Tax Debt: Enterprises at risk of dissolution

Tax is one of the obligations of enterprises in the process of business operation, late tax payment can lead to many unfortunate consequences for enterprises. At present, the law has established a series of sanctions that state administrative organs can apply to enterprises with tax arrears. These sanctions will more or less affect the operation of enterprises, and even force the dissolution of the enterprise. In this article, the author mentions the risks of enterprises with tax arrears having their enterprise registration certificates revoked and being forced to dissolve.

Existing regulatory risks

Tax authorities and business registration authorities are two of the government agencies that closely monitor the operations of businesses. Therefore, in some cases, business management is coordinated between these two agencies. The revocation of the enterprise registration certificate due to tax arrears is one of them.

According to Clause 1, Article 125 of the Tax Administration Law 2019, revocation of the enterprise registration certificate is one of the measures to enforce administrative decisions on tax administration, in addition to other measures such as: (i) deducting money from the account of entities subject to enforcement of administrative decisions on tax administration at the State Treasury, commercial banks, other credit institutions; freezing accounts; (ii) deducting part of salary or income; (iii) stopping customs procedures for imported or exported goods; (iv) stopping the use of invoices; (v) seizing property, auctioning seized property in accordance with the law; and (vi) confiscating money or other property of entities subject to enforcement of administrative decisions related to tax administration, which is held by other agencies, organizations or individuals. It can be said that, compared to the other measures, the measure of revocation of the enterprise registration certificate can be considered the most severe for enterprises, because with other measures, enterprises are only affected in their business activities to a certain extent (e.g., they cannot issue invoices, cannot carry out customs procedures, etc.), while if the enterprise registration certificate is revoked, the enterprise will have to carry out compulsory liquidation procedures in accordance with the provisions of Article 209 of the Law on Enterprises 2020 .

Thus, it can be seen that in the case of an enterprise that owes taxes, the tax authority has full grounds to request the enterprise registration authority to revoke the enterprise registration certificate. However, a note for enterprises in this case concerns the conditions for revoking the enterprise registration certificate. Specifically, Point a, Clause 1, Article 37 of Decree 126/2020/ND-CP, which details a number of articles of the Law on Tax Administration, stipulates that the measure of compulsory revocation of the enterprise registration certificate shall be implemented when the tax authority cannot apply the remaining coercive measures mentioned above or has applied the above measures but still fails to fully remit the tax arrears to the State budget or in the cases specified in Clause 3, Article 125 of the Law on Tax Administration[1]. From the above cases, it can be seen that in order to apply the measure of revoking the business registration certificate, the tax authority must at least apply such measures as stopping the use of invoices; or seizing property, auctioning seized property in accordance with the law; or confiscating money or other property of entities subject to enforcement of tax administration-related administrative decisions, which is held by other agencies, organizations or individuals. Based on the above, if an enterprise falls into these cases, it can check whether it has been subject to the above enforcement measures before its enterprise registration certificate is revoked, and then make the next appropriate decision.

Realistic perspective

In fact, there are many cases where enterprises have had their enterprise registration certificates revoked due to tax arrears. For example, Duc Van Trading and Service Company Limited (enterprise code: 5800591858) had its enterprise registration certificate revoked by the Department of Planning and Investment of Lam Dong Province on April 27, 2018 at the request of the Tax Department of Bao Lam District, Lam Dong Province due to tax arrears[2]. On the same day, the Department of Planning and Investment of Lam Dong Province also revoked the enterprise registration certificates of Ngoc Dang Chau Company Limited (enterprise code: 5801063882) and Tran Tien Bao Loc Construction, Trade and Service Company Limited for the same reason. Although this revocation by the Department of Planning and Investment of Lam Dong Province occurred in 2018, the legal regulations at that time (Law on Tax Administration 2006, amended and supplemented in 2012 and Decree 78/2015/ND-CP on Enterprises registration) and now (Law on Tax Administration 2019 and Decree 01/2021/ND-CP) are similar to the case of revocation of enterprise registration certificates. Therefore, it can be said that in reality, there have been many cases where enterprise registration agencies have revoked enterprise registration certificates of tax-indebted enterprises.

Source: The Saigon Times

Recently, the Quang Ngai Provincial Department of Taxation also issued an official dispatch to the Quang Ngai Provincial Department of Planning and Investment on April 19, 2024, requesting the revocation of the enterprise registration certificate of Quang Thanh Construction and Trading Single-Member Limited Liability Company (Enterprise code: 4300332483) on the grounds that the Tax Department of Quang Ngai Province has applied tax arrears enforcement measures according to regulations, but Quang Thanh Construction and Trading Single-Member Limited Liability Company still owes overdue taxes to be enforced: 791,368,738 VND. Although there is currently no information on whether this company's enterprise registration certificate has been revoked, on April 24, 2024, the Tax Department of Quang Ngai Province continued to issue a Notice of temporary suspension of exit to Mr. Bui Van Tri, the legal representative of Quang Thanh Construction and Trading Single-Member Limited Liability Company[3].

As mentioned above, it is very important to consider whether the tax authority has taken other tax enforcement measures against the enterprise before requesting the enterprise registration authority to revoke the enterprise registration certificate, as this is a condition for the enterprise registration authority to revoke the enterprise registration certificate. Evidence of this is that on December 15, 2023, the Department of Planning and Investment of Lam Dong Province sent an official notice to the People's Committee of Lam Dong Province, mentioning the request of the Lam Dong Provincial Department of Taxation to revoke the enterprise registration certificate. Evidence for this is that on December 15, 2023, the Department of Planning and Investment of Lam Dong Province sent an official dispatch to the People's Committee of Lam Dong Province, which mentioned the request of the Tax Department of Lam Dong Province to revoke the enterprise registration certificate of the tax-indebted enterprise[4]. Accordingly, this agency cited the provisions of Point a, Clause 1, Article 37 of Decree 126/2020/ND-CP as mentioned by the author as the basis for not revoking the enterprise registration certificate on the grounds that the tax authority had not applied the remaining tax enforcement measures.

The author believes that the opinion of the Department of Planning and Investment of Lam Dong Province stated in this document is in accordance with the provisions of the law, as the revocation of the enterprise registration certificate will lead to the compulsory liquidation of the enterprise. In terms of the purpose of tax enforcement activities, this measure is almost worthless in collecting the tax amount owed by the enterprise. Therefore, it is not obvious that the legislator has stipulated that this is the last measure that the tax authority can apply, if it cannot or has previously applied measures with a lesser impact on the enterprise, but without effectiveness.

In short, from the perspective of enterprises with tax arrears, enterprises need to pay attention to the risk of having their enterprise registration certificates revoked by the enterprise registration authorities, as this is perfectly legal and has happened quite often in practice. However, enterprises also need to clearly understand the conditions and procedures for the enterprise registration authority to revoke the enterprise registration certificate, in particular, to verify and check whether their enterprise has been subject to other tax enforcement measures or not, in order to take appropriate measures and avoid falling into a situation of forced dissolution due to tax arrears.

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