Following a recent increase in the number of applications to the courts by business entities against tax and customs authorities, tax and customs litigation is a new and rising trend in Vietnam. Most, if not all, of these applications have been initiated by businesses challenging the decisions of tax and customs authorities in regards to determining tax liabilities or imposing enforcement measures, such as freezing a business’ bank account.
Under Vietnamese law, decisions such as these by the tax and customs authorities are categorized as administrative decisions. Therefore, if a business wishes to file a court action in relation to such a decision against the tax or customs authorities, it will need to refer to the Vietnamese Administrative Procedure Law, rather than the civil procedures. While the administrative court procedures share some similarities with the civil procedures, there are also major differences which businesses should consider and factor in to their litigation strategies, particularly in regards to tax and customs disputes. This article discusses some of the emerging issues relevant to administrative court procedures as well as notable updates, suggestions and takeaways from certain recent court judgments on tax and customs disputes between businesses and the Vietnamese tax and customs authorities.
The adversarial process is used in trials under both administrative and civil procedures. However, while civil procedure trials do not explicitly require the participation of a prosecutor in all cases, administrative trials must be attended by a relevant prosecutor who can oversee the compliance with procedural law and the court can recommend an appropriate settlement of the issues. In recent cases, prosecutors appear to have taken on a deeper involvement in relation to the court’s settlement process through questioning the involved parties on substantial issues of the case, such as market practice in negotiating and determining the sale price of goods. This raises a question as to whether and how a business should obtain the support of a prosecutor in an administrative court case. Although there might be no conclusive answer to this question, best practice suggests that businesses should refrain from submitting important documents to the court close to the timing of the final trial, unless it is necessary to do so. In practice, local courts need to review any new submissions before delivering (sometimes by courier which can take additional time) a copy of that submission to the prosecutor. Therefore, prosecutors may not have sufficient time to review last minute submissions. In the event that last minute submissions are necessary or form part of the litigation strategy, best practice suggests that businesses should send a copy of the submission to the prosecutor in conjunction with submitting a formal copy to the court.
Another similarity between administrative and civil procedures is that the parties will always have at least one opportunity to attend a pre-trial meeting before the court (i.e. mediation meetings under civil procedures and dialogue meetings under administrative procedures) in order to exchange views and explore the possibility of an amicable settlement of the dispute.
In recent tax litigation cases, local courts have applied a new process, issued by the Supreme Court, of allowing pre-proceeding meetings for the parties to explore the possibility of settlement even before the trial’s commencement. Experience suggests that pre-proceeding and pre-trial dialogue meetings offer the chance for parties to not only discuss possible amicable settlements with the tax or customs authorities, but also to discuss and explain the relevant tax issues and terminologies with the handling judge, who may not be a tax or customs expert.
In a recent landmark customs dispute between an importer and various Vietnamese Customs Offices [Judgment No. 02/2020/HC-ST dated 15 January 2020], the handling judge allowed substantial time to listen to the parties’ explanations of customs procedures as well as the international and domestic regulations on transfer pricing rules. However, in this instance the Court did not rule in favour of the plaintiff’s recourse to those international and domestic regulations and practice. Instead, the Court found that the agreement between the domestic buyer and the overseas related seller (i.e. the buyer and the seller belonged to the same multi-national corporation) regarding the buyer’s target operating profit rate rendered their sales price unacceptable, as a customs value for duty and tax calculation by customs authorities. Although this ruling is currently subject to an appellate court’s review, it has raised concerns that importers of goods from overseas-related companies might have to pay more tax if their reference to transfer-pricing rules and practice to agree on the buyer’s target operating profit rate is not accepted.
Another recent emerging issue is whether businesses or the tax or customs authorities will bear the burden of proving that the authority’s decision is right or wrong. It is a general principle under both civil and administrative court procedures in Vietnam that the plaintiff bears the burden of proving its claims before the court. However, as opposed to civil disputes, which usually stem from contract or tort, administrative disputes always relate to the decision or act of a public authority or officer.
Therefore, the Vietnamese Administrative Procedure Law adds the requirement that an authority, which is the defendant to an administrative lawsuit, must prove the lawfulness of its decision, to the general burden of proof principle. In the same case mentioned above, the Court upheld the customs authority’s argument that the importer plaintiff should bear the burden of proving that its relationship with the overseas seller did not influence the sales price of the imported goods. The key arguments of the customs authorities were that the buyer failed to provide satisfactory evidence showing that its relationship with the seller did not influence the sales price and that the sales price could be influenced by this relationship when it is dependent on the parties’ agreement on target operating profits. In this case, it remains to be seen how the appellate court will interpret the Vietnamese Administrative Procedure Law’s requirement that the authority must prove the merits of its decision to decide the issue.
It may be too early to foresee whether tax and
customs litigation will increase in quantity in Vietnam. However, it is never too early for businesses
to review their contracts, agreements and other relevant documents to assess the
risk of tax and duty obligations in Vietnam. If the risk exists, it is advisable to prepare
a litigation strategy before any disputes with the tax or customs authorities
 Article 57.2 of the Administrative Procedure Law