Many cases of taking advantage of invoices for tax fraud

Police and People's Procuracy of Thanh Hoa province inspect the evidence of the invoice purchase and sale case at Phuong Anh Construction and Trading Service JSC. Photo: provided by Thanh Hoa police

No sales transactions

The case of Thu Duc House Development JSC (Thuduc House) profiting from hundreds of billions of dong in VAT refunds from the export of electronic components investigated by the police has shaken public opinion about the acts and tricks of appropriating tax amounts on a large scale by many enterprises.

Based on the case file, Thuduc House exported electronic components since 2018. According to the explanation of Thuduc House, they purchased electronic components and goods from Thu Duc House Wood Trading JSC and then exported these goods to foreign partners.

However, the HCM Tax Department determined that Thuduc House's export contracts signed with foreign parties were essentially the establishment of an export transaction between this company and a foreign party artificially. This behavior was intended to conceal export transactions between ALP Trading - Construction Co., Ltd with foreign parties and conceal the act of naming customs declarations and records related to export activities of ALP Company.

The purchase and sale contract between Thu Duc House Wood Trading JSC and Thuduc House is fake to hide the amount received as 0.1% on the value of exported goods. The purchase and sale invoices with each other and with the foreign partners were not correct. In fact, there was no purchase and sale transaction.

Additionally, the input invoices that Thuduc House deducted to get VAT refunds were received from Thu Duc House Wood Trading JSC with the content written on the invoice as the purchase and sale of goods. This content did not match the content of economic operations arising under the provisions of Point b, Clause 1, Article 16 of Circular 39/2014/TT-BTC dated March 31, 2014 of the Ministry of Finance. All these invoices were fake, because there was no real purchase and sale to help Thuduc House benefit from 0.6% on the value of the export contract.

Expanding the inspection, the HCM City Tax Department discovered that the invoice issued by Thu Duc House Wood Trading JSC to Thuduc House was from ALP Trading - Construction Co., Ltd to profit from the 0.7% USD difference on the contract value. Meanwhile, the input invoices of ALP Company related to the output invoices issued to Thu Duc House Wood Trading JSC were received from companies that were no longer operating at the registered address as notified by the tax authorities and had signs of illegal purchase and sale of invoices as prescribed.

The Tax Agency determined that from January to June 2019, Thuduc House profited by more than VND221 billion in tax. Therefore, the HCM City Tax Department has issued a decision to recover the VAT refunded to Thuduc House of VND221 billion and the late payment interest of VND37 billion. The HCM City Tax Department also traced back the tax period of 2017 and 2018 and issued a decision to recover the VAT refunded in this period of VND109.8 billion and late payment interest of more than VND27 billion. By the end of March 2021, the total amount of arrears and late payment was more than VND451 billion. After freezing 22 accounts of Thuduc House at banks, the HCM City Tax Department collected more than VND240 million. Recently, the HCM City Tax Department has issued a decision to forcefully stop using more than 16,000 invoices of Thuduc House.

Stealing hundreds of billions of dong

Another case of great concern is that at the end of May 2021, the Thanh Hoa Provincial Police issued a decision to prosecute the accused, and applied measures to prevent leaving the residence for three suspects related to the illegal sale and purchase of VAT invoices with the total value of goods and services on the invoice of nearly VND100 billion.

Regarding this case, Thanh Hoa Tax Department said that the suspects involved in the purchase and sale of invoices include Nguyen Thi Phuong, Chairman of the Board of Directors of Phuong Anh Construction Trading Services JSC (Phuong Anh Company); Le Thi Hong Linh, Director of Hung Trang Service and Transport Co., Ltd. (Hung Trang Company), and Dinh Thi Nga, accountant of Phuong Anh Company. They shared the same registered business address in Dong Tho ward, Thanh Hoa city.

Specifically, in 2020, through tax management and inspection of tax records, the tax industry discovered that Phuong Anh Company had signs of tax violations and illegal use of invoices. The Tax Department of Thanh Hoa - Dong Son City has collected and consolidated documents proving violations and transferred it to Thanh Hoa City Police for investigation and handling.

Simultaneously, Hung Trang Company, led by Le Thi Hong Linh, was also prosecuted due to its association with Phuong Anh Company (Le Thi Hong Linh is the biological daughter of Nguyen Thi Phuong).

Thanh Hoa Tax Department said that on May 5, 2021, the Tax Department of Thanh Hoa - Dong Son city received the notice of criminal information No. 452/CSĐT dated April 29, 2021 by the Thanh Hoa Provincial Police Investigation Agency. Accordingly, Thanh Hoa Provincial Police issued Decision No. 85/CSKT dated April 29, 2021 on prosecuting the criminal case, namely "Illegally printing, issuing, and trading invoices and documents for payment to the State budget according to the provisions of Article 203 Penal Code for Phuong Anh Company”.

After that, Thanh Hoa Tax Department continuously reviewed all businesses that used illegal invoices of these two enterprises to strictly handle according to regulations, avoiding tax losses for the State budget.

Previously, in September 2020, Phu Tho Tax Department coordinated with the police agency to dismantle a line of buying and selling invoices, appropriating the State's tax money in large quantities that happened at Junma Phu Tho Co., Ltd.

Specifically, this business was established in 2017 but the revenue in 2018 and 2019 increased dramatically. This enterprise has production and processing based at No.10 Thuy Van Industrial Park, Thuy Van Commune, Viet Tri City, Phu Tho. Additionally, some subsidiaries in its system such as Junma Yen Bai and Junma Vinh Phuc manufactured and transferred products to Junma Phu Tho for completion and export. Therefore, the export turnover and the amount of tax required for deduction of this enterprise were very large.

Due to unusual signs, Phu Tho Tax Department reviewed and checked tax refund records and discovered that the goods purchased by the enterprise were logs with direct purchasing documents from people. However, through verification for nine individual households (both those who plant forests for sale and individual business households), the seller written on the record has no relationship with Junma Company, nor did it sign the company's log procurement records.

Since then, the Tax Department has transferred all Junma Phu Tho Company’s documents related to invoices, trading of peeled wood with a number of organizations and individuals (16 businesses and four business households) to the corruption, economy and position-related crime investigating police section (PC03) of Phu Tho Police to coordinate in verifying the origin of the company's purchase invoices.

On the request to cooperate in verifying information provided by the Tax Department, the PC03 (Phu Tho Provincial Police) discovered many cases where there was no actual purchase and sale of goods with Junma Phu Tho. In which, for the purpose of selling illegal invoices, Doan Ngoc Huy and other subjects including Nguyen Duy Thanh, Tran Khanh Hung, and Nguyen Xuan Loc (all residing in HCM City) used fake papers bearing the names of many individuals in other provinces including Ca Mau, Soc Trang, Da Nang, Thai Binh, and HCM City to register the legal representatives of five enterprises. Then they issued false VAT invoices to many units in the whole country with a total sales of nearly VND2,000 billion, the purchase price of the invoice was equal to 3% of the false sales.

After collecting evidence, the PC03 (Phu Tho Provincial Police) arrested and searched the residences of six related subjects in Phu Tho, Yen Bai, and HCM City, and seized a large amount of documents related to the violation. Simultaneously, PC03 prosecuted six defendants for the same crime of illegally trading in VAT invoices and fraudulently appropriating property.

A typical case that the Customs authorities discovered after eight months of investigation was a special case with the number LS712 of Lang Son Customs Department, dated January 26, 2018. On the basis of information and recommendations to prosecute the case from the General Department of Customs, the Security Investigation Agency of Hai Phong City Public Security issued a decision to prosecute a criminal case, namelly “Le Thanh Phong and accomplices illegally bought and sold invoices and receipts for State budget payment” and prosecuted Le Thanh Phong for the crime of illegally trading invoices and receipts for State budget payment as prescribed in Clause 2, Article 203 of the Penal Code.

These are just some of the many outstanding cases that the Tax and Customs authorities have discovered, investigated, and proposed criminal handling to the authorities. To take the initiative, in 2020 - 2021, Customs has been coordinating with the Public Security agency to fight, investigate, verify, and clarify a suspicious line of VAT refund with an amount of hundreds of billions of dollars.

Lots of sophisticated tricks

VAT refund means returning to enterprises the advance tax amount in accordance with tax laws. Thanks to the quick refund of VAT, many businesses can turn around their capital, promote production and business activities, especially amid the current economic difficulties due to natural disasters and the pandemic.

However, there have been many businesses and taxpayers taking advantage of the open mechanisms and policies to violate tax laws, tax evasion, and tax fraud; especially the illegal purchase and sale of invoices, false declarations and claims of exported goods to receive VAT refunds, causing loss of revenue to the State budget. In which, many people and enterprises have declared an increase in input VAT that is deducted and reduced output VAT payable; adjusting input and output VAT in contravention of regulations; and the wrong determination of tax rates for goods. In addition, many foreign-invested enterprises have committed tax fraud through price transfer, continuously declaring losses to avoid paying taxes. These units have been inspected and detected by the tax agency, and refunded to the State budget an amount of up to trillions of dong.

Companies have registered to do business with many industries, but in reality, there were no business offices or warehouses. The establishment of an enterprise was to sell VAT invoices to individuals and other organizations to smuggle goods, evade taxes, or appropriate the State's VAT refund.

There have also been a number of cases of VAT refund fraud at the import and export stage investigated and clarified by Customs. Suspects used sophisticated tricks to appropriate the tax refund and had a careful calculation to avoid detection. In 2017-2018, Customs authorities discovered that eight companies imported agricultural products worth trillions of dong, which were consumed but not declared and calculated for VAT at the commercial stage. It was estimated that the fraudulent VAT amount was more than VND61 billion.

As the person in charge of detecting and investigating special case LS712 to expose the fraudulent import and trading of agricultural, forestry and fishery products, as well as VAT evasion at Tan Thanh border gate, Dao Thu Lan, Director of Tan Thanh Customs Branch (Lang Son Customs Department) said that to detect irregularities and sophisticated tricks of enterprises, it took a long time for authorities to monitor and review.

Even if the authorities detect "fraud" in the businesses’ behavior, it is difficult to handle because of many unclear regulations and sanctions. In particular, according to the law, the Customs agency does not have the authority to prosecute cases of tax crimes. After investigating, verifying, and detecting violations, Customs has to hand them over to the Police. Therefore, the effectiveness in fighting VAT refund fraud is limited, the case is prolonged because it depends heavily on the police agency.

Discussing this issue, Nguyen Vinh Huy, founding Chairman of Thinh Tri Law System, Vice Chairman of the Vietnam Association of Notaries, said that through tax fraud examination, the level of violations is increasing in various forms. This situation causes loss of budget revenue, creating inequality and frustration in the business community and society.

According to Nguyen Thai Son, Director of Saigon Tax Consulting JSC, Honorary Member of Tax Agent Club, since the 1990s, tax authorities have discovered many cases of businesses cheating on VAT refunds; while various measures to prevent tax refund fraud have been organized such as: limiting the number of cases and units eligible for VAT refund; classifying dossiers subject to inspection before and after tax refund; and coordinating information with investigative agencies.

“Recently, the authorities have successfully solved many cases of VAT refund with increasingly sophisticated tricks. It is an important achievement in the fight against VAT refund fraud because it demonstrates the effectiveness of professional methods and techniques; the spirit of efforts and bravery of the cadres in the operation," said Son.

Vietnamese legal regulations on VAT refund include:

Law No. 106/2016/QH13 amending and supplementing a number of articles of the Law on VAT, the Law on Special Consumption Tax and the Law on Tax Administration; Law on Customs; and Law on Investment. Decree 126/2020/ND-CP detailing a number of articles of the Law on Tax Administration; Decree 100/2016/ND-CP amending and supplementing a number of articles of Decree 209/2013/ND-CP on VAT refund for investment projects; Decree 12/2015/ND-CP detailing the implementation of the Law Amending and Supplementing a Number of Articles of the Laws on Taxes and amending and supplementing a number of articles of the Decrees on taxes; Decree 209/2013/ND-CP guiding the Law on VAT; Decree 83/2013/ND-CP detailing the implementation of a number of articles of the Law on Tax Administration and the Law Amending and Supplementing a Number of Articles of the Law on Tax Administration; and Decree 146/2017/ND-CP.

Circular 219/2013/TT-BTC guiding the implementation of the Law on VAT and Decree 209/2013/ND-CP of the Government detailing and guiding the implementation of a number of articles of the Law on VAT; Circular No. 26/2015/TT-BTC providing guidance on value-added tax and tax administration in the Government’s Decree No. 12/2015/ND-CP detailing the Law Amending and Supplementing a Number of Articles of the Tax Laws and amending and supplementing a number of articles of tax decrees, and amending and supplementing a number of articles of the Circular No. 39/2014/TT-BTC on goods sale and service provision invoices.

Circular 99/2016/TT-BTC guiding the management of VAT refund; Circular 31/2017/TT-BTC amending and supplementing a number of articles of Circular 99/2016/TT-BT; and Circular 130/2016/TT-BTC on guidelines for the Government Decree 100/2016/ND-CP on the implementation of the law on amendments to certain articles of the Law on Value Added Tax, the Law on Special Excise Tax and the Law on Tax Administration and to certain articles of tax-related circulars.

(Article 2: Determined to prevent VAT refund fraud)