General Department of Taxation "names" tax refund fraud tricks

The file is subject to pre-refund verification.

According to the General Department of Taxation ( Ministry of Finance ), under the provisions of the Tax Administration Law, tax refund applications are classified into applications subject to pre-refund inspection and applications subject to pre-refund inspection. Applications subject to pre-refund inspection include:

Firstly, the taxpayer's initial refund application must comply with the tax law regulations. If a taxpayer submits a refund application to the tax authorities for the first time but does not qualify for a refund, subsequent refund applications will still be considered initial refund applications.

Secondly, the taxpayer's application for a tax refund must be filed within two years from the date of being penalized for tax evasion.

Thirdly, tax refund documents when transferring (for state-owned enterprises), dissolving, going bankrupt, ceasing operations, or selling to organizations and businesses.

Fourth, the tax refund application is classified as high-risk in terms of tax compliance according to the risk management classification in tax administration.

Fifth, tax refund applications that fall under the category of early refund but have exceeded the deadline as notified in writing by the tax authority, and the taxpayer has not provided explanations or supplementary documents, or has provided explanations or supplementary documents but has not been able to prove that the declared tax amount is correct.

Sixth, value-added tax refund applications for exported and imported goods that are not paid through commercial banks or other credit institutions as prescribed by law.

For tax refund applications that meet the eligibility requirements, the tax authorities will process the refund promptly and in accordance with regulations. Applications subject to pre-refund verification will be inspected to provide a basis for processing the refund as per regulations.

Through a review of tax management information, the Tax Authority has found that some businesses claiming export tax refunds for cassava, wood, and forest products pose a high risk of tax evasion. Therefore, the Tax Authority must conduct inspections and verifications. For cassava and wood/forest products, the tax refunds arise at the intermediate stage (due to direct purchase from forest farmers before processing or only basic processing, which is exempt from VAT). These intermediate stages mainly incur management and logistics costs. Consequently, some individuals have exploited state policies and mechanisms to commit fraud and misappropriate tax refunds.

The tactics and behaviors of those involved in tax refund fraud.

Recently, the Ministry of Finance has directed the General Department of Taxation to coordinate with professional units of the Ministry of Public Security to detect and handle a number of cases of exploiting loopholes to evade taxes and misappropriate VAT refunds, such as: the case of illegal trading of VAT invoices and tax evasion in Phu Tho; the cases of tax refund violations in Ninh Binh and Vinh Phuc ...

Through review and coordinated verification with relevant authorities, several typical fraudulent activities have been identified, such as individuals exploiting lenient regulations on business establishment to set up businesses not for production or trading purposes, but for the purpose of buying and selling VAT invoices to profit and evade taxes. Accordingly, some individuals have established a chain of businesses (with relatives, family members, or hired representatives as legal representatives) to engage in circular buying and selling, using illegal invoices to legitimize input costs for tax refunds.

The middlemen create fake invoices for the direct purchase of timber from farmers or livestock breeders, or buy and sell illegal invoices to deduct taxes and legitimize goods in order to avoid declaring and paying VAT (5%) at the intermediate trade stage.

Businesses claiming VAT refunds use illegal invoices (purchased from businesses with no production or business activities) or use invoices from businesses that have abandoned their business addresses or continuously changed their operating status in various locations to declare input VAT deductions and prepare VAT refund applications.

The tactics and behaviors of those involved in tax refund fraud mainly occur at the intermediate stage of goods trading. Some businesses in this intermediate stage show high risk signs, such as temporarily suspending business or absconding after issuing invoices to the exporting company (F1); discrepancies in revenue and tax declarations between intermediate businesses, with the selling company (F2, F3,...) declaring low revenue while the buying company (F1) declares high deductible input VAT; and risky bank payments such as transactions occurring on the same day and with the same person withdrawing money.

Through the review, inspection, and audit of tax refunds at 120 businesses, it was discovered that 110 intermediary businesses had abandoned their business locations, ceased operations, and were awaiting dissolution in the intermediate stage. These businesses claiming tax refunds had used raw materials and purchase invoices from these intermediary businesses. These intermediary businesses, in turn, did not declare or pay taxes and could not prove the origin of the raw materials and goods purchased. The tax authorities have not yet collected taxes from these businesses, but must process tax refunds for the businesses claiming refunds in the later stages. This poses a significant challenge for the tax authorities, as determining the amount eligible for a refund depends on verifying whether the purchase and sale of goods actually occurred, leading to considerable difficulties in processing these cases.

Typically, in some cases, applications for cassava starch tax refunds were processed based on information from foreign tax authorities indicating that some Vietnamese businesses had transactions with foreign businesses that either did not exist in the foreign tax authority's database or existed but denied having transactions with Vietnamese businesses. These tax refund applications showed signs of violating the law to misappropriate tax revenue from the state budget, negatively impacting legitimate businesses that comply with tax laws. After tax authorities discovered these risk indicators in the tax refund applications, many businesses proactively sent written requests to the tax authorities to cancel their refund applications.

Given the increasingly complex and sophisticated nature of VAT refund fraud, which spans across borders, and in order to strengthen VAT refund management to ensure timely, efficient, and compliant procedures and prevent tax revenue losses for the State, the General Department of Taxation has directed local tax departments to further enhance control over VAT refunds for high-risk export items. This includes focusing on guiding tax authorities at all levels on risk identification criteria for refunds, defining areas requiring verification for intermediary businesses, and providing guidance on VAT refund verification and inspection procedures. However, it is also crucial to promptly process VAT refund applications in accordance with regulations and tax management procedures. In some cases, during the verification process, tax authorities must coordinate with relevant agencies and local authorities to clarify the legality of the refund application. Through risk analysis, only high-risk files will be subject to verification, in accordance with the risk management principles stipulated in the Tax Administration Law.

The verification results of the Tax authorities, and the results of coordinated verification from competent state agencies, are among the bases for the Tax authorities to implement VAT refunds in accordance with the VAT Law, the Tax Administration Law, and guiding documents.

Simultaneously, the General Department of Taxation is reviewing regulations on tax refund procedures in legal documents to advise higher-level agencies, coordinate with business registration agencies, and strengthen the study of international experience on VAT refunds to ensure that regulations on subjects, conditions, documents, and procedures for VAT refunds are consistent and rigorous, helping to ensure timely and quick VAT refunds; at the same time, preventing loopholes that allow individuals to exploit the policy for personal gain and tax fraud.

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