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Vietnam's largest brewer Sabeco will have to pay over VND408 billion (US$18.68 million) in luxury taxes that state auditors said it tried to evade in 2013 in a long-lasting price manipulation scheme.
The state audit office told the press on Friday that the scheme was made possible by legal loopholes and that it would not go easy on the violation.
Early this week, state auditors submitted a report to the Ministry of Finance, accusing Saigon Beer Alcohol Beverage JSC, as the company is officially known, of rigging prices within its network of 11 distributors to pay less tax.
It said under Vietnamese law, luxury tax is calculated based on the price at which a producer sells its products to distributors. The tax rate was 50 percent for beer in 2013.
To take advantage of this rule, Sabeco sold its products to Sabeco Trading Co. Ltd, which it fully owns, at low prices.
This company then sold the products, once again at low prices, to 10 other "regional" distributors, in which Sabeco has at least a 90 percent stake.
The scheme allowed Sabeco to pay only a small amount of luxury tax, before increasing prices when selling beer to retailers, according to the office.
Speaking at the press conference, Truong Thi Viet Huong, who led the team that audited Sabeco, said the brewer's trick was similar to transfer pricing.
It was enabled by a loophole in an ordinance on luxury tax which does not specifically define whether or not the distributors have to be financially independent from the producer, she said.
However, the finance ministry is now working on adjusting the rule, so it will be only applicable, when the producer does not have any shares in the distributor, according to Huong.
In the case of Sabeco, state audit recommended luxury tax be re-calculated on the price at which its regional distributors sell to retailers, she said.
The brewer reportedly will have to pay a total of VND4 trillion ($181 million) for 2008-14, if the proposal is accepted.
But the audit office asked the company to pay its 2013 arrears first, saying since the total amount is huge, Sabeco would need some time to pay the whole sum off.
Huong also responded to Sabeco's claim that many other companies have operated similar systems of distributions, saying that her office will possibly check on those businesses.