How are incorrect tax declarations handled under the law?

The following article provides a detailed analysis of the legal consequences of incorrect tax declarations, enabling enterprises and taxpayers to clearly understand the applicable rules, proactively mitigate risks, and adopt timely remedial measures upon discovering any errors.

I. Current situation of incorrect tax declarations

In recent years, incorrect tax declarations have remained relatively common among both enterprises and individual business households. It constitutes one of the causes of State budget revenue losses, and also increases disputes and complaints in the tax sector. Notable issues include:

Errors due to mistakes or lack of understanding: 

• Many small and medium-sized enterprises and household businesses have not fully understood tax policies, resulting in under-declaration or incorrect declaration of information in tax returns.
• Common errors include: Incorrect tax identification numbers, misreported taxable revenue, and omission of input/output invoices.

Deliberate misstatements for tax evasion or fraud

• Certain enterprises intentionally issue fictitious invoices, improperly claim input VAT deduction, or conceal revenue to reduce tax liabilities.
• Such practices cause significant losses to the State budget and distort the business environment.

A still significant rate of violations

• According to reports from the General Department of Taxation, tax authorities conduct tens of thousands of inspections and audits annually, uncovering numerous cases of inaccurate declarations, leading to tax reassessments and fines amounting to trillions of VND.
• In particular, violations relating to VAT, corporate income tax, and personal income tax declarations continue to account for a substantial proportion.

II. Legal provisions governing incorrect tax declarations

1. What constitutes an incorrect tax declaration?

An incorrect tax declaration refers to the provision by a taxpayer of inaccurate, incomplete, or non-compliant information in tax filings. Such conduct may arise from unintentional errors (e.g., data entry mistakes or missing supporting documents) or intentional acts (e.g., concealment of revenue or issuance of fictitious invoices for tax evasion).

Common forms of incorrect declarations include:

• Misreporting revenue, expenses, or profits, resulting in incorrect tax liabilities;
• Claiming ineligible input VAT deduction;
• Failure to declare or under-declaration of tax obligations;
• Late submission of tax declarations beyond statutory deadlines.

2. What are the common causes of incorrect tax declarations by enterprises?

Objective causes:

• Frequent changes in tax policies, making timely updates difficult;
• Complex and sometimes ambiguous legal provisions;
• Occasional technical issues in electronic tax filing systems.

Subjective causes:

• Lack of qualified accounting and tax personnel;
• Intentional misconduct aimed at tax evasion or fraud;
• Weak internal financial management and incomplete accounting records, leading to declaration errors.

3. What legal sanctions apply to incorrect tax declarations?

Administrative sanctions for incorrect or incomplete declarations that do not result in tax underpayment or unjustified tax benefits are governed by Article 12 of Decree No. 125/2020/ND-CP, as follows:

Monetary fines:

• A fine ranging from 500,000 VND to 1,500,000 VND for incorrect or incomplete declarations not affecting tax obligations;
• A fine ranging from 1,500,000 VND to 2,500,000 VND for incorrect or incomplete information in tax returns or appendices not affecting tax obligations;
• A fine ranging from 5,000,000 VND to 8,000,000 VND for:
  + Incorrect or incomplete declaration of information relevant to determining tax obligations;
  + Cases where incorrect declarations do not result in tax underpayment or increased tax benefits but are detected after the filing deadline.

Remedial measures:

• Mandatory re-filing and submission of supplementary tax documents;
• Mandatory adjustment of tax losses or carried-forward input VAT deduction (if applicable).

In addition, fines for incorrect declarations resulting in tax underpayment or excessive tax exemptions, reductions, or refunds are governed by Article 16 of Decree No. 125/2020/ND-CP:

• A fine equal to 20% of the under-declared tax amount or the excess tax amount that has been exempted, reduced, or refunded beyond statutory limits shall apply to the following acts:
• Incorrect declaration of the tax base, deductible tax amount, or misidentification of eligibility for tax exemption, reduction, or refund, resulting in tax underpayment or over-entitlement, while all economic transactions have been fully recorded in lawful accounting books, invoices, and supporting documents;
• Misdeclaration leading to reduced tax payable or increased tax refund/exemption/reduction (other than the case above), where the taxpayer has voluntarily filed a supplementary return and fully paid the tax before the tax authority concludes its inspection or audit at the taxpayer’s establishment;
• Misdeclaration initially determined as tax evasion by competent authorities, but where the taxpayer commits such violation for the first time, has made supplementary declarations and fully paid the outstanding tax before the issuance of a decision on fines, and the tax authority has recorded the case as a misdeclaration causing tax deficiency;
• Misdeclaration in related-party transactions resulting in tax underpayment or excessive tax benefits, provided that the taxpayer has prepared transfer pricing documents or submitted required appendices in accordance with regulations on tax administration for enterprises engaged in related-party transactions;
• Use of illegal invoices or documents to account for input goods or services, reducing tax payable or increasing tax benefits, where upon inspection the buyer proves that the violation originated from the seller and that the buyer has properly recorded the transactions in compliance with accounting regulations. 

Remedial measures:

• Mandatory payment of outstanding tax, excess refunded or reduced amounts, and late payment interest;
• Where the statute of limitations for administrative fines has expired, no fine is imposed, but full payment obligations remain;
• Mandatory adjustment of losses and carried-forward input VAT deduction (if any).

III. Questions regarding incorrect tax declarations

1. Can enterprises voluntarily remedy errors to reduce sanctions?

Pursuant to Clause 3, Article 9 of Decree No. 125/2020/ND-CP, no administrative fine shall be imposed where the taxpayer voluntarily amends the tax return and fully pays outstanding tax before the tax authority issues an inspection or audit decision, or before the violation is otherwise detected.

Thus, proactive correction allows enterprises to avoid administrative sanctions, being liable only for outstanding tax and late payment interest (if any). This policy encourages voluntary compliance.

2. How do incorrect declarations affect tax refund eligibility?

Tax refund dossiers require accurate and consistent data. In cases of incorrect declarations, tax authorities may:

• Suspend the processing of tax refunds pending correction;
• Deny refunds if fraudulent intent is identified.

Therefore, incorrect declarations may result not only in delays but also in loss of refund entitlement.

3. Are sanctions reduced if errors are self-detected?

If errors are identified and corrected before inspection or audit, enterprises are exempt from fines.

If discovered after a decision to inspect has been issued, voluntary cooperation may be treated as a mitigating factor.

4. Can both fines and tax reassessment apply simultaneously?

Under Article 16 of Decree No. 125/2020/ND-CP, where incorrect declarations lead to underpaid tax, tax authorities may:

• Recover the outstanding tax amount; and
• Impose administrative fines calculated as a percentage of the underpaid tax.

5. What is the statute of limitations for handling incorrect tax declarations?

Under Clause 2, Article 8 of Decree No. 125/2020/ND-CP, the statute of limitations for administrative fines is two (02 ) years from the date the violation is committed.

After such a period:

• No administrative fine is imposed; however,
• The taxpayer must still pay outstanding tax amounts (including underpaid tax, evaded tax, excessive tax benefits, and late payment interest) for up to ten (10) years retrospectively from the date of detection.

In cases of failure to register for tax, full tax liabilities must be settled for the entire period preceding detection.

IV. Legal advisory services relating to incorrect tax declarations

To mitigate legal risks and financial losses, many enterprises opt for professional legal advisory and tax agent services, typically including:

• Review and advisory on tax filings to detect errors early;
• Assistance with amendments and supplementary filings in compliance with regulations;
• Representation before tax authorities in audits, inspections, and dispute resolution;
• Preventive advisory, including the establishment of internal tax governance systems and implementation of invoice management software;
• Support in complaints and litigation where disputes or inappropriate penalties arise.

For any inquiries or advisory needs regarding incorrect tax declarations, please contact NPLaw for comprehensive and effective legal support.