Against Transfer of price: only domestic enterprises "complaint", FDI enterprises not?

	FDI attraction exceeded US$ 30 billion
	FDI sector has a trade surplus of nearly US$ 27 billion
	Export exceeded 200 billion USD, nearly reached 71% turnover by FDI companies

Mr. Cao Anh Tuan replied at the Tax Policy and Customs Dialogue Conference 2018.

Impact on some companies operating under the mother-child model

Speaking at the meeting, Vu Thi Ngoc Anh, tax department of Vingroup, said that the goal of Decree 20 is to prevent tax losses in Vietnam due to the impact of transfer of price between countries, but In fact, Decree 20, especially Item 3, Article 8 of the Decree, has a lot of impact on domestic enterprises, especially corporations operating under the model of mother and child. According to the decree (effective from May 2017), the total interest expense of businesses is deducted when determining taxable income of enterprise cannot exceed 20% of total net profit. This means that interest expenses in excess of 20% will be considered unreasonable and taxable.

A representative from Vingroup said, "Our group is investing in capital-intensive industries such as high-tech agriculture, education, heavy industry, so it can not generate any profits right away. Thereby, at the beginning of period, Vingroup’s projects are not able to obtain bank loans themselves, the capital has to be ratified by the parent company of the group. Expense of loans is not deductible when calculating taxable income. This causes businesses to be affected."

Mrs. Vu Thi Ngoc Anh proposed that the provisions in Decree 20 are temporarily not applied and corrected in accordance with the situation of Vietnam.

Also related to Decree 20, Le Thi Ngoc Tram, Chief Accountant of Vietnam Joint Stock Commercial Bank for Foreign Trade (Vietcombank) said that this unit only generates related transactions in lease activities of renting office with its parent company of Vietcombank. Interest expenses come from independent parties, not affiliates. According to Mrs. Tram enterprise income tax of parent company and securities company is 20%, so the transfer of price is almost none. At the same time, she said the company still has to pay interest and must declare and pay additional taxes. Therefore, the company's suggestion is to soon consider adjusting the interest rate controls of 20% as current regulations.

It is difficult to own a policy

Answering enterprises’ queries; Cao Anh Tuan, deputy head of the General Department of Taxation, said that Decree 20 was implemented on the basis of the recommendations of the OECD and G20 countries asking countries to focus on price transfer and revenue erosion. According to Tuan, countries make recommendations on controlling interest expenses between 10-30%. Vietnam considered and selected 20%. This decision is based on the survey of 12,000 corporations around the globe.

"The lending between the parties and loans to independent parties must be treated equally." This was done in the UK in the 2000s, and as a result the entire multinational companies in the country restructured its loans through intermediary banks to avoid regulation, which has led to serious consequences, so it is the reason why regulation not only controls interest expenses on linked transactions, but also independent transaction," Tuan stressed. Mr. Cao Anh Tuan also added that all multinational companies have restructured their debt through intermediary commercial banks, in particular associated companies, parent companies into back-to-back loans to completely avoid, neutralize the above rules. And Vietnam has recorded such cases. Leaders of the tax branch asked: Why are any FDI enterprises doing business in Vietnam not complaining about this issue? According to him, the authorities have surveyed thousands of FDI enterprises which are subsidiaries of multinational companies based in Vietnam and have not received any written recommendations.

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Explaining this issue, according to Mr. Cao Anh Tuan, it is because they know this is a global game. "We have to go to the global game, we cannot stand outside, we want to do business globally but we want our own policy, it is difficult to control the current situation not only to help the financial situation of the business, but also all of the economy," said the head of the General Department of Taxation. Particularly for the impact, the Deputy General Director of the General Department of Taxation released the figure, out of more than 600,000 operating enterprises, more than 4,500 enterprises having associated relations must declare under Decree 20. Of the more than 4,500 enterprises, about 423 units exceeded the ceiling of 20%, i.e. less than 1% of enterprises are operating.