Local tax authorities, and customs authorities, in Vietnam, have seen improvements in the collaboration and exchange of information in recent years.
Customs and tax authorities manage tax on different levels and stages of the business chain—i.e. customs authorities manage export, import duties and value-added tax (VAT) imposed on exported and imported goods across the Vietnam border and free-tax zone—whilst tax authorities manage other taxation imposed on goods/services on business flows. Non-compliant taxpayers who attempt to avoid paying the correct amount of tax will be identified due to the cooperation between these two authorities.
With the enforcement of Decision No. 2413/QD-BTC, tax authorities and customs authorities are cooperating more closely and effectively, especially in terms of the tax audit or tax inspection. Therefore, taxpayers, particularly export-processing enterprises (EPE), or manufacturing enterprises need to pay attention when doing business in Vietnam.
Decision No. 2413/QD-BTC has addressed many administration needs in certain aspects between tax authorities and customs authorities, including the exchange of information related to VAT refund procedures; value of goods; enforced tax payment, and the coordination of tasks related to the implementation of risk-control approaches; formulation and execution of the application of criteria for carrying out customs procedures for import and export goods.
Also, with limited resources, and in an attempt to obtain timely and accurate information about taxpayers and their transactions, local tax authorities tend to use the results of tax inspections by the local customs department, especially in relation to manufacturing and/or processing companies, in which these companies will need to import certain materials from counter offshore entities, processing and/or producing and then exporting the finished goods to offshore entities to verify and recalculate its tax liabilities.
Common Tax Exposures
As a result of an investigation by the customs department, adjustments by the tax department from excluding the cost of goods sold will be regarded as deductible expenses in calculating the Corporate Income Tax (CIT) liability and is triggered by the difference between:
- the actual materials used for manufacturing/processing goods/products, as recorded in the accounting books; and
- those recorded by the customs department based on the customs clearance at the import stages and the materials consumption norms.
In accordance with the provisions of Circular No. 96/2015/TT-BTC, dated June 22, 2015, companies are not required to set the materials consumption norms as a basis for determining deductible expenses for CIT purposes. However, according to the Law on Tax Administration, during the process of a tax inspection or tax audit, the tax authorities have grounds to clarify that a company’s calculation of the cost of goods sold is not appropriate to the actual arising amount. The conclusion minutes of post-customs clearance of the customs authorities and the materials consumption norms submitted at customs are the basic documents needed for the tax authorities to adjust the tax liability.
The time of the tax inspection or tax audit for the company’s operational years conducted by customs authorities could be different to the time of the results of a tax inspection or tax audit used by tax authorities to impose tax, which would be a disadvantage for companies using the CIT incentive(s).
With respect to VAT, at the import stage, companies self-declare and pay the VAT levied on the value of imported goods. This VAT is supposed to be regarded as input VAT and eligible to be claimed back if these imported goods are used to produce the goods subject to VAT. However, companies are not eligible to claim VAT if they fall into one of the following categories:
- exported goods were not exported at customs areas in accordance with the provisions of customs laws;
- imported goods were exported between July 1, 2016 and February 1, 2018.
To ensure tax compliance in line with legislation and to avoid unexpected tax penalties, companies should self-review their operation transactions carefully, prepare sufficient supporting documents, and carry out reconciliation with customs and tax authorities, as well as seeking official guidance from the local authorities for complex cases if necessary.
Tran Nguyen Mong Van is Director of Tax Services and Nguyen Hung Du is Partner of Tax Services, Grant Thornton Vietnam.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.