LG supplier denied import tax refund

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On August 18, the Ministry of Finance (MoF) issued Official Dispatch No.11080/BTC-TCHQ to answer a motion by Serveone Vietnam Co., Ltd. (SOVN) on the import tax reimbursement process for the materials the company imports for LG Electronics Vietnam’s (LGE) production of export products.

Article 9(1d) of Law on Export and Import Duties No.107/2016/QH13 states that, “Taxpayers shall have their tax payments reimbursed” after “goods serving as raw materials or supplies imported for the production of export goods for which import tax has been paid.”

Article 36(3) of Government Decree No.134/2016/ND-CP on guidelines on the Law on Export and Import Duties states that the criteria for eligibility for the tax refund are the following:

1. The manufacturer of exported goods has a factory where the goods in question are manufactured in Vietnam. Additionally, the manufacturer owns or has the right to use machinery and equipment at a factory suitable for the raw materials, supplies, and component products imported for manufacturing;
2. The value or quantity of imported raw materials, supplies, and components after which import duties are refunded is the actual value or quantity of raw materials, supplies, and components used for the manufacturing of the exported products;
3. The exported products are declared as domestic exports;
4. The manufacturer directly imports goods and exports the products or authorises another entity to do so.

MoF concluded that SOVN does not meet any of the outlined criteria and is therefore not eligible for reimbursement.

SOVN is a 100 per cent South Korean-invested company, a subsidiary of Serveone Co., Ltd. (a member of LG Corporation), which was formed as a satellite company to support LG’s production in the northern port city of Haiphong. SOVN acts as the procurement agency for LGE, importing materials and selling only to LGE at a price that does not include import tax.

Based on this, SOVN saw no difference between its business with LGE and a normal export producer eligible for import tax reimbursement, as stated in Article 19 of the Law on Export and Import Duties. On July 18, SOVN sent Official Dispatch No.18072017/SOVN to the Government Office to request the PM’s consideration and inquire about the reimbursement process, which was later relayed to MoF.

In the dispatch, SOVN cited MoF’s Official Dispatch No.16224/BTC-TCHQ dated November 7, 2014 addressing New Viet Dairy JSC, a supplier of Vinamilk. New Viet Dairy is also a company that imports goods to then sell them to Vinamilk for export production at prices that do not include import tax. In this case, MoF concluded that New Viet Dairy was eligible for the tax reimbursement and instructed the company to finish submitting the tax refund documents.

In 2015, LG Electronics opened an 800,000-square-metre manufacturing complex in Haiphong, with a total investment sum of $1.5 billion to be disbursed between 2015 and 2028. This complex has helped Vietnam to become one of the largest electronics export hubs in the world, with 70 per cent of the complex’s products exported to 35 countries worldwide in the next five years. LG Electronics complex in Haiphong However, the partnership with LGE is not all smooth sailing, as earlier this year, the General Department of Vietnam Customs has requested LGE to pay tax arrears and an additional fine of VND8.1 billion ($356,341) in total.