Vinataba-Philip Morris to reclaim over $2 million in tax refund

The customs authorities seems to have bypassed the court decision

Overdue payment

In November 2010, Vinataba-Philip Morris Ltd. (VPM) signed an agreement with Philip Morris Global Brands Inc. (PMGB) to the effect of which VPM was permitted to exclusively produce and distribute tobacco products bearing the Marlboro brand in Vietnam. In order to legally use the brand, VPM is required to pay a copyright licence fee to PMGB on the basis of the total net selling price of finished tobacco products it produces and sells.

In 2011, VPM imported materials, including loose tobacco for the production of finished tobacco products bearing the Marlboro brand.

On August 17, 2012, after a post-customs audit, director general of the Can Tho Department of Customs issued Decision No.219/QD-HQCT (Decision 219) imposing import tax on the materials that VPM imported in 2011, citing the reason that the company failed to file the copyright licensc fee paid in 2011 into taxable value for the imported goods. The additional tax amount that the company had to pay was VND4.9 billion ($217,943).

On October 2, 2012, director general of the Can Tho Department of Customs issued Decision No.01/QD-HQCT (Decision 01) to stipulate a penalty of VND495 million ($21,794) against VPM for the violation of tax regulations due to its misfiling of the imported goods’ taxable value. Despite having submitted the two aforementioned amounts in full, VPM filed an administrative complaint and subsequently filed a lawsuit against Decision 219 and Decision 01.

While awaiting a decision, VPM still complied with Decision 219 to attain custom clearance for the imported goods and was required to add the copyright licence fee into the taxable value of imported materials during the period from 2012 to the second quarter of 2016.

The additional fee amounted to VND46.1 billion ($2 million). However, when filing and submitting these taxes, VPM sent a document to the Can Tho Department of Customs in order to reserve the right to claim refund on the tax amount the company had paid in relation to the copyright licence fee.

On August 29, 2016, the Supreme People’s Court of Ho Chi Minh City issued an appeal decision to annul Decision 219 and Decision 01. Accordingly, VPM was no longer required to add the copyright licence fee into the taxable value for imported goods.

Pursuant to this decision, on November 14, 2016, VPM sent a document to the Can Tho Department of Customs to request a refund on the excess payment, amounting to VND51.6 billion ($2.27 million).

However, the Can Tho Department of Customs only returned an amount of VND 5.4 billion ($237,654) in accordance with Decision 219 and Decision 01. The rest of the amount, VND46.1 billion ($2 million), the company submitted during the waiting period is yet to be resolved.

Tran Thanh Luong, deputy director general of the Can Tho Department of Customs, stated that because the appeal decision did not mention the additional tax amount VPM submitted from 2012 to the second quarter of 2016, the department issued a document soliciting opinions and would be awaiting further instruction from the General Department of Customs.

Taxation continues

On September 8, 2016, the Post-Clearance Audit Department under the General Department of Customs issued a decision on the post-clearance audit of VPM.

On January 16, 2017, director general of the department signed Conclusion No. 24/KL-KTSTQ, part V, Article 3 of which stated that “the copyright licence fee must be added to the taxable value for imported goods, such as loose tobacco (processed and scented), filter, aluminum foil… (these materials only need to go through the rolling process to make the finished cigarettes)."

Pursuant to this conclusion, on April 25, 2017, the General Department of Customs issued document No. 2772/TCHQ-KTSTQ-NV in response to the document by the Can Tho Department of Customs regarding the refund of tax payment and overdue fines according to the administrative judgment.

The General Department of Customs requested that the Can Tho Department of Customs consider the actual record of tax payments by VPM in order to decide on the additional tax payment on the basis of the conclusions by the Post-Clearance Audit Department.

Nguyen Van Vu, deputy director general of the Can Tho Department of Customs, told VIR that the department has informed VPM of the response by the general department.

According to the instructions from the general department, the copyright licence fees from the company must be added to taxable value for imported goods, therefore, the Can Tho Department of Customs would not return the excess of $2 million that the company submitted. If VPM does not agree, they can file a complaint or a lawsuit to resolve the case.

Do Doan, CEO of VPM, said: “The basis cited by the Post-Clearance Audit Department to add the copyright licence fees to the import taxable value is not in accordance with Article 14 of Circular No.205/2010/TT-BTC issued on December 15, 2010 by the Ministry of Finance (MoF). It also goes against Article 1 of Circular No.29/2014/TT-BTC issued on February 26, 2014 and Article 14 of Circular No.39/2015/TT-BTC issued on March 25, 2015 by MoF.”

Doan remarked that according to these articles, the copyright licence fee only needs to be added to taxable import value when the goods satisfy the following three conditions: copyright licence fee is paid for the use of intellectual property rights related to the goods; the purchaser pays the copyright licence fee as a condition of the transaction; and the copyright licence fee is yet to be included in the actual price paid or to be paid for the imported goods.

Since the first two among these conditions were not satisfied, the copyright licence fee that VPM paid should not be added to taxable value for materials.

“Remarkably, the basis in the conclusion issued by director general of the Post-Clearance Audit Department on which the copyright licence fee is to be added to taxable value is also the very basis that the Can Tho Department of Customs issued Decision 219 that the court annulled. Does the general department not know?” said Do Doan.

VPM is an enterprise with large contribution to Can Tho city. In 2016, the company contributed VND1.176 trillion ($51.7 million), accounting for 10 per cent of the total budget revenue of the Mekong Delta city.