Note: this case study has been anonymized — company names and some details changed to protect client confidentiality. The legal issues and lessons are real.
VAT refunds are a legitimate right of exporting businesses — but also a "bait" that makes many companies complacent. The story below is one of the most regrettable cases we have advised on: a decent exporting business, with genuine exported goods and genuinely paid input VAT — yet it lost a VND 12 billion tax refund entirely, plus additional assessments and penalties, solely because of invalid input invoices.
Table of contents
- 1. Background: an exporter with "huge" input VAT
- 2. The VND 12 billion refund dossier filed — and the call from the tax authority
- 3. First risk invoice group: invoices from absconded businesses
- 4. Second risk group: wrongly issued, altered, or unrealistic invoices
- 5. Third risk group: invoices from "circular" transactions via intermediaries
- 6. Fourth risk group: invoices missing deduction conditions
- 7. Pre-refund inspection result: from VND 12B refund to assessment and penalties
- 8. Why an "innocent" business still loses money — the tax authority's logic
- 9. Lesson: manage input invoices like cash
- 10. Frequently asked questions
- 11. When to work with a lawyer
- References
1. Background: an exporter with "huge" input VAT
The company in this story — call it Company X — manufactures handicrafts for export to the EU and US, with about 400 workers. Industry characteristics: domestic input materials bear 10% VAT, while exported goods apply 0% rate. This gap accumulated over periods into uncredited input VAT of VND 12 billion — qualifying for refund (VND 300 million or more for exports).
Company X was no "ghost" company: real factory, real workers, real export containers with full customs declarations. Management believed their refund dossier was "clean" and it was only a matter of time before receiving the VND 12 billion in overpaid tax.
2. The VND 12 billion refund dossier filed — and the call from the tax authority
The refund dossier was filed completely per regulations. But instead of a refund decision, Company X received notice of a pre-refund inspection — a procedure the Law on Tax Administration 2025 (108/2025/QH15) allows for high-risk cases, and with a VND 12 billion refund, pre-inspection was almost certain.
The inspection team came, and within a month, four risk invoice groups were "named" one by one. Total disallowed input VAT reached nearly the entire claimed refund amount.
3. First risk invoice group: invoices from absconded businesses
The first — and largest — group was material purchase invoices from three suppliers who at inspection time had absconded from their registered business addresses, ceasing operations without notifying tax authorities. Total input VAT in this group: over VND 5 billion.
The legal issue: under the tax authority's logic, invoices issued by absconded businesses cannot prove genuine and lawful transactions at issuance — especially when the suppliers' "disappearance" coincided with the period they issued large volumes of invoices to Company X. Despite Company X's assertion that goods were genuinely received and payments genuinely transferred, the authority disallowed all of it.
This is the classic "innocent" situation: a good-faith buyer still loses money because of a partner's violations. Section 9 shows the only meaningful prevention.
4. Second risk group: wrongly issued, altered, or unrealistic invoices
The second group included invoices with formal and content errors: goods names written generically ("various materials") unmatchable to production norms; unit prices fluctuating abnormally across periods for the same material; some adjustment invoices prepared not per Decree 254/2026/ND-CP procedures.
Total VAT in this group was about VND 2.5 billion. The common thread: Company X's accounting department worked on the habit of "book whatever invoice arrives," without reconciling invoices against contracts, delivery minutes, and material consumption norms. When inspectors asked to explain discrepancies between purchased material quantities per invoices and consumed quantities per production norms, the company could not explain — and the entire group was disallowed.
5. Third risk group: invoices from "circular" transactions via intermediaries
The third group was more sophisticated: some material lots were purchased through two or three intermediary layers — Company X bought from Company A, A from Company B, B from producing households. When tax authorities verified the chain backward, they found Company B was a "shell" business: no warehouse, no personnel, tens of billions in revenue but negligible tax paid.
Although Company X only dealt directly with Company A with full payment documentation, the authority still questioned the reality of the entire transaction chain and disallowed the corresponding input VAT — about VND 3 billion. The authority's argument: in circular trading chains through shell companies, the actual movement of goods through the invoiced stages cannot be determined.
6. Fourth risk group: invoices missing deduction conditions
The final group was invoices correct in transaction substance but missing deduction conditions under the VAT Law: some payments over VND 5 million made in cash (failing the non-cash payment condition under current rules); some invoices missing mandatory items; procurement costs not serving VAT-taxable business operations were also included in deductions.
Totaling about VND 1.5 billion. This was purely "technical errors" — entirely avoidable with tightly controlled accounting procedures.
7. Pre-refund inspection result: from VND 12B refund to assessment and penalties
The inspection's final result:
- No refund of the claimed VND 12 billion input VAT.
- Additional assessment of VAT wrongly deducted in prior periods (part of the above groups' tax had been deducted in earlier periods).
- Administrative penalties for tax violations: penalties for false declarations causing tax underpayment, plus late-payment interest calculated daily.
Company X's total financial damage far exceeded the initial VND 12 billion — not counting the opportunity cost of cash flow "frozen" during inspection and damaged credibility with tax authorities (the company was classified high-risk, with all subsequent refunds pre-inspected).
8. Why an "innocent" business still loses money — the tax authority's logic
Many business owners ask after such cases: "I bought real goods, paid real money, why still disallowed?" The answer lies in tax administration logic:
- The burden of proof lies with the taxpayer. When claiming a refund — asking the State to return money — the business must prove each invoice's legality to the end. "I didn't know the supplier absconded" is not a legal defense.
- An invoice is just one link. Tax authorities don't just look at the invoice but the entire document chain: contract — delivery — transport — payment — warehouse accounting — production norms. Break one link, the whole chain is doubted.
- A partner's risk is your risk. The law provides no "exemption" mechanism for good-faith buyers when suppliers violate — at least in current enforcement practice. Supplier vetting is therefore not just procurement's job but part of tax risk management.
9. Lesson: manage input invoices like cash
From this case, we recommend every business — especially exporters regularly claiming refunds — build an input-invoice management process with 7 checkpoints:
- [ ] Vet suppliers before contracting: check operating status on tax authority lookup systems, tax payment history, actual business addresses. New suppliers, abnormally large revenues, "virtual" addresses are warning signs.
- [ ] Three-way matching before booking: invoice — contract/delivery minutes — payment documents must align on goods names, quantities, unit prices, timing.
- [ ] Check norms: purchased material quantities must reasonably correlate with finished goods output per registered consumption norms.
- [ ] Non-cash payment for all transactions from VND 5 million per current rules; keep full payment orders and statements.
- [ ] Quarterly invoice reviews, not waiting until refund dossier preparation to discover errors.
- [ ] Avoid long, unclear intermediary chains: prefer buying directly from manufacturers or capable distributors.
- [ ] Self-audit before filing refund dossiers: simulate the inspection team's steps — because they certainly will.
10. Frequently asked questions
What makes an invoice "invalid" for VAT refund purposes?
Invalid invoices include: invoices from businesses that have absconded or ceased operations without notifying tax authorities; invoices with wrong information, erasures, or alterations; invoices reflecting fictitious or unreal transactions; invoices missing mandatory items under Decree 254/2026/ND-CP; and invoices for goods or services not serving VAT-taxable business operations.
If we genuinely bought goods and paid, but the supplier absconded, can we still deduct and get a refund?
In principle, tax authorities disallow input VAT from invoices issued by absconded businesses, as the transaction's legality cannot be verified. The buyer may defend by proving the transaction was real (contracts, non-cash payment records, delivery minutes, transport documents) and cooperating with documentation — but in practice, acceptance is very unlikely if the invoice timing coincides with the seller's violation period.
What are the conditions for VAT refunds on exported goods?
Under the VAT Law 2024, businesses with exported goods or services in a month/quarter qualify for monthly/quarterly refunds if uncredited input VAT reaches VND 300 million or more. The refund cannot exceed 10% of export revenue for the refund period. The dossier includes declarations, schedules, and proof of actual export.
When do tax authorities inspect before processing a VAT refund?
Tax authorities apply pre-refund inspection to high-risk cases under the Law on Tax Administration 2025 (108/2025/QH15): first-time refund claimants, taxpayers showing violation signs, or those classified as risky. For large refund amounts, pre-refund inspection is nearly standard practice.
If invoices are disallowed during a refund inspection, what remedies exist?
Businesses may explain and supplement documents proving genuine transactions during inspection; if disagreeing with the tax authority's decision, they may complain or file an administrative lawsuit. Long-term, the most effective measure is building supplier vetting and input-invoice controls from the procurement stage.
11. When to work with a lawyer
Large VAT refunds are procedures businesses should not navigate alone, especially when invoice risks exist. Work with a lawyer when: preparing large refund dossiers and needing to review and "clean" input invoices before filing; undergoing pre-refund inspection and needing explanation strategies and evidence supplementation; facing decisions disallowing invoices, assessing, or penalizing and needing to evaluate complaint/litigation prospects; or wanting to build invoice and supplier management processes for root-cause prevention.
FLAT Law Firm advises on tax from a legal perspective for exporters and FDI businesses — from refund reviews and representing explanations to tax authorities through complaints and litigation against tax decisions. Contact hotline 0988424851 for a risk assessment of your refund dossier before filing.
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References
- VAT Law No. 48/2024/QH15 dated 26/11/2024, effective 01/07/2025.
- Decree No. 181/2025/ND-CP guiding the VAT Law, effective 01/07/2025.
- Decree No. 254/2026/ND-CP on e-invoices and e-documents (effective 01/07/2026; replacing Decree 123/2020/ND-CP).
- Law on Tax Administration No. 108/2025/QH15 dated 10/12/2025, effective 01/07/2026.
