Transfer tax administration: regardless of domestic and foreign enterprises

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Deputy Director of General Department of Taxation Dang Ngoc Minh spoke at the press conference. Photo by ThuyLinh.

Keep interest expense ceiling at 30%

According to Dang Ngoc Minh, Deputy Director of the General Department of Taxation, on November 5, 2020, the Government signed Decree No. 132/2020/ND-CP on tax administration for enterprises with associated transactions (replacing the Decree No. 20/2017/ND-CP dated February 24, 2017). This Decree inherited the contents specified in Decree No. 20/2017/ND-CP, amending and supplementing only the missing contents or amending a number of articles to ensure clarity and transparency.

At the same time, it ensures the uniformity of the system of legal documents, including the Law on Tax Administration No. 38, Law on Corporate Income Tax and Law amending and supplementing a number of articles of the Law on Corporate Income Tax.

This Decree also approached international principles and practices in tax administration for related transactions, including Vietnam's commitment to participate in the OECD BEPS forum and in accordance with the context of Vietnam.

More specifically, Dang Ngoc Minh said that Decree 132 also inherits the provisions of Decree No. 68/2020/ND-CP dated June 24, 2020 amending and supplementing Clause 3, Article 8 of Decree 20/2017/ND-CP. Accordingly, the control of interest expenses has been raised from 20% to 30%; allowing the control of interest expenses after deducting deposit and loan interest and extending the subjects exempt from the application of the regulation.

Decree 68 also stipulates retroactively in 2017, 2018 for the content of raising the interest rate control threshold from 20% to 30% and offsetting with interest on deposits and loans expected to have tax refunded or deducted of about VND4,785 billion.

According to the leaders of the General Department of Taxation, in addition to inheriting Decree 68, Decree 132 also extends the subject of exclusion to apply the regulation on deductible interest expense limits when determining taxable income of corporate income tax.

Accordingly, in addition to credit institutions and insurance business organizations, Decree 132 also expands the subject of exclusions, including: official development assistance (ODA) loans, preferential loans,the Government's incentives are implemented by the method where the Government borrows foreign loans to enterprises; loans for the implementation of the national target program (new rural program and sustainable poverty reduction); loans for investment in programs and projects to implement state social welfare policies (resettlement housing, housing for workers, students, social housing and other public welfare projects).

Decree 132 also adds regulations on the submission of cross-border profit reports to ensure taxpayer convenience and Vietnam's commitment to participate in the OECD BEPS forum, in accordance with the context of Vietnam.

Regardless of domestic and foreign enterprises

According to the leaders of the General Department of Taxation, the provisions in Decree 132 have been completely revised in line with Law on Tax Administration No. 38. This Decree introduces measures to strengthen tax administration for related transactions, thus increasing revenue to the budget.

According to Dang Ngoc Minh, currently there are about 16,500 enterprises declaring association relations, of which, the number of enterprises declaring associated transactions is about 8,000.

“The Tax Department has inspected the tax arrears for the years 2017 - 2019 revolved around VND2,000 billion. In addition, there was also a huge reduction in losses, particularly in 2019, it reduced the losses to VND9,000 billion. In the first nine months of 2020, the tax agency has conducted inspections and examinations of 263 enterprises; retrospective collectionand fines of VND525 billion. In which, there are 177 FDI enterprises, the tax amount retrospectively these businesses is about VND442 billion,” the Deputy Director of the General Department of Taxation said.

Notably, regarding the regulations on tax administration with associated transactions, the leader of the General Department of Taxation said the regulations on tax administration from Decree 20, Decree 68 to Decree 132 regardless of whether the company is foreign or domestic. This is a general trend of the world. If the policy has been promulgated, it must be applied together.

“Even domestic enterprises themselves have reached out to foreign investment. Or the fact that domestic enterprises themselves have mutual transfer pricing, because our country has many special tax incentives according to geographical areas, while a domestic corporation is now also in multidisciplinary fields. When there are tax differences between related fields, profits will be transferred from enterprises, legal entities or areas with high tax rates to low tax rates. Even in the absence of interest rate difference, the enterprise still has activities of transferring profits from profitable enterprises to loss-making enterprises,” Dang Ngoc Minh said.