Vietnam’s largest brewery, state auditors at loggerheads over $18mn in tax arrears A Sabeco employee is pictured at the company's plant in Ho Chi Minh City. Tuoi Tre Taxpaying is apparently not all beer and skittles for Sabeco, as Vietnam’s largest brewery is in dispute with state auditors over a huge amount of tax arrears that the company has repeatedly claimed was unreasonably calculated. Sabeco, fully known as the Saigon Beer-Alcohol-Beverage JSC, has been asked to pay an additional tax of VND408 billion (US$18.74 million) for 2013 after the State Audit of Vietnam (SAV) looked into its tax-paying activities that year. Auditors have re-calculated the special consumption taxes Sabeco had to pay for 2013 to determine the tax arrears, the SAV said at a press meeting on July 10. In Vietnam, such products as beer and cigarettes are subject to special taxes to limit consumption. The tax rate slapped on beer products is 50 percent of the price set by the manufacturer, the Ministry of Finance ruled in Circular No. 5 promulgated in 2012. The price, however, should not be over 10 percent lower than the average rate the product is sold at by commercial establishments, according to the circular. The regulation is intended to prevent businesses from lowering retail prices to pay lower taxes. But auditors alleged that Sabeco, which is 89 percent owned by the state, deliberately sold its products via a multi-layer distribution system to avoid paying huge amounts of special consumption tax. The beer maker would first sell its products at low prices to Sabeco Trading Co., a subsidiary it holds a 100 percent stake in, according to audit results. Sabeco calculated, declared and paid its special consumption tax based on the price at which it sold beer to this subsidiary. But Sabeco Trading Co. was not the direct distributor of the beer products to end-consumers. The company, instead, continued distributing the products to ten ‘regional trading companies,’ affiliates which Sabeco holds a 90 percent stake in, at quite low prices. These Sabeco affiliates would then sell the products to the primary dealerships at higher prices. The next layer of the distribution system includes the secondary dealerships, which would sell the products to end-consumers. While the prices at which Sabeco beer was sold to the end-consumers were much higher than what the firm charged Sabeco Trading Co., the tax was already calculated based on the low prices. The state auditors thus re-calculated the tax Sabeco had to pay based on the rates at which the regional trading companies sold beer to the primary dealerships, which resulted in the VND408 billion arrears for 2013. Sabeco would have to pay as much as VND4 trillion ($183.74 million) worth of such tax arrears for the 2008-14 period if the same re-calculation were applied. “Sabeco must follow the request to clear the tax arrears,” Cao Tan Khong, deputy head of the SAV, said at the July 10 meeting. “As far as I know, top officials at the Ministry of Finance have backed the SAV in handling this case.” Sabeco fires back Sabeco found the tax arrears payment request unreasonable, and has repeatedly protested against the state auditors. On Wednesday, the beer maker held a seminar to reiterate its stance on the issue. Chung Tri Dung, chairman of the Sabeco labor union, said it is unreasonable to count Sabeco Trading Co. and the ten regional trading firms in the taxation of Sabeco only because the beer maker holds up to 100 percent of the stakes in them. “These subsidiaries are entities independent [from Sabeco] and have their own financial accounts,” he said. Dung said Sabeco and its subsidiaries and affiliates are audited annually by reputable companies such as KPMG, PWC, E&Y and Deloitte. The auditors always say that Sabeco is strictly abiding by tax regulations, he added. “So are there differences in the way state and independent auditors work?” he asked. Sabeco chairman Phan Dang Tuat said the company would pay the VND408 billion in tax arrears as requested, even though it sees the request by the SAV as “not quite reasonable.” “It would be a case of double taxation,” Tuat told reporters on the sidelines of the seminar. Sabeco Trading Co. is distributing products to the ten regional trading firms on more than 400 transportation routes, with transportation costs in 2013 topping VND1.2 trillion ($55.12 million), Tuat said. The company also has to cover many other fees so charging it a special consumption tax is “going against the nature of the tax,” he said. TUOI TRE NEWS