Solutions to prevent or fraud of origin and geographical indication violations

Mr. Nguyen Van Hoan, Deputy Director of the Anti-Smuggling and Investigation Department (General Department of Vietnam Customs)

Could you share the measures that Customs has implemented and will continue to apply to combat tax evasion, fraud of origin and geographical indication violations?

-To effectively address acts of tax evasion and counterfeit origin claims while ensuring minimal disruption to business operations, Customs will focus on the following measures:

Continuously analyze data and compile lists of key commodities and entities with abnormal export turnover increases. This includes identifying high-risk goods for origin fraud and assigning specialized units, the Anti-Smuggling and Investigation Department, and local customs departments to conduct investigations and verify violations.

Strengthen the collection and analysis of risk data, identifying high-risk enterprises for post-clearance audits, particularly focusing on origin fraud inspections.

Continue implementing plans to combat origin fraud and illegal transshipment based on assigned tasks. Actively promote negotiations with the United States on specific cooperation initiatives related to combating origin fraud and illegal transshipment to effectively enforce the Customs Mutual Assistance Agreement between Vietnam and the U.S.

Clarify the areas of collaboration between Vietnam and the U.S., including requests for information, investigations, and verifications from both sides.

Collaborate with the Ministry of Industry and Trade, the Ministry of Science and Technology, the Vietnam Chamber of Commerce and Industry (VCCI), and industry associations to identify high-risk enterprises and those with indications of fraud, origin misrepresentation, improper labeling, intellectual property violations, or illegal transshipment. Appropriate measures will be applied to address these issues.

Another critical solution is improving the legal framework.

There are challenges regarding tax evasion prosecution. Could you elaborate on these difficulties?

-Currently, the investigative authority of Customs under criminal procedure law is limited. The 2015 Penal Code (amended in 2017) grants Customs investigative authority only for three offenses: “Smuggling” (Article 188), “Illegal transportation of goods or currency across borders” (Article 189), and “Manufacturing and trading prohibited goods” (Article 190).

For tax evasion cases, Customs authority must transfer the matter to investigative agencies, which entails lengthy administrative procedures and delays in timely detection and prosecution.

Therefore, it is necessary to expand Customs' authority to initiate and investigate tax evasion cases under Article 200 of the Penal Code.

According to guidance from Official Dispatch No. 196/TATC-PC issued on October 3, 2023, by the Supreme People’s Court, the object of tax evasion involves harming state tax management across various fields, specifically causing state budget losses due to unpaid taxes. The object of smuggling, on the other hand, pertains to violations of the management order of the export and import of goods, currency, precious metals, precious stones...

In this case, although the customs declaration process complied with legal requirements during importation, the goods remained under customs supervision as stipulated in Article 51(1) of the 2014 Customs Law. During this period, the Tax Authority did not yet oversee the goods.

However, the defendant’s decision to forgo production for export and instead divert the goods for domestic consumption without completing customs procedures constitutes a violation of customs regulations. This breach is specified in Article 25(5) of Consolidated Decree No. 24/VBHN-BTC (dated July 11, 2018) and points b and c of Article 21(1) of Consolidated Circular No. 25/VBHN-BTC (dated September 6, 2018).

Such actions qualify as “Smuggling,” as defined under Article 188 of the 2015 Penal Code (amended in 2017).

Yet, according to Article 200(1)(i) of the Penal Code, the act of “using goods subject to tax exemption, tax-free status, or tax reduction for purposes not prescribed without declaring the change in use to tax authorities” is classified as tax evasion. Unlike clauses e, g, and h in the same article, this clause does not exclude acts covered under Articles 188 and 189.

The Tax Administration Law explicitly designates customs authorities as tax administrators. While Article 188 broadly defines smuggling as “illegal trade,” leaving specific acts undefined, it carries harsher penalties compared to tax evasion under Article 200, which delineates clear behaviors and lighter punishments.

Under the principle of leniency for offenders, legal provisions that define specific acts and prescribe lighter penalties should be applied. Therefore, cases where individuals misuse tax-exempt, tax-free, or tax-reduced goods for unintended purposes without declaring the change in use to Customs should be prosecuted as tax evasion.

To avoid differing interpretations and overlapping offenses, it is essential to amend Article 200(1)(i) of the Penal Code to read: “Using goods subject to tax exemption, tax-free status, or tax reduction for purposes not prescribed without declaring the change in use to tax authorities, unless the act falls under Articles 188 or 189 of this Code.”

Thank you for your insights!