Shinhan Bank

As part of Shinhan Bank Vietnam’s ongoing support to Business household and Corporate Customers in risk management and compliance awareness, we are pleased to share our latest monthly brief note on selected tax topic relating to supplier-related transactions within procurement chains. Detailed information is available on the Shinhan Bank Vietnam website.
The following information is for reference purposes only and is designed to support our Valued Customers to identify key operational considerations early on and minimize future risks. 

HIGH-RISK SUPPLIERS EMERGING IN YOUR PURCHASING CHAIN: KEY TAX CONSIDERATIONS

In practice, a certain number of household businesses and enterprises encounter situations where goods or services have been purchased with sufficient invoices and duly accounting records. However, several years later, tax risk may arise when the supplier is placed under warning status or shows abnormal signs related to invoice generation or business activities.

When competent authorities issue that information to taxpayers, for instance, lists of suppliers under monitoring, suspended operations or showing invoice-related risk indicators; lists of invoices requiring review due to the seller’s tax risk signals; or notifications that a trading partner is under investigation for tax evasion and/or illegal invoices -this does not necessarily mean that the taxpayer has violated regulations. Nonetheless, it is an indication that the related transactions fall within the scope of regulatory review, and the taxpayer should proactively conduct internal checks. From the tax authority’s perspective, the establishment and publication of supplier risk lists primarily serve as an early alert mechanism to prevent tax registrant from related exposures.

When such a situation arises, instead of reviewing each invoice in isolation, household businesses and enterprises would follow the steps:

1. Identify all transactions related to flagged suppliers 

First of all, summarize your transactions associated with the aforementioned tax identification number in the warning list. It should clearly include relevant details such as:

• Invoice number / invoice date;
• Pre-value-added tax value/ Value-added tax amount;
• Type of goods or services;
• Input tax deduction treatment applied;
• Tax declaration period;
• Payment status;

Responsible department and personnel in charge of the transactions.

2. Compare dossier record against actual transaction execution

Next, review each transaction in that list and answer the questions below:

• Did the transaction actually occur and are supporting documents complete?
• Did the transaction occur but lack certain supporting documents that need supplementation?
• Or is there insufficient evidence to confirm that the transaction is genuine?

Based on this assessment, the organization should determine which category each operation falls into and identify what documentation needs to be strengthened to properly reflect the substance of the transaction (e.g., contracts, delivery/acceptance minutes, handover records, etc.).

3. Review payment flows and ultimate recipients

 Another key stage is examining the actual payout flows:

• Were payments made correctly to the supplier stated on the invoice/contract?
• What payment methods were used (cash, bank transfer, debt offset, etc.)?
• Were there any intermediaries or unrelated third parties receiving the payments?
• Were the payment timings consistent with contractual terms, invoice dates and goods/service receipt dates?

Reconciling payment trails with contracts, invoices, receipts, payment documents and bank statements enables the organization to obviously understand where the money went and if it aligns with the underlying transaction.

4. Evaluate potential tax impact

After reviewing documentation and cash flows, you will have a basis to assess:

• Whether current records are sufficient to substantiate the reality of the transaction;
• Whether any transactions should be proactively adjusted in tax filings;
• Which key points should be emphasized in explanations to tax authorities;

Many organizations select to early analyze the likelihood of tax adjustments for each transaction group (fully supported, partially supported, or difficult to substantiate), rather than waiting for audit conclusions. This approach facilitates minimizing late payment interest and penalties. Tax amendment might comprise of reassessing input deductibility, submitting amended value-added tax returns, revising corporate income tax filings for relevant periods, and initiate paying additional tax and late payment interest, if applicable.

5. Respond authorities within deadlines and to the correct contact points

Finally, preparing complete information and documentation from the outset assists businesses to proactively engage with tax authorities, to reduce multiple rounds of supplementation and to save the process time. It is important to ensure that:

• Responses are submitted within the required deadline;
• Submissions are sent to the correct authority and designated officer as instructed;
• All incoming and outgoing official correspondence, as well as supporting documentation, are properly retained.

This approach helps businesses both comply with regulatory requirements and maintain effective control over the scope and level of tax risk associated with flagged suppliers.

6. Establish internal control to prevent recurrence

The following measures might be considered for implementation:

• Periodic verification of supplier operational and its tax status;
• Review of completeness of supporting documentation, including relevant communications, prior to payment execution;
• Reconciliation of consistency across all related supporting documents;
• Proactive assessment of unusual or non-compliant transactions prior to tax reporting

To mitigate risks in similar transactions, many households and enterprises have implemented supplier screening procedures both before and during business engagements. Such approaches are not only operational safeguards but also form an essential component of tax governance and compliance management.

This material is provided only for general informational purposes at the publication time and does not constitute an assessment, conclusion, or opinion on any specific transaction, documentation, or counterparty of the Customers and the Bank. The content reflects general risk patterns observed in practice, in consideration, kindly consult with your competent authorities or independent tax consultants for appropriate guidance. The Bank will not be responsible for any loss or damage arising from reliance on this general information.
Within the scope of services permitted, Shinhan Bank Vietnam is always available to partner with Valued Customers in updating and sharing tax information to enhance financial management efficiency.