PetroVietnam Fertilizer and Chemicals Corporation (PVFCCo, stock code: DPM) has publicly disclosed the inspection results of tax law compliance in 2013 at PVFCCo as follows:
1. On 05 January 2015, PVFCCo received the Decision No. 2495/QD-TCT dated 30 December 2014 of the Director of General Department of Taxation on handling tax violations according to inspection results of tax law compliance in 2013 at PVFCCo, as follows:
– Corporate Income Tax arrears in 2013 shall be collected in the amount of VND 16,523,219,266.
– A penalty of VND 5,403,092,700 shall be imposed upon incorrect tax declaration and late payment.
2. Causes:
According to conclusions of the inspection team of General Department of Taxation on tax law compliance in 2013 at PVFCCo: PVFCCo mistakenly allocated profits from trading of increased urea output generated by the investment project of CO2 recovery system for Phu My Fertilizer Plant exhaust to increase urea output (at the Corporate Income Tax rate of 25%) and profits from trading of urea output of Phu My Fertilizer Plant (enjoying the preferential Corporate Income Tax rate of 7.5% as approved by the Prime Minister for Phu My Fertilizer Plant investment project). This led to PVFCCo’s inaccurate declaration of Corporate Income Tax on urea produced by the CO2 recovery system. PVFCCo also inaccurately allocated some cost items in the 2013 accounting period. These factors resulted in lower tax expense and higher tax income of PVFCCo in the period.
The CO2 recovery system was invested by PVFCCo and has been put into operation since September, 2010 to recover CO2 from the exhaust of Phu My Fertilizer Plant to increase its urea production capacity by 60,000 tons/year and significantly contribute to the environmental protection. In financial aspect, this is the expanded work and investment property; however, in technology and engineering aspect, it is closely related to the operation mode of Phu My Fertilizer Plant via complex connection interfaces. The determination of urea produced by the initial Phu My Fertilizer Plant and urea contributed by the CO2 recovery system is based on PVFCCo’s metering device systems, operating procedures and complex technological factors depending on the different timing of operation in the plant as a whole and the CO2 recovery system in practice. As a result, there were differences between results calculated by PVFCCo and those achieved with tax agency’s approved calculation method, leading to the increase in Phu My urea output produced by the CO2 recovery system. With the viewpoint of assessment at its discretion, the General Department of Taxation came to conclusion that PVFCCo’s profit before taxes had not been fully declared and they made decision to sanction, collect tax arrears and penalty for tax late payment accordingly.
3. Remedial plan and solutions:
PVFCCo will carry out its solutions as follows:
– To simultaneously implement the two following solutions throughout the production and operation of Phu My Fertilizer Plant to help secure the accurate basis for PVFCCo’s tax declaration:
+ To establish a team consisting of experts knowledgeable about PVFCCo’s technology line and external reputable independent experts to work out the most unbiased and accurate method of determining CO2 volume recovered from CO2 project for urea production. Basing on this result, PVFCCo will determine and declare detailed urea production output for 2014 and subsequent years corresponding to the allocated volume.
+ To conduct research on selecting the reasonable operating mode in order to directly use meters for determining actual volume of CO2 from the CO2 recovery works to produce urea. If applicable, this method will be the most unbiased way for declaring detailed urea output, replacing the above first solution.
– To accurately account deductible expenses when determining taxable subjected to Corporate Income Tax.
