Recently, in the "Dirty Lenses" operation in Italy, 46 Chinese-owned eyewear companies were investigated for tax fraud, involving more than €83 million, with 52 legal entities and directors referred to the prosecution; while domestic Xinghui Shares was retrospectively investigated for four years, with net profit shrinking by 40%. Whether overseas or domestically, old accounts are being pursued more rapidly.

The "operational space" that cross-border sellers used to rely on is disappearing quickly, and the risks have spread from tax issues to capital, logistics, and even the bottom line of corporate survival.

01, 46 Chinese Eyewear Companies Investigated

According to foreign media TREVISO TODAY, recently, the financial police in Conegliano, Italy, carried out a special operation named "Dirty Lenses", cracking a major transnational tax fraud case in the eyewear industry. The case involved more than €83 million, evading about €18 million in value - added tax, and involved 46 Chinese - operated eyewear companies, which were distributed in central - northern Italy and many areas in Campania region.

Upon investigation, the involved enterprises formed a typical illegal operation chain: among the 46 companies, 35 were shell companies without actual operations and production capacity, mainly used for issuing false invoices, increasing costs and reducing book - recorded revenues for another 11 actually operating eyewear enterprises through this way, so as to defraud tax preferences and evade taxes. Relying on this illegal model, the involved actual enterprises could sell products at prices far lower than the market average price, seriously disrupting the fair competition order in the local eyewear industry.

Image source: TREVISO TODAY

The core investigation target in this operation was an eyewear and frame manufacturing enterprise in Valdobbiadene. This enterprise issued hundreds of false invoices through 5 shell companies to cover up its accounts, and the amount of tax evasion alone exceeded €3.5 million. The local tax authorities have initiated high - value asset seizure against it, with the total seized amount reaching €10 million, covering all core assets such as production equipment, cash, and customer arrears.

At present, 52 corporate legal persons and directors in this case have been referred to judicial authorities on suspicion of issuing false invoices, tax fraud and other charges, and the value - added tax numbers of 12 surviving involved shell companies have been cancelled.

This time, Italy's strict investigation of Chinese foreign trade enterprises may bring all - round risks to cross - border eyewear sellers in the European market.

Firstly, the supply chain - related risks have increased significantly. After this investigation, the local tax authorities may carry out normal extended inspections on factories, logistics, and financial and tax institutions cooperating in the upstream and downstream of this industry. If there are illegal problems such as issuing false invoices and under - reporting revenues in the cooperating supply chain, sellers' purchase, logistics, and tax materials will become invalid. Not only will there be supply shortages and inability to perform contracts normally, but also past shipping orders may be investigated. Even if the seller is unaware of it, a large amount of time will be spent on providing evidence and cooperating with tax investigations, and the business rhythm will be severely disrupted.

Secondly, financial and tax compliance risks have been comprehensively upgraded. Tax investigations in Europe have now changed to whole - industry - chain penetrative verification. Sellers' previous speculative means such as inflating costs, using bills to offset taxes, and selling goods at low prices to avoid taxes have basically become invalid. Once recognized as tax fraud, not only will taxes need to be paid back and high fines need to be paid, but also store accounts will be frozen, years of operating income may be recovered, and the persons in charge involved will be referred to judicial authorities.

At the same time, market and store operations are also deeply affected. This rectification will eliminate the industry's low - price internal competition chaos, but the risks of tax - blacklisted enterprises will be transmitted along the transaction link: as long as the seller has goods and capital transactions with the involved enterprises, even if there is no violation on its own, it may be subject to platform risk control, resulting in problems such as traffic restriction, store closure, and temporary withholding of funds.

For all cross - border sellers, financial and tax compliance is no longer an option but a bottom line for survival. Only by standardizing supply chain and tax operations can long - term operation be achieved. Compliance operation is really not just lip service.

02, Tax Retrospective Investigation Is Accelerating

However, compared with being investigated for malicious tax evasion, what enterprises should pay more attention to may be those historical old accounts that have been forgotten.

On June 5th, Xinghui Shares announced that its wholly - owned subsidiary Qingyuan Xinghui needs to pay back corporate income tax of 1.2379 million yuan during the tax self - inspection process from 2020 to 2023, and pay a late fee of 679,500 yuan, totaling 1.9174 million yuan.

Although the amount is not huge, the two signals released in the announcement are worth studying deeply:

One is the time of tax retrospective investigation. The tax payment involved this time is for historical accounts from 2020 to 2023, with a time span of four years. This means that many enterprises think that the old accounts that have been settled and turned over may not really be over, and relevant tax risks may still be traced back.

Second is the "time cost". The tax of 1.23 million yuan, plus nearly 680,000 yuan of late fees, amounts to nearly 1.92 million yuan in total. And this expenditure directly eats up nearly 40% of the company's net profit in the previous year.

For enterprises, this incident is not just about tax payment itself, but also about the cost amplification effect brought by time. A tax treatment difference that seemed insignificant at the time, a controversial cost or expense, or even an irregular declaration operation may not show risks immediately during stable operation. But over time, once it is traced and verified, and combined with late fees, the final cost paid is often much higher than the taxes saved at the beginning.

In fact, what is reflected behind this is not the problem of individual enterprises, but the change in the overall tax supervision logic.

In the past, some sellers always thought that there was a certain room for operation in tax issues. For example, under - reporting part of the income, not recording part of the funds, dispersing profits through multiple entities, and even thinking that as long as the platform does not actively provide data, it is difficult for tax authorities to grasp the real operating situation.

But this cognition is rapidly becoming invalid. With the official implementation of the "Regulations on Tax - related Information Submission of Internet Platform Enterprises", many "grey spaces" formed by relying on information asymmetry are being filled bit by bit by data.

This is also why recently, some sellers have received phone calls, investigation letters, and notices of obtaining account books from tax authorities one after another. The focus of supervision is no longer just whether taxes have been paid, but whether the data declared by enterprises is consistent with the actual operating situation.

For cross - border sellers, the real risk may no longer be how much money they have made this year, but how much uncleaned - up accounts they have left in the past few years.

Even listed companies have their profits cut by nearly 40% due to historical tax problems. For small and medium - sized sellers with weaker financial foundations and more limited capital reserves, once the old accounts are turned over, the pressure they face is often greater.

Under such a background, instead of waiting for inspections with a fluke mentality, it is better to take the initiative to have a comprehensive "tax physical examination" now. Because in the future, the most expensive cost may not be taxes, but procrastination.

(Source: Hugo Cross - border Editorial Department)

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Seller's Home Review

Cross - border compliance risks have increased sharply, and overseas tax investigations have escalated from individual cases to systematic actions. It is recommended that sellers immediately self - inspect historical tax declarations, especially pay attention to the compliance of European VAT and profit transfer, to avoid becoming the next target of retrospective investigation.

Source: Hugo Cross - border
Original link: https://www.cifnews.com/article/186679