Experience in Handling Escaped Invoice Cases

1). Using Illegal Invoices according to current regulations includes the following cases:

• Creating fake invoices;

• Giving away or selling invoices;

• Issuing invoices with discrepancies between different copies;

• Using invoices from one set of goods or services to prove a transaction for a different set of goods or services.

2). Dealing with transactions with businesses that have escaped:

Here are the guidelines for handling invoices from businesses that have disappeared, purchasing goods from businesses that have disappeared, how to verify invoices from businesses that have stopped operating, had their tax codes revoked, enforced invoices, or so-called "ghost companies."

Accountants in many companies often worry about how to handle cases of purchasing goods or services from businesses that have disappeared, stopped operating, had their tax codes revoked, enforced invoices, etc.

According to Official Letter 1296/TCT/NV6 dated April 14, 2003, by the General Department of Taxation:

The General Department of Taxation received a petition from Nguyen Thi Lang Private Enterprise on April 2, 2003, regarding the inability to deduct or refund VAT on invoices issued by businesses that have escaped. In this matter, the General Department of Taxation stated:

If the invoices of DNTN Nguyen Thi Lang are from companies that have escaped from their business location, the Tax Department must immediately notify local tax authorities and law enforcement agencies to take action.

• If the invoices were issued before the business escaped, the Tax Department must check and compare them with the business's operations to determine if real goods were purchased or if the transaction was legitimate.

-> In this case, if the invoice corresponds to actual goods/services purchased, and the transaction was conducted with proper documentation such as contracts, stock entry/exit records, payment receipts, and accounting entries as required, the tax refund and deduction can be accepted.

• If the invoice was issued after the company escaped, the business cannot deduct the VAT and cannot include it in deductible expenses when determining taxable income.

According to Official Letter 11805/CT-TTHT dated December 31, 2014, from the Tax Department of Ho Chi Minh City:

• If the company hired a vehicle from Á Việt Trading Services Import-Export Company (referred to as Á Việt Company) for business travel and paid in cash, Á Việt issued invoice AV/11P No. 0000037 on June 6, 2013. However, according to tax authorities, Á Việt had left their business location, and the invoice became illegal. The company is not allowed to claim VAT input deductions or include it in their deductible expenses for income tax calculation.

According to Official Letter 11797/BTC-TCT dated August 22, 2014, from the Ministry of Finance:

• Regarding VAT deductions and refunds for businesses purchasing goods using direct invoices from businesses or intermediaries that have stopped operations or escaped from their business location, the following applies:

• If VAT has not been deducted, the Tax Department must notify the business to temporarily stop VAT deduction for invoices that show signs of violating the law, awaiting confirmation from the relevant authorities.

-> The business may only perform VAT deductions for invoices with no signs of illegal activities.

• If VAT has already been deducted, the tax authorities must notify the business to adjust and reduce the VAT that was previously deducted.

• If the business insists that the transaction and VAT input invoices are legitimate, they must take responsibility before the law, and the tax authorities must conduct an audit to conclude and handle any violations.

During the audit, the following should be checked:

• Verifying goods:

• Sales contract (if any);

• Delivery method;

• Delivery location;

• Transportation method;

• Transportation costs;

• Ownership and origin of goods (before delivery).

• Verifying payments:

• Banking transactions;

• Parties involved in the payment transaction;

• Frequency of transactions;

• Payment methods;

• Payment documentation.

• Verifying exportation of goods:

• Customs declaration with verification of actual export by customs;

• Payment documents via bank;

• Bill of lading (if applicable).

If the audit confirms that the transaction and purchase are legitimate and compliant with the law, the business can claim VAT deductions and refunds.

• Businesses must also commit to taking responsibility if any violations are found in the documents submitted to the tax authorities later.

• If violations of tax law or criminal activity are discovered, the case must be referred to the competent authorities for criminal investigation.

• If suspending VAT deductions leads to an increase in VAT payable, the tax authorities must track and monitor these cases, without requiring payment or penalties until the official conclusion from the competent authorities.

Conclusion:

1. If the invoice was issued before the business escaped (and the transaction is proven genuine with the required documents), the VAT can still be deducted and considered as an expense for income tax calculation.

2. If the invoice was issued after the business escaped, the VAT cannot be deducted and cannot be considered a deductible expense for income tax.

• If not filed, it cannot be claimed;

• If already filed, the VAT deduction must be adjusted, and the corporate income tax return must be amended.

Furthermore: If the business cannot prove the legitimacy of the transaction (e.g., invoice trading), not only will the VAT input deduction be denied, but it will also not be considered a deductible expense for income tax purposes, and the business will be fined for using illegal invoices (a fine of 20 million to 50 million VND).

"Article 28. Penalties for the use of illegal invoices."

1. A fine of 20,000,000 VND to 50,000,000 VND for using illegal invoices as defined in Article 4 of this Decree, except for cases outlined in points (d) and (e) of Article 16 and Article 17 of this Decree.

2. Corrective actions: The business is required to cancel the used invoices."