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|Coca-Cola continues tax haggle with GDT|
A few weeks ago the General Department of Taxation (GDT) under the Ministry of Finance failed to meet a mutual agreement with Coca-Cola Beverages Vietnam Ltd. in regards to the beverage corporation’s tax and administrative violations, and consequently decided to reject the appeal.
In December 2019, the GDT announced that the Vietnamese arm of the soft drink giant was required to pay more than VND821 billion ($35.7 million) in fines and tax arrears stretching over nine years.
According to Dang Ngoc Minh, deputy director of the GDT, 57.3 per cent of the amount was back tax, 35.2 per cent was a penalty for delayed payment, and the remaining amount was a penalty for incorrect filing.
When the decision was made, Coca-Cola Vietnam paid VND471 billion ($20.5 million) last year, despite expressing its disagreement with some of the GDT’s conclusions.
After a December 2020 dialogue between the two parties, the GDT and Coca-Cola Vietnam were unable to break the deadlock and shortly thereafter, the tax department concluded that the company’s first complaint in January 2020 was incorrect and therefore would not be recognised. As a result, the tax authorities denied the appeal and retained the penalty decision and the fine amount.
Despite having operated in Vietnam since 1994, Coca-Cola had just reported profit from 2013 onwards. However, the tax losses of businesses may be carried forward fully and consecutively and offset against the profits of subsequent years for a maximum of five years. Thus, Coca-Cola Vietnam had not to pay tax at that time.
Coca-Cola Vietnam reaffirmed that they “have no other choice but to continue to pursue available avenues of appeal”, according to a company representative.
“Coca-Cola Vietnam is deeply dismayed by this and rejects in no uncertain terms the GDT’s decision and assertions with respect to the disputed issues. The explanations submitted by Coca-Cola Vietnam during the audit and appeal process provide a clear and sound response to support the company’s position,” the representative told VIR last week.
From March 2017 to December 2019, the GDT conducted its tax inspection, which covered the 2007-2015 period. It was noted at the time that Coca-Cola Vietnam actively cooperated with the local authorities by providing required information and necessary documents.
However, the company realised that it had made some “minor errors” in describing its business operations, which had led to a failure to file for taxes.
According to a representative of the GDT, Coca-Cola Vietnam had the right to appeal to the Ministry of Finance (MoF) or take legal action in case of continuing disagreement.
In January last year, the company indeed filed a complaint concentrating on a number of issues, for example tax authorities not accepting some of the company’s deductible expenses such as promotional products, refrigerators for organisations and individuals, fixed assets such as bottles and bottle deposits, and other expenses.
Despite the troubles, the company insists it will continue attempts to work collaboratively with the local government to resolve these issues with utmost respect for the law.
“We understand that every company must do its part to support Vietnam in its economic recovery given the impact of the recent health crisis. Our company also has fully deposited the disputed amounts pending the outcome of the appeal in accordance with applicable law. However, Coca-Cola Vietnam continues to strongly maintain its position that it has operated in a compliant manner,” the representative added.
Coca-Cola Vietnam is not the only foreign-invested enterprise (FIE) which has been tangled up in disputes with local tax authorities.
In 2018, Dutch-backed personal care product maker Unilever Vietnam also faced a number of issues. The state auditing agency confirmed that Unilever Vietnam had to pay nearly VND800 billion ($34.78 million) in tax arrears for the period of 2009-2013. Notwithstanding, Unilever Vietnam did not agree with the charge and the two sides had been working to clarify the issue, during which the figure was revised to VND600 billion ($26 million).
Metro Vietnam, Adidas, and Suntory PepsiCo Vietnam also have been the subject of contentious tax dispute due to their alleged transfer pricing activities.
In the period of 2002-2013, Metro Vietnam changed its business licence six times and raised total investment and expanded its operation nationwide. In spite of that, Metro Vietnam constantly recorded losses, except for 2010 with a profit of VND173 billion ($7.52 million).
And in 2012, Adidas’ Vietnamese business faced scrutiny from local tax authorities on the allegations of avoiding a huge number of tax bills by the price charged on transactions between different parts of the same company to keep its profit out of the Vietnamese tax net.
Nguyen Duc Nghia, chairman of the Ho Chi Minh City Tax Agent Club, said that many FIEs were accused of practicing tax avoidance because they might reduce their tax base in higher-tax rate jurisdictions by shifting it to lower tax rate nations.
Last December, the MoF revealed that around 55 per cent of FIEs in Vietnam recorded losses of VND131.4 trillion ($5.72 billion) in total. Specifically, over 12,450 FIEs reported losses last year, although they enjoyed a 13 per cent on-year increase in revenues.
FIEs in some sectors including metallic production, and oil and gas have recorded losses for two consecutive years in 2018-2019.
Meanwhile, other FIEs focusing on the manufacturing of personal vehicles like cars and motorbikes, food, medicine, education, and science and technology have reported decent profit margins.