Novelis faces sticky aluminium accusations

The South Korean firm has a complicated import-export alumninium scrap process

Trinh Dinh Kinh, deputy head of the Department of Customs Supervision and Management under the General Department of Customs told VIR that the department investigating the company’s processing of scrap aluminium in South Korea.

“The department is waiting for the Ministry of Finance’s guidance on the case and will then release a guiding document to the company,” said Kinh.

Novelis Inc., the US subsidiary of Hindalco Industries Limited, is the global leader in rolled aluminium products and aluminium can recycling. Novelis Vietnam started operating in Binh Duong province in July 2013 with a total investment of $3.79 million.

The company’s Vietnam operation brought in aluminium cans for recycling which were then sent to Korea for processing into aluminium foil.

The aluminium foil was then re-imported to Vietnam and sold to a partner in Saudi Arabia.

In 2013 there were 46 instances of the company sending aluminium can consignments to Korea, 9 consignments of aluminium foil were sent back to Vietnam and 9 consignments were shipped from Vietnam to Saudi Arabia.

However on February 25, 2013, the Binh Duong customs department asked the company to suspend its processing in Korea after stating it suspected the company was taking advantage of legal loopholes to avoid export taxes.

According to Binh Duong Customs Department, if the company directly exports its aluminium foil from Korea to Saudi Arabia it would be subject to an export tax rate of 22 per cent. With around 8,000 tonnes of exported scrap aluminium at an average price of $1,400 per tonne, it would owe taxes of VND52 billion ($2.4 million).

But by re-importing the aluminium foil back into Vietnam and then exporting to Saudi Arabia, taxes owed only come to VND19.4 billion ($923,809), including a 3 per cent import tax of VND4.4 billion ($202,523) and VND15 billion ($714,285) in value added tax.

Under Decree 12/2006/ND-CP detailing provisions for implementation of the Commercial Law, businesses processing goods in foreign countries are exempt from import and export duties or must pay export duties in accordance with the Law on Import and Export Duties in cases where products are not re-imported.

The company used this loophole to avoid the export tax on aluminium foil going to Saudi Arabia and saved VND32.6 billion ($1.55 million) in tax payments.

If 24,000 tonnes of scrap aluminium, as set forth in the contract, are allowed to be sent to Korea for processing, the tax savings will be up to VND97.8 billion ($4.65 million).

When informed about the investigation, Novelis denied any wrongdoing and sent a document addressing the charges to the General Department of Customs.