Important guideline on tax management of related transactions
On 14 July 2020, the General Department of Taxation issued Official Letter No. 2835/TCT-TTKT (“OL 2835”) guiding Decree No. 68/2020/ND-CP (“ND 68”) on tax administration for enterprises having related transactions. OL 2835 clarifies contents of Decree 68 regarding (i) raising the cap of deductible interest expenses when calculating CIT for enterprises having related transactions and (i) the principle of retroactive application for cap raising in fiscal year 2017 and 2018. Details are as follows:
- Raising the net interest expense cap from 20% to 30% of the Total operating profit in the period plus interest expenses plus depreciation costs incurred in the period (hereinafter referred to as “the new interest cap”). Please note that net interest expense equals interest expense minus (-) interest of deposit and loan interest;
- For enterprises affected by the increase in the interest expense cap mentioned above, although Decree 68 comes into effect from the tax period of 2019, the Decree allows retroactive adjustment of the new interest cap for both tax periods of 2017 and 2018:
- In case the tax audit/inspection has not been conducted: The enterprise is allowed to offset corresponding Corporate Income Tax (“CIT”) and late tax payment interest against CIT obligation of 2020. If the offset is not fully realized by 2020, it shall be offset against the payable CIT amount within the next 5 years from 2020;
- In case of the tax audit/inspection was conducted with tax decision: The enterprise requests their direct managing tax department to re-determine the CIT obligation and corresponding late tax payment interest to offset the difference against payable CIT in 2020. Time limit for clearing the CIT difference is similar to the above case (within the next 05 years from 2020).
- Supplemented CIT finalization declaration: According to major tax departments, the supplemented CIT finalization declaration and Form No. 01 of Decree 68 (declaring related transactions) for the tax period from 2017 to 2019 are only applicable to enterprises having (i) related transactions and (ii) interest expense ratio higher than the 20%-cap of Decree 20.
Please feel free to contact us, Mact Vietnam Co., Ltd, for detailed advice:
Pham Quoc Viet, Chairman, Email: Vietpham251@gmail.com, Mobile: 0984.998.265.
Pham Minh Ngoc, Deputy General Director, Email: Ngocpmmact@gmail.com, Mobile: 0349.143.257.