On November 27, 2018, the Issuance Examination Committee of the China Securities Regulatory Commission officially denied the first issue of Guoke Hengtai. According to the Shanghai Stock Exchange, the Issuance Examination Committee mainly focused on the distribution model and distribution behavior of Guoke Hengtai, and whether it met the policy requirements of the "two-vote system" became the focus of attention.

According to public information, Guoke Hengtai (Beijing) Medical Technology Co., Ltd. is affiliated to Oriental Science Instrument Import and Export Trading Co., Ltd., a subsidiary of the Chinese Academy of Sciences. At present, Guoke Hengtai has 38 subsidiaries across the country. Despite its strength, its business model and compliance still face some questions. At the first meeting on August 14, 2018, after the CSRC gave a "suspended voting", on November 27, 2018, the CSRC's Issuance Examination Committee officially denied the first issue of Guoke Hengtai. According to the "Shanghai Securities News", the Issuance Examination Committee mainly focused on the distribution model and distribution behavior of Guoke Hengtai, and whether it met the policy requirements of the "two-vote system" became the focus of attention.

1. The impact of the two-vote system on the pharmaceutical industry

"Two-invoice system" means that the sales of drugs, medical devices and consumables from the manufacturer to the first-level distributors issue an invoice, and the distributors sell to the hospital to issue an invoice again. Circulation.

In April 2016, the State Council issued the "Key Tasks for Deepening the Reform of the Medical and Health System in 2016", which clearly pointed out that pilot cities for comprehensive reform of public hospitals should be actively encouraged to implement the "two-invoice system", compress intermediate links, and reduce falsely high prices. In 2017, eight ministries and commissions including the Medical Reform Office of the State Council, the National Health and Family Planning Commission, the State Food and Drug Administration, and the National Development and Reform Commission jointly issued the "Implementation Opinions on Implementing the "Two-Invoice System" in Drug Procurement in Public Medical Institutions (for Trial Implementation). The General Office of the State Council further issued the "Key Tasks for Deepening the Reform of the Medical and Health System in 2017", requiring that by the end of 2017, all public medical institutions in the pilot provinces of comprehensive medical reform and the first four batches of 200 pilot cities for comprehensive reform of public hospitals fully implement the "two-vote system". ", to encourage other regions to implement the "two-vote system".

At present, the "two-invoice system" policy is mainly aimed at the procurement of medicines, and for the procurement of high-value medical consumables, no clear policy documents have been issued at the national level. Some provinces and cities took the lead in implementing the "two-invoice system" for high-value medical consumables.

Taking Shanxi as an example, on March 15, 2017, Taiyuan Municipal Leading Group Office for Deepening Medical and Health System Reform, Taiyuan Municipal Development and Reform Commission, Taiyuan Municipal Economic and Information Commission, Taiyuan Municipal Bureau of Commerce, Taiyuan Municipal Health and Family Planning Commission , Taiyuan Food and Drug Administration and Taiyuan State Taxation Bureau issued a notice on printing and distributing the "Taiyuan Public Medical Institutions Purchasing "Two Invoices System" Notice (Trial)" (Liao Wei Fa [2017] No. 29) ). states:

"A wholly-owned or holding commercial company (only one commercial company in the country) established by a pharmaceutical and medical consumables manufacturing enterprise or a group-type enterprise integrating science, industry and trade that only sells its own (group) pharmaceuticals and medical consumables, and overseas pharmaceuticals, The domestic general agent of medical consumables (only one domestic general agent in the country) can be regarded as a production enterprise. Drugs and medical consumables circulation group enterprises transfer drugs to wholly-owned (holding) subsidiaries or between wholly-owned (holding) subsidiaries , medical consumables, and those that need to be invoiced according to laws and regulations do not belong to the "two-invoice system" category, and a maximum of one invoice is allowed."

According to the prospectus, Guoke Hengtai's sales model includes sales to hospitals through distributors (ie, distribution model) and direct sales to hospitals (ie, direct sales model). Among them, the distribution model is the company's main sales model. According to the public data in the prospectus of Guoke Hengtai, during the reporting period, the distribution model accounted for an average of 98.10% of the revenue, and the direct sales model accounted for an average of 1.90% of the revenue.

Assuming that the "two-invoice system" for medical devices and medical consumables will be rolled out nationwide in the near future, then whether Guoke Hengtai's purchasing entity can be identified as a "deemed manufacturer" will have a significant impact on its profitability. Because most of Guoke Hengtai's upstream suppliers are overseas consumables manufacturers, Guoke Hengtai's sales to distributors belong to the "first vote", and the dealer's sales to hospital terminals belong to the "second vote". Meet the "two-vote system" requirements. However, according to the rules specified by some provinces, Guoke Hengtai has been classified as not being a "deemed production enterprise" in some places. In these places, Guoke Hengtai will have to change its business model or take on more taxes, both of which will cut into profits.

2. The tax risks caused by the "two-invoice system" should not be underestimated

After the full implementation of the "two-invoice system", pharmaceutical companies have returned to the transformation and opened higher, with extremely high sales expenses, serious imbalances in ratios, and huge tax risks! Due to the high revenue of pharmaceutical companies, the difficulty of reconciling commission expenses, and the unreasonable structure of expenses that cannot be fully deducted before tax, some pharmaceutical companies take risks, use false invoices to offset accounts, or receive a large number of consulting fees from CSO companies, Promotional fees, advertising fees and other types of invoices. However, the National Audit Office of many provinces has characterized the billing behavior of such third-party service companies with titles such as "consulting management services", "medical technology consulting", and "information technology" as "money laundering", focusing on cracking down on such fake CSOs as well as ticketed pharmaceutical companies.

Once audited, they will face administrative penalties in lightest cases, and criminal liability in heavy cases. From the perspective of administrative law, according to the provisions of Article 22 of the "Invoice Management Measures", all false invoices are issued for others and for themselves, allowing others to falsely issue for themselves, and introducing others to falsely issue false invoices. According to the provisions of the thirty-seventh provision of the Measures, the administrative responsibilities for false invoices include: input tax transfer, confiscation of illegal income, fines, etc. Those who evade corporate income tax by falsely issuing invoices to list costs and expenses, need to pay corporate income tax, late payment fines, and face fines. In addition, according to the relevant provisions of the State Administration of Taxation's "Measures for Information Publication of Major Tax Violation Cases", 8 types of tax violation cases including falsely issued special VAT invoices and ordinary invoices that reach a certain amount involved in the case must be announced to the public. The published content includes information such as the facts of the violation, legal basis, and handling and punishment. Enterprises whose major tax violation cases have been announced are directly judged to be Class D for tax payment, and the corresponding Class D taxpayer management measures shall be applied; the tax authorities shall provide the parties' information to the relevant departments involved in the implementation of joint disciplinary action, and the relevant departments shall punish the parties in accordance with the law. Take joint disciplinary and management measures, including restrictions on holding positions such as legal representatives of enterprises, reference restrictions on financing and credit granting by financial institutions, and prohibition of participating in government procurement activities.

In terms of criminal liability, based on the Criminal Law and the Supreme People's Court's Notice on Issues Concerning the Criteria for Conviction and Sentencing of Falsely Issuing Special Value-Added Tax Invoices (Fa [2018] No. 226), if the amount of tax falsely issued is more than RMB 50,000, The crime of falsely issuing special value-added tax invoices shall be sentenced to fixed-term imprisonment of not more than 3 years or criminal detention, and a fine of not less than 20,000 yuan but not more than 200,000 yuan; if the amount of falsely issued tax is not less than 500,000 yuan, it shall be determined as a crime stipulated in Article 205 of the Criminal Law. "The amount is relatively large" (that is, if the amount is relatively large or there are other serious circumstances, it shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years, and a fine of not less than 50,000 yuan but not more than 500,000 yuan); If the amount is more than 10,000 yuan, it shall be determined as a "huge amount" as stipulated in Article 205 of the Criminal Law (that is, if the amount is huge or there are other particularly serious circumstances, it shall be sentenced to fixed-term imprisonment of not less than 10 years or life imprisonment, and shall also be sentenced to not less than 50,000 yuan and 500,000 yuan) the following fines or confiscation of property).

3. Pharmaceutical companies seeking to go public need to pay attention to the risks brought by the "two-vote system"

(1) Pay attention to policy trends and flexibly adjust corporate strategies

For the update of the "two-invoice system" policy, there are certain differences in the implementation method, implementation time and scope of implementation in different places. Therefore, in order to strengthen the follow-up and implementation of the national "two-invoice system" policy, qualified pharmaceutical and consumables enterprises The business department, financial department and legal risk control department should be integrated, pay close attention to the implementation progress of the "two-invoice system" for medical consumables in various regions of the country, and adjust the company's market strategy in a timely manner to avoid the risk of violations of policy switching.

(2) Deeply cultivate the upstream and downstream, and seek cooperation in terminal distribution

In the context of the implementation of the "two-invoice system" policy, strengthening the coverage of terminal hospital services should be the primary task of platform distributors under the background of the implementation of the "two-invoice system". It is recommended that medical consumables companies continue to devote themselves to in-depth construction of the medical device distribution supply chain on the one hand, continue to expand the number of agent brands and product lines upstream, and increase the depth and breadth of cooperation with the original factory; further sink channels in the downstream, and continuously improve the coverage of terminal sub-warehouses Scope, give full play to the company's scale and platform advantages, so as to obtain more hospital customer resources through the platform advantages. On the other hand, the small and medium-sized dealers who originally dealt directly with hospital sales, due to the risk of transitioning or withdrawing from sales channels, also actively sought cooperation with national logistics platforms. The company gradually cooperated with dealers with excellent qualifications in various provinces and cities across the country The terminal billing sales and terminal distribution business carry out joint ventures and cooperation.

(3) Provide one-stop platform distribution services

It is suggested that qualified medical consumables companies can directly open up the sales channels of upstream original factories and terminal hospitals through one-stop platform distribution services, and consolidate platform distributors in terms of information system, channel construction, diversification of agency brands and financial strength. functions.

(Note: Part of the content comes from the prospectus of Guoke Hengtai)

Conclusion: Guoke Hengtai is the first company to apply for listing that was frustrated due to the "two-vote system". The China Securities Regulatory Commission has raised many doubts about its business model, and these doubts have also sounded the alarm for pharmaceutical companies and medical consumables companies that are seeking to go public: the two major problems under the two-vote system: compliance and tax reduction, if not properly resolved, The listing is far in the future.