the Anshun Municipal Tax Bureau, which determined that between 2021 and 2023, the company Anshun Centennial Wedding Banquet had been diverting revenue to two shell individual businesses it created. Additionally, the company maintained parallel sets of accounts, split its income across these entities to hide its actual earnings, submitted false tax declarations, and underpaid VAT by CNY 2.5 million.

In September 2024, the Tax Authority issued a tax notice requiring the repayment of due taxes, including penalties and interest, bringing the total amount to CHY 4 million (nearly USD 563,000). Since the company did not comply with the requirements, the case has been referred to the public security authorities for further investigation.

Among six publicly revealed VAT fraud and evasion cases, the most valuable one was uncovered by the First Inspection Bureau of the Changzhou Municipal Tax Service. In this case, the Tax Authority found that, from 2021 to 2022, Changzhou Martin New Energy Technology Co., Ltd. fraudulently obtained VAT refunds by concealing portions of its business revenue. By diverting sales revenues to a personal account and submitting false declarations, the company illegally obtained CHY 3.93 million in VAT refunds. 

After investigating this case, the Tax Authority requested the recovery of unlawfully obtained VAT refunds, totaling CHY 13.28 million (nearly USD 1.87 million), including all penalties and interest. Similar to the previous case, the company did not make the required payment. Thus, the Tax Authority forwarded this case to the public security authorities.

Conclusion

The cases presented by the State Taxation Administration only further solidify the need for reform of the Chinese VAT system. Nonetheless, the findings point to a pattern among taxable persons: splitting or otherwise hiding their revenues, submitting false declarations, making fraudulent refund claims, or underpaying their due taxes. However, once detected, fraudsters have the option to make the required payment or face further investigation and processing by the public security authorities.

Source: State Taxation Administration - Hainan Yuehongyuan Tire Trading Co., Ltd, State Taxation Administration - Qianlixing Gas Station, State Taxation Administration - Three cases of fraudulently obtaining tax benefits