Chinese tax authorities unveiled a case in which a media company managing livestreamers and a financial consultancy was found to have allegedly used false invoices to illegally evade taxes worth more than 32 million yuan ($4.4 million) while claiming a government subsidy of some 30 million yuan.

The State Taxation Administration said on Monday that the Huizhou Gaofushuai Cultural Media Company, an MCN (multi-channel network) firm based in Huizhou, Guangdong province, allegedly used 10 shell companies to issue 1,196 invoices amounting to 226 million yuan. The invoices, in turn, allowed some 700 livestreaming hosts to evade personal income taxes worth over 32 million yuan combined.

According to the administration, the case surfaced when tax officials noticed that no personal income taxes were declared by the Gaofushuai company, while its invoices detailing costs, which were huge, mostly came from only about a dozen companies outside the province — an irregularity deemed by officials.

Normally, after viewers tip hosts during livestream sessions by sending virtual gifts, the hosts' media agency would receive the money from video platforms, deduct reasonable commissions and pay the hosts, while also paying their personal income taxes on their behalf.

Deeper digging by tax authorities found that the companies issuing the invoices were, in fact, shell companies whose only purpose was to mask the real earnings of the livestreamers.

By disguising tips the hosts received as "information technology service fees" on the invoices, the Gaofushuai company declared the portion as the company's cost so that it may be deducted from the taxation of value-added taxes that the company should pay, investigators allege.

In cooperation with public security departments, multiple suspects were identified, the tax administration said, adding that the company also evaded some 21 million yuan in taxation.

Further down the line, investigators found that Guangzhou Jiuyi Finance and Tax Consultancy in Guangdong may have orchestrated the whole scheme.

Jiuyi had established the shell companies to issue invoices to help its clients evade taxation while receiving a portion of the tax refund — about 30 million yuan so far — by exploiting favorable policies of an industrial park where these shell companies are registered, investigators said.

The industrial park failed to track the true status of operation of the shell companies, the tax administration added.

A total of 40 suspects have been detained in the Jiuyi case, the administration said, adding that the Gaofushuai company was ordered to pay the taxes, late fees and fines. Principal suspects of Jiuyi have been transferred to prosecutors pending trial.

Tax authorities investigated 169 livestream influencers last year, and some 899 million yuan of overdue taxes have been paid, according to the administration.

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