A recommendation on consideration of a method of calculating taxes /charges to the company based on the actual data for the taxes/charges upon the volume of exploitation and some other issues of the company.

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Name of recommendations: A recommendation on consideration of a method of calculating taxes /charges to the company based on the actual data for the taxes/charges upon the volume of exploitation and some other issues of the company.

Status: Responded

Recommended by units: The Ban Phuc Nickel Mine Co., Ltd

Official letter: 1229/PTM - VP, dated: 2017-06-05

Recommended contents:

The Ban Phuc Nickel Co., Ltd has been operating in Vietnam since 1993 and has invested over USD 127 million to exploit and process nickel sulphide ores at Sulphua Nikel Mine in Son La Province.

Unfortunately, the company is currently on the verge of default. The company's imminent default not only has a negative impacted on the company's employees and the economic success of Son La Province, but can also have a large negative impacted on the company's ability to operate. To attract foreign investment of Vietnam for the development of modern, economical and environmentally sustainable mining activities in the country.

Regarding this issue, I would like to express some concrete examples that the company is facing to maintain its operations in Vietnam:

  • Excise tax on nickel ore

The Excise tax on pure ore is very high at 20%. The imposition of such high tariffs is limited to mining operations, mine operations can only develop durably and sustainably when the project generates sufficient revenue to extract a portion of its use for consecutive exploitation operation. The success of exploration activities will expand production in Vietnam on the basis of identifying new mines.

  • Royalties

The mining industry faces a variety of taxes / fees that limit economic activity. These fees include royalties, environmental protection and mining rights.

Mineral resources tax in Vietnam is 10% and is among the highest in the world.

Provincial and central tax authorities have no agreement on the method of calculating royalties, which makes it difficult for foreign-invested mining companies to produce audited clearly financial statements.

The Company has been subject to royalty rates for ores without clearly reflecting the following matters:

oMineral content and metal content

oThe properties of the ore involved in metallurgy

oMetal prices on the world LME market

oOther fees

oThe terms of marketing and payment of products

Method of calculating environmental protection charges based on conversion ratio determined by local authorities to determine the volume of ore mine from the refined ore. This resulted in the volume of extracted ores being different from the actual volume of ores exploited (the volume of ore actually exploited by Ban Phuc is 975,759 tons, the amount of ore used for calculation of EP fees is 1,660,988 tons) And so we have to pay a very high fee for the ore we do not exploit. The method of conversion is not concerned with the mass determination system in modern mining applied at Ban Phuc mine, while the coefficient was determined at a certain time not reflecting the representativeness. for a lifetime mine.

The grant of mining rights is simply a one-time more royalty, once again levied as a tax on very large initial investment in new mining projects. Regrettably, the grant of mining rights encourages less honest companies to report improperly on mining reserves in order to reduce the cost of initial investment. It would be more realistic to make annual premiums based on actual volumes.

The Company's mining license was calculated on the basis of reserves with a marginal content of 0.2% Ni, but in the mine life, the tailing content was 0.33% Ni. The determination of marginal content in Vietnam's reserve calculation does not fully reflect the economic factors of the ore body and resulting the amount calculation of the mining rights was also inadequate and has made the company pay a considerable amount and not be economically.

The company's royalty fee was paid on the basis of 3,138,000 tons of ore, but after the completion of the actual mining, 2,321,799 tons of ore were identified. This change should be considered when determining the company's obligation to pay the mining rights.

  • Understanding and applying for tax payment

In March 2017, the General Department of Taxation conducted an inspection of the Company. However, the inspection has taken more than a year but not yet draft the inspection report. The company has incurred significant financial costs in assisting the General Department of Taxation to collect evidence supporting data and production costs from government and provincial authorities.

Understanding and applying tax laws and regulations in mining between the local and central tax authorities are widely clear different (the company has been finalized by the Son La Tax Department from 2010 to 2014 and have other comments after the settlement is different from the point of view of the General Department of Taxation. The inconsistency between the central and local taxes has led to the company being forced to pay unreasonable fines. In addition, there is a lack of in-depth understanding of the modern mining industry and lack of comparisons between local and central tax authorities, which are legally-based agencies but have not yet been well aware of the mining industry to openly exchange understanding and applying regulations in a uniform way.

The Company expects that the company's tax method to be based on actual data so that our tax burden is fairly calculated. Fair and equitable taxation will deliver a good message to foreign investors wishing to invest in mining in Vietnam.

In addition, the inconsistency in the customs procedures between Gia Thuy Customs and Hanoi Customs has led to the inconsistency of the customs valuation time for export shipments of the Company, resulting the company could not get back $ 460,000 in export tax refunds that have a very negative impact on investors' confidence and the financial condition of the company.

  • Incorrect taxable price in new regulations

The Circular No. 44/2017 of the Ministry of Finance adjusted the royalty price that has not updated the current price of the metal on the international market, nor cooperate with the mining enterprises to grasp the trend at current prices of metals around the world, leading to high tax prices, especially the price of nickel ore tax has doubled, while the price of real nickel metal on the world market is still low.

There are no different detailed tax rates for ore with different content for certain types of ore, especially with nickel ore.

  • Handling tax for various factors between kinds of related tax

In the case of Ban Phuc nickel mine, the volume of ore used to calculate royalties is the actual mining volume and is very different from the amount of ores converted for environmental protection charges. There is, however, no reasonable handling for unifying the difference in volumes used to account for the two taxes.

Mineral mining is a cyclical industry, investment in exploration, construction and mining is also cyclical. All over the world are affected by this cycle and companies are constantly comparing global development options to selectively filter and reach a balance between risk and success.

Here, the geological potential of the project is key factor. The Ban Phuc project has got a lot of exploration objectives, with staff and geological experts, so we are very optimistic about the potential of the area. However, this potential is being affected by fiscal considerations related to taxes in Vietnam. It is difficult to standardize Ban Phuc with other Western mining operations in Vietnam because, unfortunately, these mining operations do not exist.

The table below compares the tariff regimes being applied in the countries involved in the export of ores and concentrates.

Names of the countries

 

Export tax%

Royalties

Amount grant for mining rights

Environmental protection fees

Australia

0

2.5 – 5

None

None

Brazil

0

4

None

None

Canada1

0

2 – 16

None

None

Indonesia2, 3

10

4

None

None

Philippine

0

5

None

None

Vietnam

20

10

None

None

 

1 Canada's resource tax varies between provinces. The basic rate is 2% and the remaining rates depend on the profit

2 Indonesian export tax is 10% for unprocessed low grade concentrates.

Indonesia's natural resource tax reduced to 2% for processed ores.

The above table shows that, compared to other countries, the tax policy for the mining industry in Vietnam is a burden for mining companies in general, including our company. The company knows that the ultimate goal of the tax system applied to the mining industry is to ensure the greatest possible benefits to the state budget and the people, but to foreign companies such as ours I have to survive, the tax system must also be in the direction of encouraging and creating conditions for the mining industry to develop.

  1. From the facts presented above, the Company recommends:

To direct the General Department of Taxation to consider the method of calculating taxes / fees to the company based on the actual data on taxes / charges upon the exploited volume, to ensure fairness for thecompany. To consider and not issutax fines and late payment of corporate tax due to errors made by the company due to the inconsistency in understanding and application of taxes / fees of various levels of tax administration. .

2. To direct the General Department of Customs to finalize issues on export tax of the company and carry out procedures to refund USD 460,000 export taxes to the company so that we have the funds to maintain maintenance activities while waiting for additional foreign investment to expand the project.

To review existing mining laws and introduce a more investor-friendly regime by offering a consistent and fair tax system for the benefit of both the government and investors. In particular, consideration of thedeclining export taxes and royalties.

Responded by units: The financial; Ministry of Natural Resources and Environment

Official letter: 4175/TCHQ - PC; 3865/BTNMT – PC, dated: 2018-07-16

Responded contents:

• The Ministry of Finance:

The General Department of Customs issued an Official Letter No. 3858 / TCHQ-TXNK dated July 2 to directed Hanoi Customs Department to review, inspect and handle inspection results before July 30, 2015, and at the same time had the Official Letter No. 3859 / TCHQ- TXNK dated July 2, 2018 to inform to the company for coordination.

The Official Letter No. 3858 / TCHQ-TXNK dated July 2, /2018:

To: The Hanoi Customs Department

The General Department of Customs received an Official Letter No. 1771 / HQHN-TXNK. dated June 8, 2018 of the Hanoi Customs Department to report by electricity-urgent No 07 / DK of the Tax Department of Import-Export, the Official Letter No. 113/2018 / BPNM dated May 7, 2018 of  the Ban Phal Nickel Mine Co., Ltd (hereinafter referred to as the Company) Guiding the determination of marine value for consignments of fine ore for export according to the declaration No. 300448689611 dated July 2,  2Ọ15, the declaration No. 300469319900 dated July 20, 2015 and the declaration No. 300554889410 dated September 30, 2015 (Lot 26, 27, 29). Regarding this issue, the General Department of Customs has the following opinions:

As reported in the Official Letter No. 4441 / HQHN -TXNK of the Hanoi Customs Department: the Hanoi Customs Department: does not accept the official price and has moved for post-clearance inspection of 03 consignments of export goods No. 26,27 and 29 because the company has not declared the time of official price in the "note" according to Point a1, Clause 1, Article 17 of the Finance Ministry's Circular No. 39/2015 / TT-BTC dated March 25, 2015; There are many contradictions in the Company's records (for example, the payment method does not conform to the contract, etc.); The time of having actual price does not match the time of having official price according to agreements on the contract

• Pursuant to Clause 1, Article 17 of the Circular No. 39/2015 / TT-BTC:

Conditions for approval for the time of determination of official price:

:+ ) Sale contract shall include the agreement about the time of determination of official price appropriate to the exported/imported goods according to international practice;

+ Time of determination of actual price shall be in conformity with the time of determination of official price according to the agreement included in the contract;

+ The official price shall be conformable with the actual or future payment for the exported/imported goods according to the payment invoices.

*At the official price, the customs office shall check the declaration of the customs declarant, the time when the official price is available, the conditions for acceptance of the time of the official price. In cases where the customs declarers fail to declare or declare in contravention of the official price regulations, the customs offices shall determine the customs value, fix the tax, fully collect the tax and / or late payment amount (if any)

In comparison with the above provisions, the Hanoi Customs Department has not determined the customs value, and the tax assessment for the three above mentioned shipments due to ineligibility for official pricing is not in compliance with the provisions of Clause 1, Article 17 of the Circular No. 39/2015 / TT. -BTC.

The General Department of Customs requests the Hanoi Customs Department.:

1. Determines customs value, fixes tax, fully collection of  tax and late payment (if any) according to the provisions at Point b.2, Clause 1, Article 17 of the Circular No. 39/2015 / TT-BTC for three consignments of export goods that are eligible for official price as reported by the Hanoi Customs Departmentin 1771 / HQHN-KTSTQ.

2. Post-customs clearance inspection at customs offices according to Article 142 of the Circular No. 38/2015 / TT-BTC to scrutinize and inspect other export shipments of Ban Phuc Ltd Coif the conditions for application of the official price stipulated in Point d, Clause 1, Article 17 of the Circular No. 39/2015 / TT-BTC are not satisfied, the tax determination, valuation, fixing tax, late payment (if any) according to the provisions at Point b.2, Clause 1, Article 17 of the Circular No. 39/2015 / TT-BTC.

3. To work concretely with the Ban Phuc Nikel Mine Co., Ltd to handle the case thoroughly and report on the results of implementation of Point 1, Point 2 above to the General Department of Customs before July 30,

The General Department of Customs would like to inform  the Hanoi Customs Department to know and implement.

• Ministry of Natural Resources and Environment

For the reflection, the opinion of the Ban Phuc Nikel Co., Ltd: Consideration of the method of calculating taxes / fees for the company based on the actual data on the taxes / charges on the volume of exploitation. and some other issues of the company (No. 6 in Appendix I):

The Ministry of Natural Resources and Environment considers that the three contents proposed by the company belong to the resolution function of the Ministry of Finance. However, we recommend to reconsider: "The issuance amount of mining rights is simply as a one-time royalty, imposed once again as a huge initial investment tax on project”, Meanwhile taking again definition of  "Mineral Exploitation Fee", as there is no determination of "issuance fee of mining rights" under the mineral law, and the issuance amount ofexploitation rights. Mineral mining is not a natural resource tax as stated by the Company. The payment of mineral mining rights is one of the necessary and sufficient conditions under the law on minerals to organize, individuals permitted to exploit minerals. The calculation of the right to exploit minerals shall be made in accordance with the regulations in Clause 2 of Article 77 of the Law on Minerals and the Decree No. 203/2013 / ND-CE dated 28 November 2013 of the Government stipulating the method of calculating and the level of issuance amount of exploitation rights *

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