To: Tax Department of Binh Duong province

In response to the Tax Department of Binh Duong province’s Official Letter No. 2112/CT-THDT dated April 6, 2007, and Stickley International Company Ltd.’s Official Letter No. 02/07/2007/KT dated July 16, 2007, requesting guidance on conditions for value-added tax (VAT) refund, the General Department of Taxation gives the following opinions:

Point 1.2.d.3, Section III, Part B of the Finance Ministry's Circular No. 32/2007/TT-BTC of April 9, 2007, guiding the implementation of the Government's Decrees No. 158/2003/ND-CP of December 10, 2003, and Decree No. 148/2004/ND-CP of July 23, 2004, detailing the implementation of the Value-Added Tax Law and the Law Amending and Supplementing a Number of Articles of the Value-Added Tax Law stipulates: “The case in which exported goods or services are paid with goods means the one when goods (including goods processed for export), services exported to foreign organizations or individuals (referred to as foreign parties for short) but the payment between Vietnamese enterprises and foreign parties is made in the form of clearing between the value of exported goods or services or charges for processing export goods and the value of goods or services purchased from foreign parties. Exported goods or services paid with goods must satisfy additional dossier requirements as follows: the mode of payment with goods for exported goods must be stated in the export contract; the contract for purchase of goods or service from the foreign party; the customs declaration on imported goods paid for exported goods or services; the foreign party’s written certification of the clearing payment between the exported goods or services and the goods or services purchased from the foreign party.

When there is a difference after the clearing payment of the value of exported goods or services against the value of imported goods or services, the difference amount must be paid via bank. Via-bank payment vouchers comply with the guidance at this Point.”

Under the above guidance:

- Case 1: The Vietnamese party signs a contract to borrow capital in the form of materials from the foreign party, the value of these materials shall be considered a loan. The Vietnamese party exports goods to the foreign party, but the payment is made by deducting the value of exported goods or services or charges for processing export goods by the value of materials borrowed from the foreign party. The Vietnamese party is entitled to value-added tax refund if this mode of payment is stated in the loan contract, it has a customs declaration on imported materials paid for exported goods or services and the foreign party’s written certification of the clearing payment between the exported goods or services and the goods or services imported from the foreign party.

When there is a difference after the clearing payment of the value of exported goods or services against the value of imported goods or services, the difference amount must be paid via bank.

- Case 2: The Vietnamese party signs a loan contract with the foreign party. The Vietnamese party signs another contract with a third party (domestic or overseas) to buy materials which names the foreign party as the payer, the sum the foreign party pays to the Vietnamese party constitutes the loan. Since the Vietnamese party sells goods to the foreign party, the foreign party’s vouchers of payment to the third party (domestic or overseas) do not satisfy the prescribed conditions on “vouchers of via-bank money transfer from the foreign party to Vietnam”, and therefore the Vietnamese party is ineligible for VAT refund.

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FOR THE GENERAL DIRECTOR OF TAXATION
DEPUTY GENERAL DIRECTOR




Pham Duy Khuong