Ho Chi Minh City, 16 October 2026
Recently, the press reported on an appellate judgment issued by the Supreme Court of H. City on 4 September 2025 (the “Judgment”), which attracted considerable attention from the public and, in particular, the business community. The Judgment is noteworthy as a relatively rare instance in which an enterprise (as the plaintiff) successfully challenged an administrative penalty decision issued by the Tax Department of H. City in 2022 (the “Tax Penalty Decision”).
Under the Tax Penalty Decision, Enterprise S was assessed additional taxes and administrative penalties totaling nearly VND 12 billion for incorrect tax declarations that resulted in underpayments of VAT and CIT.
In this article, we, Indochine Counsel, highlight key lessons and recommendations to help businesses protect their lawful rights and interests in similar proceedings.
Background of the Dispute
Following the issuance of the Tax Penalty Decision, Enterprise S initiated administrative litigation before the People’s Court of H. City, seeking annulment of the Tax Penalty Decision on the grounds that it lacked a sufficient legal basis and that the inspection team had failed to establish its lawful authority to conduct the tax inspection.
At first instance, the Trial Panel ruled in favor of Enterprise S and annulled the Tax Penalty Decision. The Tax Department subsequently appealed, while the High People’s Procuracy in H. City lodged a protest against the first-instance judgment.
At the appellate hearing, the Court rejected both the appeal and the protest, thereby upholding the first-instance judgment.
Reasoning of the Court
Firstly, the Court identified deficiencies concerning the qualifications of the inspection team members. None of the inspection team members possessed inspector qualifications or had completed the statutory inspector training. The tax authority could not justify the assignment of personnel who did not meet the applicable requirements by citing staff shortages. As the inspection had been conducted and the inspection minutes prepared by personnel lacking the required qualifications, the Court found the inspection minutes legally invalid. Accordingly, the resulting Tax Penalty Decision was procedurally unlawful.
Secondly, the Court held that if the tax authority suspected Enterprise S of tax evasion, it lacked jurisdiction to issue administrative penalties directly. Instead, it was legally bound under the Law on Inspection and the Law on Handling of Administrative Violations to transfer the case file to the competent investigative agency.
Key Takeaways and Recommendations
In light of the Judgment, we recommend that enterprises adopt the following measures to mitigate tax compliance risks and protect their legal interests:
1. Maintain complete supporting documentation for transactions
Enterprises should ensure that invoices, accounting vouchers, and transaction records are complete and compliant with applicable regulations. Where a counterparty is identified as inactive at its registered address or presents other compliance risks, enterprises should retain sufficient evidence that the underlying transactions genuinely occurred, including contracts, payment records, delivery notes, and acceptance minutes. Such evidence is essential when explaining transactions to the tax authorities and defending the legitimacy of deductible expenses and input VAT credits, where applicable.
2. Conduct regular due diligence on business partners
Enterprises should routinely monitor and verify the legal status and tax compliance information of business partners and review relevant official notices. Early identification of potential compliance issues can help businesses assess transaction risks, strengthen supporting documentation, and reduce the likelihood of subsequent tax disputes.
3. Establish a systematic document retention and retrieval system
Enterprises should maintain an organized archive of commercial contracts, invoices, payment records, financial statements, accounting books, and audit documentation. Records relating to previous tax inspections and audit findings, explanations, and exchanges with the authorities should also be preserved. A well-maintained document management system enables businesses to respond promptly to information requests and provides essential evidence in administrative complaints or litigation.
4. Verify the inspection team’s authority and legal basis
When a tax inspection or other administrative inspection takes place, enterprises should review the relevant inspection decision, the assigned team’s mandate, and the credentials or qualifications required by law. Enterprises should also verify that the inspection is conducted within the scope and jurisdiction prescribed by the applicable regulations. Maintaining records of working sessions, official requests, document handovers, and written explanations can help establish the relevant facts and safeguard the enterprise’s lawful interests.
5. Review the legality of administrative penalty decisions before deciding on a response
Upon receiving an administrative penalty decision, a business should promptly assess its legal basis, the authority of the issuing body, the procedures followed, and the supporting evidence. Where appropriate, the business should seek advice from a qualified lawyer to evaluate the grounds for an administrative complaint or an administrative lawsuit. A timely and well-founded legal assessment may help the business challenge an unlawful decision, mitigate potential financial losses, and avoid being held liable on an insufficient or legally defective basis.
Conclusion
Successfully challenging an unlawful administrative decision requires more than an understanding of the law. It also requires reliable factual evidence, sound legal arguments, and careful preparation throughout the administrative and litigation process.
The Judgment underscores the importance of procedural legality and the need for businesses to remain vigilant in protecting their rights when dealing with tax authorities. By maintaining robust compliance practices and promptly reviewing potentially unlawful administrative decisions, businesses can better manage tax risks and safeguard their legitimate interests.
We hope these insights provide practical value to our readers and clients.
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Read the previous Case Notes here: Part 1|Part 2
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For inquiries regarding tax compliance, tax inspections, administrative penalties, or related tax disputes, please get in touch with our team:
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