Oriental Venture responds to regulatory letter: Export business has commercial substance; additional tax payments will reduce net profit by approximately 30.98 million yuan in 2025.

Orient International Venture Capital Co., Ltd. (Securities Code: 600278, Securities Abbreviation: Dongfang Chuangye) issued an announcement on March 28 to respond to the Shanghai Stock Exchange’s regulatory work letter previously issued to the company, titled “Regulatory Work Letter Regarding Certain Matters Concerning Orient International Venture Capital Co., Ltd.” (SSE Letter [2026] No. 0456). In its response, the company provided detailed explanations of the specific circumstances of the purchase-and-sale activities involved in the relevant cases, the implementation status of internal controls, the reasons for any back payment of taxes and its impact, and stated that the relevant business has commercial substance and that its accounting treatment complies with the provisions of the Accounting Standards for Business Enterprises.

The announcement shows that in early 2020, the company received an order from customer DOLPHIN MARINE ENGINEERING & TRADING CO., LIMITED for exporting tennis strings and badminton strings to the United States. Subsequently, it established supply relationships with three suppliers—Shanghai Yihongsheng Technology Co., Ltd. (formerly Shanghai Yihong Technology Co., Ltd.), Shanghai Wangao Sports Technology Co., Ltd., and Shanghai Yuying Sports Technology Co., Ltd.—with the business model being general trade export, the export port being Shanghai, and the destination being Los Angeles, United States.

From May 2020 to August 2023, the company cumulatively recognized revenue from this export business of RMB 165.2718 million and applied for and obtained total export tax rebates of RMB 193.092 million. The company accounted for this principal business revenue using the gross method, based on product prices being determined through market pricing, and the company maintained control of the goods throughout the process of transporting products from within China to abroad and bore the foreign exchange collection risk.

Regarding the commercial substance of the business, the company stated that the sales and procurement prices are determined by market pricing. It first negotiated with the overseas buyer to determine the sales quantity and price, and then negotiated with the supplier to determine the procurement quantity and price. In terms of cash flow, the overseas buyer pays the full purchase price in a single payment after the goods arrive at the destination port; the company pays the purchase price after receiving the supplier’s goods and the VAT invoice. In terms of logistics flow, the company entrusts a freight forwarder to handle customs clearance export and transportation, obtains the bill of lading (showing the shipper as the company), and after receiving the payment, delivers the bill of lading to the overseas buyer, thereby transferring the right to the goods. The company bears the risk of the goods during the period from obtaining the right of control to transferring it to the overseas buyer; price risk is controlled through a “procure based on sales” approach.

The reconciliation relationship among export business revenue, customs declaration data, and the amount of export tax rebates shows that the total customs declared amount is USD 251.960 million, the company’s actual recognized revenue amount is USD 248.241 million, the difference is USD 3.719 million, the difference rate is 1.48%, and it falls within a reasonable range. The export tax rebate amount of RMB 193.092 million is the amount of VAT invoice tax on the purchased goods that the company actually declared to the tax authorities.

The company also disclosed that, according to the requirements of the tax authorities, it needs to pay back taxes and late payment surcharges of approximately RMB 41.31 million. After deducting income tax, it will reduce net profit for 2025 by approximately RMB 30.98 million. This back-paid tax does not fall under the category of prior-period errors under the Accounting Standards for Business Enterprises, and it does not involve any restatements or adjustments to prior-period financial data.

Regarding the issue that the VAT invoices issued by the suppliers were determined to involve fictitious invoicing, the company stated that at the time it received the invoices, all of them passed scanning and certification or selection-and-review in the tax system. In the process of declaring export tax rebates, there was no abnormality, and the tax rebate payments were received on time. The company said it had no knowledge of the fictitious invoicing invoices and did not participate. The company noted that before the case occurred, its means and capabilities to directly and effectively identify fictitious invoices were limited, but it had taken measures to strengthen dynamic control and assessment of suppliers, including requiring suppliers to provide tax arrears-free proofs.

As for the reasons for the back payment and refund of taxes, it is mainly because the business invoices issued by the suppliers were characterized by the tax authorities as fictitious invoicing. According to relevant regulations, the tax authorities required the company to recover the export tax rebate funds that had already been withdrawn, amounting to RMB 193.092 million. They treated it as VAT to be levied on domestically sold goods totaling RMB 192.010 million, and also pursued the following taxes: city maintenance and construction tax of RMB 1.3441 million, education surcharge of RMB 0.5760 million, and local education surcharge of RMB 0.3840 million. The company has paid the relevant amounts in full and has initiated the process of selecting lawyers, intending to pursue compensation from the three supplying companies through legal means.

The company emphasized that this matter was caused by the unilateral unlawful and non-compliant conduct of certain suppliers. It is an external, unforeseeable, one-off case and will not have a material impact on the company’s normal operations. After an initial screening, the company has not found any other cases in which suppliers’ fictitious invoicing invoices led to tax authorities taking actions. The company will comprehensively review and screen existing suppliers and improve its supplier management system.

The annual audit accountant reviewed the company’s response and believed that the relevant transactions have commercial substance, and that the accounting treatment, in all material respects, complies with the provisions of the Accounting Standards for Business Enterprises. It does not involve any restatements or adjustments to prior-period financial data. The company has no potential related-party relationships or arrangements of interests with the three suppliers. There are no major deficiencies in internal control over the relevant financial reports.

In addition, the company stated that it will strengthen internal controls, conduct education and training for its subordinate subsidiaries and business departments, closely track developments in public opinion, respond to market concerns in a timely manner, and do a good job in investor communications and explanations.

The basic information of the three suppliers is as follows:

Click to view the full text of the announcement>>

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Responsible editor: Xiao Lang Express