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Cars in the form of gifts and donations: Loopholes of the policy and trade fraud?

20:14 | 04/08/2016

VCN- Circular 20/2011/ TT-BCT of the Ministry of Industry and Trade has restrained the activities of importing vehicles of many domestic enterprises. When the "door" is closed, enterprises seek other tricks such as: importing cars in the form of second-hand cars, diplomatic priority, rights of repatriation of overseas Vietnamese and especially, most recently, in the form of gifts and donations.

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cars in the form of gifts and donations loopholes of the policy and trade fraud
For the purpose of tax evasion, many companies were established to import cars in the form of gifts and donations. Photo: H.P.

Despite tight control, the quantity of imported cars in the form of gifts and donations, especially in the first half 2016 has significantly increased, mainly in vehicles valued between 1 billion vnd and several tens of billion vnd. Not only do enterprises make use of loopholes of the law, but they also implement value fraud of vehicles to evade taxes. This is a real problem for management agencies such as Customs and the Taxation.

Luxury cars in the form of gifts

In the first 6 months of 2016, imported cars in the form of gifts not only increased but most of them are high priced luxury cars of large capacity. According to incomplete statistics, there have been about 500 imported cars in the form of gifts and donations. Notably, the most "enjoyed" brand is Lexus. Sepcifically, in the past time, there have been 252 Lexus vehicles, with a value of several billion vnd (an average of about $US 65,000 to more than $US 80,000).

In particular, Lexus LX 570 with capacity of 5.7L is the most "popular" gift (a total of 159 of 252 vehicles). The price of this model is currently more than 8 billion vnd in Vietnam. Next, are Lexus RX 350 (3.5L capacity), Lexus RX 450 (3.0L) and others.

After Lexus are Toyota vehicles (150 cars) with large capacity, especially Toyota Land Cruiser (4.6L); Bentley (Bentayga 6.0L); Rolls-Royce; Cadillac (Cadillac Escalade 6.2L); Jaguar; Ranger Rover; Mercedes (Mercedes S550, 4.7L; Mercedes Maybach S500, 4.6L), etc. They are all high priced luxury cars with a large capacity, which increase the price from July 1 under the Law on special consumption tax.

Stories of cars in the form of gifts and donations have been suspected recently because the price of each car is from several billion vnd to a few dozen billion vnd.

On May 2016, A Co. imported a Mercedes Benz G63 AMG (declared value of $US100,730) through Saigon port zone 1 in the form of a gift. The car dubbed as the "king of the terrain" is normally sold at 7 billion vnd.

Also, L Co. imported the Bentley Bentayga 6.0L (declared value $US140,000) but in fact the price of this car in Vietnam is up to dozens of billion vnd.

The activity tranferring luxury cars in the form of gifts and donations, which cost several billion vnd is questionable. Why have many enterprises, individuals and organizations received many cars in the form of gifts and donations, especially high priced luxury cars recently?

Clearly, this is regarded as a “loophole” for some enterprises to break Circular 20 which restrains imported cars into Vietnam.

Why in the first 6 months of 2016, vehicles in the form of gifts and donations have increased both in quantity and value? The cause is believed that enterprises want to "dodge" the special consumption tax. According to the Law on Special Consumption Tax, from July 1, 2016, vehicles with capacity of 2.5L or more will increase from 55% to 150% in the taxable price. And it’s not hard to find that 500 imported vehicles in the form of gifts and donations with capacity of 3.0L or more, mainly models of 5.0L. The change of special consumption tax from 60% to 130% makes enterprises find the way to dodge the tax.

Several enterprises are established just to get the car in the form of gifts

This fact was also acknowledged at the meeting on Circular 20 between Ministry of Industry and Trade and companies importing cars. At the meeting, Mr. Nguyen Tuan, a business representative of a import company said that due to being unable to meet the provisions of Circular 20, some companies have found ways to import, including imported cars in the form of gifts or donations.

Specifically, in Report No. 2504/ CT-THVNDT of Danang Department of Taxation, from early 2014 to date, especially in the first 5 months of 2016, the Department received many imported automobile license applications not for the purpose of commerce but in the form of gifts and donations (2014: 27 vehicles; 2015: 153 vehicles; in the first 5 months 2016: 221 vehicles, most of them are luxury cars such as Cadillac, Lexus, Lamborghini and others with 3.5L capacity or more) .

Notably, after monitoring and reviewing, Danang Department of Taxation found that along with an increase in the number of imported cars in the form of gifts and donations, the number of newly established enterprises in the province also has increased accordingly. For example, a company was established on May 5 2016, with the operational registration of May 12, 2016 and immediately applied for an imported automobile license on May 23, 2016.

Danang Department of Taxation confirmed that: Many companies were established primarily for the purpose of importing cars in the form of gifts or donations (in response to the provisions of Circular 143/2015/ TT-BTC) without other business activities. After inspection, the tax office also found that newly established companies had a connection with big automobile trading companies in the province; especially in the same address (or many companies register at the same address). Thus, newly established enterprises received cars in the form of gifts and donations and then resold them to other businesses.

Moreover, most companies having an imported automobile license in the form of gifts or donations are for the purpose of trade (transfer upon receiving the cars and very few enterprises registered them as fixed assets). Several enterprises were established to import cars, after consumption, they filed for bankruptcy and didn’t make settlements with tax authorities and left the business address.

In recent years, Bac Ninh Customs Department also found many cases related to the establishment of enterprises to import cars in the form of gifts or donations. For example, in 2016, Bac Ninh Customs Department received an application form of A Co. for imported automobile license in the form of gifts and donations. In the profile, a company based in the US appreciated the cooperation and assistance of A Co. However, on the business registration of A Co., it has been established since late 2015.

On the risk management system, Customs authorities found that A Co. had no export activities but only productive activities, trade of automobiles and automobile parts. In fact, A Co. hardly has the "cooperation and mutual assistance" with the business partner based in the US. Thus, Bac Ninh Customs Department stated that the company took advantage of regulations on automobile imports in the form of gifts and donations to "dodge" Circular 20 of the Ministry of Industry and Trade.

Tax fraud?

According to the law, imported cars in the form of gifts and donations still fully pay taxes: import tax, special consumption tax, value-added tax, personal income tax, business income tax, etc. That is why despite being imported cars in the form of gifts and donations, they must be declared at the correct value for tax purposes. And in fact, many companies have declared imported cars at a very low price.

For example, a Lexus LX 570 car (produced in 2016, automatic 5.7L) was declared at various prices such as $US15,000, $US50,000 or $US73,000. Or a Bentley Bentayga 6.0L car was declared at $US140,000 but another enterprise declared it less than half that, only $US60,000. Cadillac Escalade 6.2L was declared at $US65,938; $US30,000 and so on.

Under the regulations, the taxable value of the car must be determined by customs through inspection of he goods. But with the same kind of car, a big fluctuation in the price is a sign for customs authorities to be aware and update and mark on the system.

Moreover, many imported vehicles were equipped with full options (equipment, spare parts, components), which made the real value of the vehicle increase more than $US254,300 that companies declared.

Customs authorities showed that the inspection, declaration and customs valuation for imported cars in the form of gifts and donations was not really proper.

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It can be seen that although the State agencies have issued many policies to "manage" tightly, but the activity of importing cars in the form of gifts and donations still occurs based on the loopholes of regulations for the purpose of tax evasion.

By Nguyen Ha/ Hoang Anh