In June 2016, Vietnam’s local authorities in areas where Big C-branded supermarket chain locates were requested to temporarily stop any licensing works relating to the brand’s business. This move came after the Thai conglomerate Central Group acquired Hong Kong-registered Cavi Retail (the direct SPV owner of Big C) from France-based Casino Group. Because the US$1.14 billion transaction occurred entirely outside Vietnam’s territory, Vietnamese tax authority was about to ‘loose’ a huge amount of capital gains tax and it needs to find a way to get the tax amount.
In a separate, but related, case, in 1995, Madagascar SA, a French company, set up EEM Victoria Ltd in Hong kong as an SPV to invest in Vietnam. EEM Victoria Ltd then owned 06 separately companies in Vietnam which in turn operate 06 Victoria-brand hotels and resorts throughout the country. In 2010, Thien Minh Group (TMG), a local traveling company, agreed to buy EEM Victoria Ltd from Madagascar SA because this arrangement seems to ‘benefit’ both the buyer and the seller. Specifically, TMG would be able to indirectly control all six companies and ultimately the chain of Victoria-brands facilities just in a single transaction. On its side, Madagascar SA, as the seller, would save a huge amount of capital gains tax (and it did) because the deal did not take place in Vietnam. However, when the sale came to attention of the General Department of Tax of Vietnam (GDT), it then held TMG liable for capital gains tax (around 6-digit number in amount).
A History of SPVs in Vietnam
Both above M&A deals share similarities in that: (i) the share acquisition is made entirely outside Vietnam’s territory; (ii) the target companies are typical an SPV (i.e. – tax heaven-based, minimum equity and no actual operations, etc.) and (iii) the key engine would be to minimize tax liability.
For decades, multinationals seeking to explore business opportunities in Vietnam are often advised to invest in Vietnam via SPVs.
An offshore SPV with minimum registered equity set up in pure tax heavens (e.g. BVI, Cayman Islands, etc.) or regional commercial hubs (e.g. – Hong Kong or Singapore) may help the investor to:
- limit the headquarter’s liability if the Vietnamese business turns sour;
- avoid regulatory and contractual barriers on share transfer (e.g. – rights of first refusal or possible registration with Vietnamese licensing authority);
- great level of flexibility in dealing with corporate aspects of the vehicle (e.g. – freedom to agree on any preferred stock types, etc.);
- reduce the transfer process;
- separate accounts between the headquarter and the local subsidiary;
- reduce or avoid taxes, especially including capital gains tax upon exit.
In practice, BVI, Hong Kong and Singapore, where most of SPVs are based, are always in the list of top 10 sources of foreign investment flowing into Vietnam.
The next post will discuss possible consequences of and key considerations in using SPVs.
 For example, if the headquarter expects to divest its Vietnam business, it simply sells the SPV. By owning the SPV, the buyer indirectly controls the Vietnam business while the seller saves a huge amount of capital gains taxes (e.g. 0% and 20% tax rate in Singapore and Vietnam respectively).