Tin mới
Defining a complex FIE question (18/9)
18/09/2012 - 12 Lượt xem
Under the old Foreign Investment Law which was repealed in 2005, EWFIC means “any foreign invested joint venture enterprise or enterprises which are invested in and wholly owned by foreign investors”.This concept has, however, become uncertain and problematic since a few new definitions relating to EWFIC were introduced by the Investment Law and certain legal guidance from the competent authority of Vietnam.
Despite the fact that this concept has been the subject of various debates and efforts have been made with a view to clarifying the concept, it still remains ambiguous and controversial and has triggered concerns with its application in practice.
Why a definition of “EWFIC” is needed
Despite EWFICs currently operating on the same legal ground with Vietnamese domestic enterprises which include notably the Investment Law and the Enterprise Law, EWFICs are treated differently. EWFICs are subjected to certain restrictions (the “Restrictions”)
which are imposed as a part of Vietnam’s commitments to World Trade
Organization (WTO) members on market access (“Vietnam’s WTO
Commitments”) and which are specified in specialised management regulations of Vietnam. Such restrictions are usually limitations in terms of maximum foreign ownership and authorised scope of business of EWFICs.
More specifically, depending on the specific business sector in which an EWFIC operates, foreign investors may not own more than a certain percentage of the EWFIC’s registered charter capital (notably 49 or 51 per cent) or the EWFIC is not allowed to engage in certain business activities such as retailing and/or opening and operating sales outlets.
Given the restrictions, one may assume that a definition of EWFIC is needed in order to determine whether an enterprise with foreign investor(s) is a EWFIC and thus be subject to the restrictions.
In addition, such understanding was also partially developed from Article 2(b) of Decision 88 stating that an enterprise of which foreign investors hold 49 per cent or more of the charter capital is EWFIC. Despite the above, on a different approach, EWFIC may also be understood to be an enterprise which has a foreign investor regardless of the foreign investor’s portion of ownership in the enterprise. The ground for such a different interpretation is the definition of EWFIC under Article 3.6 of the Investment Law which states that EWFIC means “any enterprise established by a foreign investor in order to carry out investment activities in Vietnam or a Vietnamese enterprise in which a foreign investor purchases shares, with which it merges or which it acquires”.
Problems
Since EWFIC is not consistently defined in Vietnam’s current laws, the concept has been discreetly applied in practice and has caused numerous difficulties to the process of establishment and operations of enterprises which have foreign-invested capital in Vietnam.
Generally, by having a foreign investor regardless of its portion of ownership, an enterprise may be deemed to be an EWFIC and is required to comply with those administrative procedures which should apply to EWFICs only. On a more serious level, such enterprises may be deprived of certain legitimate rights and interests by being treated as EWFIC.
One of the most vivid examples relates to Mekophar, one of the leading pharmaceutical dealers in Vietnam. Mekophar has been asked to remove one of its key business lines, retailing of pharmaceutical products, from its current scope of business on the grounds that by having foreign shareholder(s) holding approximately 4.2 per cent of its charter capital, Mekophar is now an EWFIC and not allowed to engage in retailing of pharmaceutical products which, pursuant to Vietnam’s WTO commitments and relevant regulations of Vietnam, is reserved for Vietnamese domestic companies only. This case still remains unresolved. For these specific problems, there have recently been calls for a new and consistent definition of EWFIC.
Recommendable approach
In recent debates on the subject, different methods for re-defining an EWFIC have been introduced which take certain foreign ownership thresholds as a benchmark for determining an EWFIC for the purpose of applying the restrictions. The 10 per cent foreign ownership cap under OECD’s EWFIC definition has been welcomed as a practical approach to this issue.
Nevertheless, one can easily realise that the 10 per cent cap is problematic in itself since it will catch all enterprises within the range without taking into account their current status and relevant particularities. It is foreseeable that 10 per cent cap will drive hundreds of enterprises which are, pursuant to the 49 per cent cap, currently enjoying the status of a Vietnamese domestic enterprise into the position that the restrictions would apply on them.
In our view, an enterprise would naturally be an EWFIC so long as it has a foreign investor no matter how much the foreign investor owns the enterprise and the definition of EWFIC under Article 3.6 of the Investment Law need not be revised, but maintained. We believe that if the main purpose of having a definition in place is to apply restrictions on such enterprise, it may be more efficient to approach this matter in the following way: The regulators will set forth in specialised management regulations specific criteria which, if an EWFIC satisfies/falls within such criteria, the restrictions will apply. For example, if foreign investors own more than a certain percentage of an EWFIC or if the EWFIC is located in any specific location, such EWFIC may not engage in pharmaceutical retailing activities or will not be allowed to operate more than a certain number of sale outlets.
Moreover, whether an EWFIC should be subjected to any restrictions will be determined by taking into account the relevant management regulations, the relevant business that the enterprise engages in and also other facts relating to such enterprise. We believe that the application of restrictions by taking into account specific contexts in which EWFIC falls under as set out in the above approach is more prudent and selective and would help avoid cases like Mekophar’s.
Source: VIR
