(Yicai Global) March 20 -- Chinese police have successfully solved the country’s first case of producing false value-added tax invoices using hacking techniques, involving over CNY100 billion (USD14.5 billion), after a two-and-a-half-year investigation.

The main culprit, surnamed He, was able to inflate the refined oil inventories of a company controlled by the gang, by hacking into the system and issuing false VAT invoices which it would then sell to oil firms to help them claim back VAT, according to an announcement made by police in Anshan, northeastern Liaoning province on March 17.

In China, invoices for refined oil must correspond with inventory and the purchase volumes and sales volumes are strictly compared, Robert Li, the Indirect Tax Leader at the China branch of UK professional services network firm PwC, told Yicai Global.

This criminal gang was able to tamper with data and inflate the inventory of refined oil so as to produce fake purchase invoices, Li said. In China, VAT is calculated as the sales tax minus the purchase tax. And it is the country’s largest tax category.

The gang, which had been issuing such invoices since February 2020, was able to make a profit of between CNY200 (USD29) and CNY300 per ton of refined oil purchases.

In the era of big data, tax authorities need to pay more attention to the security of underlying data, strengthen cooperation between departments and enhance supervision by introducing third-party agencies, Tian Binbin, a professor at Zhongnan University of Economics and Law, told Yicai Global.

The ringleader He was sentenced to 12 years in prison, and 13 other key members were sentenced to between three and 10 years in jail, while the remainder still await trial, Anshan police said. The verdict was first announced in February.

The refined oil industry has always been a key focus of invoice supervision. Because of its complex product categories, the large number of companies and the huge sums involved, there is greater difficulty in monitoring it than in other industries, Li said.

Editors: Dou Shicong, Kim Taylor