Splitting payroll with fake VAT invoices: CNY 257,122.06 for an employee-benefits scheme

The decision at a glance

Company

Shanghai Xiaosou Culture Communication Co., Ltd.

Decision document

沪税稽一罚[2026]94号

Authority

First Inspection Bureau, Shanghai Tax Service, State Taxation Administration

Decision / publication

2026-04-08 / 2026-04-07

Total penalty

CNY 257,122.06

What happened

The company obtained VAT special invoices that did not correspond to real purchases, used them to split employee salary declarations, and offset the invoices against input VAT. When the scheme unravelled, its employees had to correct their individual income tax annual reconciliations and pay back taxes plus late-payment surcharges themselves — and the employer was fined on two tracks: the VAT it had underpaid, and the withholding tax it had failed to deduct.

Penalty breakdown

• CNY 79,688.76 — 50% surcharge on underpaid VAT and urban construction tax for offsetting input VAT with fraudulently obtained invoices (Article 63(1))
• CNY 177,433.30 — 50% fine on individual income tax it failed to withhold, after employees corrected their annual reconciliations and paid arrears (Article 69)

Why it matters for SMEs

Payroll optimisation via invoice-like structures has been one of the most common SME tax schemes in China, often sold by intermediaries as a compliant benefit. This decision shows the endpoint: the company pays fines on both the VAT and the withholding side, and employees inherit a compliance problem of their own. Under Golden Tax Phase IV, invoice flows, payroll declarations and individual income tax reconciliations are cross-checked — the mismatch is visible without a field audit.

How Shoushuibao relates to this risk

Payroll-structure risks are one of the 20 risk classes the Shoushuibao scan covers; the questionnaire flags salary-splitting patterns and invoice-offset payroll arrangements before they compound.

Sources

Penalty decision published on the Shanghai tax authority's public disclosure page (original in Chinese): 行政处罚公示 · document No. 沪税稽一罚[2026]94号. Chinese-language case page in our library: 沪税稽一罚[2026]94号. Figures in this article are taken verbatim from the published decision; the official document prevails.