The long-running tax dispute between Suntory PepsiCo Vietnam Limited and Vietnam’s tax authorities over preferential treatment for its expanded investment project in the Mekong Delta city of Can Tho is continuing with no end in sight.

The crux of this issue lies in the differences that existed in terms of investment incentives between new and expanded investment projects around the time that the foreign invested firm was granted the investment certificate for its Can Tho plant in 2008.

At that time, expanded projects were only entitled to a three-year corporate income tax (CIT) exemption, and a 50 per cent CIT reduction in the five (not seven) following years.

Meanwhile, new investment projects could enjoy incentives as stated in the investment certificates.

In 2008, Suntory PepsiCo Vietnam received an investment certificate from the Can Tho Export Processing and Industrial Zones Management Authority (CEPIZA), which specified investment incentives applicable to the new plant.

As such, the company was allowed to enjoy a preferential CIT rate of 15 per cent for 12 years, a three-year tax exemption, and a 50 per cent reduction over the next seven years, as is applicable to new investment projects.

Then in 2012, inspectors with the General Department of Taxation (GDT) ruled that Suntory PepsiCo Vietnam was not entitled to tax incentives on its Can Tho-based production plant, as this facility was deemed to be only an expanded investment project, since it had followed the same branch model as PepsiCo’s original plant in Ho Chi Minh City.

In recent weeks, after petitioning many state management agencies seeking to retain the investment incentives for its “expanded” project, the Ministry of Finance (MoF) said it would ask Prime Minister Nguyen Tan Dung to vindicate the granting of tax incentives to Suntory PepsiCo Vietnam for the 2009-2013 period.

Complicating an already confused situation, the investment incentives applicable to expanded projects were also changed significantly during 2009-2013.

Prior to 2009, expanded projects enjoyed the same investment incentives that applied to the existing investment projects, but during the 2009-2013 period, such projects were not entitled to tax incentives, as a result of the new CIT law.

On the back of widespread complaints from the business community, the CIT law was revised again in 2013, and at present, investment incentives apply equally to both new and expanded projects.

To put this case in context, Vietnamese law holds that incentives cannot be applied retroactively, therefore it seems unlikely that Suntory PepsiCo Vietnam will have to pay the tax arrears bill.