Resolution on the cards for long-running tax brawl

The prime minister has asked the Ministry of Finance to work with other relevant agencies, including the Ministries of Planning and Investment, Justice and Construction, and the Ho Chi Minh City People’s Committee, to settle the dispute with the Phu My Hung Company.
The directive stressed that taxes on the Phu My Hung Company must be calculated under the Law on Foreign Investment in Vietnam and the Land Law, with the joint venture’s contributions to the country in mind.
Phu My Hung, a $242 million joint venture between Tan Thuan Development Company and Taiwan’s Central Trading & Development Corporation (CT&D), was licensed by the State Committee for Cooperation and Investment – now the Ministry of Planning and Investment (MPI) – in May 1993. Phu My Hung was to build a 17.8 kilometre highway between Nha Be and Binh Chanh districts, and to trade in infrastructure facilities on a 600 hectare area along the highway.
The licence granted the joint venture corporate income tax exemptions for six years after it began turning a profit, with a 10 per cent tax on property sales levied in the years following.
The dispute arose last October, when the MPI amended the 1993 licence, increasing corporate income tax on property deals from 10 to 25 per cent.
The MPI said it told Phu My Hung that in 1993 a 10 per cent corporate income tax was levied on infrastructure facilities in new urban areas, but that this did not include projects sanctioned by the prime minister in the past few years.
Both the MPI and tax department had asked Phu My Hung to separate the property projects, subject to the 25 per cent tax rate from the infrastructure facility projects which are taxed at 10 per cent.
According to the Ho Chi Minh City Taxation Bureau, the Phu My Hung Company is liable for VND457 billion (nearly $30 million) in corporate income taxes between 2000 and 2002, and the first three quarters of 2003.
But the Phu My Hung company disagrees, claiming that its property trading was part of its licensed activity in the new urban area and therefore should be taxed at 10 per cent.
“We were licensed to ‘design, develop and trade in infrastructure facilities developed along the Nha Be- Binh Chanh Highway’ - an area where corporate income tax on property sales was set at 10 per cent. As an investor, we complied with the regulation as set out in our licence,” the company’s deputy general director Bui Thanh Son said.
Finance Minister Nguyen Sinh Hung said the taxes should comply with the regulations in the licences granted to Phu My Hung.
“Where a licence was granted at a tax rate of 10 per cent, they would pay 10 per cent. Where a licence was granted at a tax rate of 25 per cent, they would have to pay 25 per cent.
“However, in the days ahead, I will have to sit down to work with relevant agencies and hear their opinions on the issue. Then the Ministry of Finance will submit its proposal to the prime minister for approval.”
The head of foreign investment at the General Department of Taxation, Nguyen Dinh Cu, said according to Phu My Hung’s May 1993 licence, “there was no scope of business as regards housing or land business activities”.
“Therefore, in 1998 the Ho Chi Minh City People’s Committee granted another licence to Phu My Hung, in which the joint venture was permitted to do business in housing and land trading. This licence clearly pointed out that the tax rate would be 25 per cent.”
Cu said that in 1998, the joint venture began doing business in housing and land trading, however, until 2000, the company could not turn a profit in this field.
“Therefore, the tax rate began to be applied as of the year the company made a profit, meaning the year 2000.”
The 600ha urban area developed by Phu My Hung was swampland 15 years ago and CT&D has made a significant contribution in developing the swamp into the modern Saigon South urban area, according to local officials.
CT&D was amongst the first foreign investors to come to Vietnam. In addition to Phu My Hung, the Taiwanese group has invested $700 million in the Hiep Phuoc Power Plant and Tan Thuan export processing zone.