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Tax evasion “trick” makes it difficult for Vietnamese goods

11:40 | 19/10/2016

VCN - Not only "scathed" by anti-dumping cases, subsidies, or safeguards from other countries,but there are also cases where Vietnam issued together with China, also known as tax evasion issuing. Whenever China issued, after a while Vietnam issued as well.

tax evasion trick makes it difficult for vietnamese goods
Lots of items including steel were once sued for tax evasion as suspected of being transferred from China

This significantly impacts on the domestic industry as well as the prestige of Vietnamese goods in the international market.

Involving in misfortune

In just one week, the Competition Administration Department (MOIT) has continuously broadcastinformation of US companies havingfiled a lawsuit for the tax evasion of anti-dumping and countervailing duty to the US Department of Commerce (DOC) with corrosion-resistant steel products, also known as galvanized steel and cold rolled steel products imported from Vietnam.

The cause of these two incidents comes from the fact that the US imposed anti-dumping and anti-subsidy dutyonChina steel products. Specifically, after the US enacted the duty imposing order, China's export volume for these two productsto the US hassignificantly decreased; however, the export of these products from Vietnam to the UShas increased suddenly. Therefore, the plaintiff requested the DOC to initiate an investigation and delay the liquidation of shipments importing galvanized steel and cold rolled steel products from Vietnam and require to depositthe shipments equal level to anti-dumping duties and countervailing duties against products from China.

Of course, according to the US regulations, to complement the third country’s product on the current duty imposing order (investigation of tax evasion), the DOC shall consider factors such as: Products imported from a third country under the same category with products subject to the tax; before importing into the US, this product has been completed or manufactured from products manufactured in countries subject to the tax; processing or finishing in a third country is "small or negligible"; value of goods produced in the tax imposed country "dominating a major part in the total value of the products are exported to the United States"; DOC determined that an investigation is necessary to prevent the evasion.

In addition, the DOC will also consider the following factors: trade trends; whether manufacturers export of inputs associated with the third countryusing these materials for processing/finishing products imported into the United States and whether the tax imposed country increases export inputmaterial to the third country after the DOC initiated an investigation and imposed taxes or not.

This is not the first time Vietnam has been accused of tax evasion. In July, the Vietnam Trade Office in France advised of information from the European Anti-fraud Office ofthe European Commission (OLAF) that, Portugal, Spain and Poland Customs in recent years have recorded a large number of coil coated steel products imported from Vietnam having signs of trade fraud. OLAF suspects the possibility that Chinese firms sell steel into Vietnam and then let Vietnam enterprises export to EU using the Vietnamese C/O to avoid the anti-dumping duty. If this suspicion is verified, OLAF will propose Customs authorities in import countries topay arrears of antidumping duty (58%) that the EU is applying for Chinese steel. For a fewyears, for some items such as wood, plastic, granite there have also been countries such as Turkey, India sued for antidumping duty evasion.

Prevention from the licensing stage

With the two steel products mentioned above, this is just an accusation from US enterprises. Under US regulations, the DOC will review and make decisions of initiating an investigation or not within 45 days of receipt of the application (expected date of 22/10/2016 for galvanized products, and 10/11/2016 for cold rolled steel) and issue a final decision within 300 days.

However, according to the Competition Management Department, tax evasion cases are unpredictable due to the fact that they depend on numerous factors. Currently this authority has notified the Vietnam Steel Association and enterprises to check the information from the Customs authority to catch up the export situation,and the situation of C/O for businesses.

This preparation is necessarysince the coordination, provision and transparency of information is of paramount importance to be able to win in any case. By the fact of the incident has happened shows that there were cases where Vietnam was imposed and also cases where Vietnam "got free" from the lawsuit. More noteworthy, the investigations of tax evasion have one thing in common in that almost all cases are related to Chinese products. Mrs. Tran Thi Thu Huong, Director of the Commercial Documents Confirmation Centre, Chamber of Commerce and Industry of Vietnam (VCCI), said once China itself was sued after a while Vietnam always got sued as well. Because, when China is the subject for imposing tax, that will facilitate for Vietnam enterprises exporting to those markets. So, after being sued, Chinese investors tend to redirect investment into Vietnam to produce, and avoid anti-dumping duties.

Establishing new enterprises or transferring their factories to Vietnam to produce but once being sued, these investors choose not to cooperate or "run away" leading to final decisions detrimental to Vietnam's manufacturing industry. According to the opinions of many experts, this is a form of commercial fraud of foreign companies when being taxed with high anti-dumping by markets, and also is the transfigured phenomenon of foreign investors. There is a case where the domestic enterprise worked with foreign companies in importing goods, packaging and then obtaining Vietnamese certificates of origin and export and then exporting. This has a huge influence on Vietnam when exporting goods, and companies doing business with honesty.

In future, cases of tax evasion investigations will certainly occur more with the Free trade agreements that Vietnam has been signingwith preferential tariff then the trade barriers will "grow" much more. In order to avoid this kind of case, according to Mrs.Huong, companies first need to do the right things, raise awareness to prevent being taken advantageof by foreign companies.

On the management side, she said, a Warning advisory and block trade through certificates of origin (C/O) councils of the VCCI has been established with the participation of several ministries such as MOIT, MOPI, the Police, andCustoms. The council meets regularly and gives warnings of risk, located in suspectitems, thereby helping the original licensing agency which is the Foreign Investment Department (Ministry of Planning and Investment) to warn, and advise enterprises. Thus, the stage of investment licensing needs more attention and be further tightened to avoid commercial fraud.

Sharing successful experience in the investigation of tax evasion of plywood items (Turkey initiated), Mr. Nguyen Ton Quyen, Secretary General of the Vietnam Association of Timber and Forest Products said the process of taxevasion anti-dumping investigation usually follows this schedule:

First, we must grasp the information that Vietnam enterprises are being sued for by the decision of the investigation party provided with the generic items.

Then, the Association coordinates with the Ministry of Industry and Trade, and the Ministry of Agriculture and Rural Development to invite companies to a meeting for giving notice. If the company does not have full records and papers, thenthey must be guided about contents such as where the goods were purchased, the origin situation, how is the bookkeeping.

The third step is to delve deeply into the content, records, and books to be able to explain. For complicated cases, they must also engage alawyer. Finally, invite partners to Vietnam to negotiate.

"These tax evasion investigations are very complex, and require businesses and authorities to stay close with the case since there isa deadline, if the explanation is not sufficient,the case islikely to be lost. It took 6 months for us to solve this case. In the future, tax evasion suing is an inevitable trend by many companies that do not perceive international law. It is important to collect information, records, with justification if we want to win", he stated.

By Phan thu/ Luong Ngoc