Công văn 271/TCT-TTKT

To: Departments of Taxation of provinces and centrally-affiliated cities,

On November 5, 2020, the Government promulgated the Decree No. 132/2020/ND-CP regarding the tax administration for enterprises performing related-party transactions (as a replacement for the Decree No. 20/2017/ND-CP dated February 24, 2017 and the Decree No. 68/2020/ND-CP , amending and supplementing clause 3 of Article 8 in the Decree No. 20/2017/ND-CP), coming into force as of December 20, 2020 and the taxation period for the corporate income taxes accrued in 2020.

By introducing new regulations of the Decree No. 132/2020/ND-CP , Vietnam General Department of Taxation requests Departments of Taxation to take action immediately to communicate, disseminate and notify them to local tax collecting officers and taxpayers for their information.   

(Details are given in the Appendix hereto).

In the course of implementation hereof, if there is any difficulty that arises, Departments of Taxation should promptly report to the General Department of Taxation for further review and appropriate actions to be taken./.

APPENDIX

INTRODUCING SEVERAL REGULATIONS OF THE DECREE NO. 132/2020/ND-CP DATED NOVEMBER 5, 2020, ELABORATING ON CERTAIN ARTICLES OF THE LAW ON TAX ADMINISTRATION
(to the Official Dispatch No. 271/TCT-TTKT dated January 27, 2021 of the General Department of Taxation)

1. Decree No. 132/2020/ND-CP that is not guided by any Circular unlike the Decree No. 20/2017/ND-CP:

The Decree No. 132/2020/ND-CP specifically stipulates transfer pricing doctrines, methods and processes for determination of transfer pricing factors; taxpayer’s transfer pricing rights and obligations, declaration or registration procedures; responsibilities of state regulatory authorities for the tax administration over taxpayers having related party transactions. The Ministry of Finance Promulgate has not promulgated the Circular providing instructions for implementation of the Decree No. 132/2020/ND-CP .

2. Regarding interpretation:

a) Adding the definition of “Agreement of competent regulatory authorities”, “International tax agreement” and “Authorized reporting entity”

In particular, clause 2, 3 and 10 of Article 4 of the Decree No. 132/2020/ND-CP sets out the following regulations:

“2. “Agreement of competent regulatory authorities” is the shortened term indicating the Agreement in effect between competent regulatory authorities of countries or territories that are party to treaties or international agreements on taxes, and requiring the automatic exchange of information included in International or Country-by-Country Reports.     

3. “International tax agreement” or “tax treaty” is a bilateral and multilateral agreement or treaty on taxes.

10. “Authorized reporting entity” is the term used for indicating an entity authorized to act on behalf of the ultimate parent company of a corporation to submit their international reports to tax authorities.” 

b) Amending and supplementing regulations regarding "Database of the Tax Authority"

Previous regulations:

Clause 7 of Article 4 of the Decree No. 20/2017/ND-CP sets out the following regulation: 

“7. “Database of the Tax Authority” is a system of information and/or data that is established and/or managed by the Tax Authority in accordance with the Law on Tax Administration, relate to determination of tax obligations of taxpayers, and are collected, analyzed, stored, updated, and managed by tax authorities, from various sources, even inclusive of the databases and information exchanged with tax authorities and regulatory authorities of overseas countries.” 

Current regulations:

Clause 7 of Article 4 of the Decree No. 132/2020/ND-CP sets out the following regulation: 

“7.“Database of a Tax Authority” is any information and/or datum that is acquired, developed from various sources by a Tax Authority and put under their control in accordance with the Law on Tax Administration No. 38/2019/QH14 dated June 13, 2019, even including databases and information exchanged with overseas tax authorities and competent regulatory authorities.”

c) Amending and supplementing regulations regarding the standard arm’s length range:

Previous regulations:

Decree No. 20/2017/ND-CP and Circular No. 41/2017/TT-BTC set out the following regulations: “Standard arm’s length range” is a set of values ranging from the first quartile to the third quartile; the median value of this range is the second quartile determined according to the probability function.”

Current regulations:

Clause 9 of Article 4 of the Decree No. 132/2020/ND-CP sets out the following regulation: 

“9.“Standard arm’s length range” is a set of values ranging from the 35^th percentile to the 75^th percentile; the median value of this range is the 50^th percentile determined according to the probability function.”   

3. Amending and supplementing regulations regarding related parties:

a) Amending and supplementing regulations laid down in paragraph g) of clause 2 of Article 5 on related parties

Previous regulations:

“g) Both enterprises are managed or controlled in terms of their personnel, financial and business activities by individuals, each of whom is in one of the following relationships with the others such as a wife, husband, natural/foster father, natural/foster child, natural/foster older/younger sibling, brother/sister-in-law, maternal/paternal grandfather/grandmother, maternal/paternal grandchild, and maternal/paternal aunt, uncle and nibling;”  

Current regulations:

Paragraph g of clause 2 of Article 5 of the Decree No. 132/2020/ND-CP sets out the following regulation: 

“g) Both enterprises are managed or controlled in terms of their personnel, financial and business activities by individuals, each of whom is in one of the following relationships with the others such as a wife, husband, natural/foster father, natural/foster child, natural/foster older/younger sibling, brother/sister-in-law, maternal/paternal grandfather/grandmother, maternal/paternal grandchild, and maternal/paternal aunt, uncle and nibling;”

b) Adding paragraph l of clause 2 of Article 5 on related parties

“l) A related enterprise performs the disposition or acquisition transaction in at least 25% of their equity within a tax period; the borrowing or lending transaction in at least 10% of their equity performed at the transaction time falling within a tax period with a person holding the executive office or the controlling interest in the enterprise, or with a person in one of the relationships prescribed in paragraph g of this clause.”

4. Upholding the Decree No. 68/2020/ND-CP , amending and supplementing clause 3 of Article 8 in the Decree No. 20/2017/ND-CP , regulating deductible loan interest costs and adding exceptions to the regulations on limits to costs of interest on loans used for investment in the State-funded social welfare programs and projects for social housing development.

In particular, clause 3 of Article 16 of the Decree No. 132/2020/ND-CP sets out the following regulations: 

“3. Total deductible loan interest cost used for determining the income subject to corporate income tax of the enterprise engaged in related-party transactions, including:

a) Total loan interest cost arising after deducting deposit interests and lending interests within a specific taxation period which is deducted during the process of determination of income subject to the corporate income tax is not 30% more than the net profit generated from business activities within the taxation period plus loan interest costs arising after deducting deposit interests and lending interests arising within the taxation period plus depreciation/amortization expenses arising within that period of a taxpayer; 

b) The portion of loan interest cost which is non-deductible as prescribed in paragraph a of this clause is carried forward to the next taxation period for the determination of total loan interest cost deductible if total loan interest cost deductible in the next taxation period is lower than the amount prescribed in paragraph a of this clause. The loan interest costs may be carried forward for a maximum consecutive period of 05 years, counting from the year following the year in which non-deductible loan interest costs arise;

c) The provision in paragraph a of this Clause shall not apply to loans of taxpayers that are credit institutions as defined in the Law on Credit Institutions; insurance companies as defined in Law on Insurance Business; ODA loans and concessional loans of the Government which are granted to enterprises in the on-lending form; loans intended for implementing national target programs (including new rural area development programs and sustainable poverty reduction programs); loans invested in programs or projects for implementation of State social welfare policies (e.g. resettlement housing, worker or student housing and social housing, and other social welfare projects or programs);

d) Taxpayers must declare the rate of loan interest costs arising within a specific taxation period according to Form No. I enclosed herewith.”

5. Amending and supplementing regulations regarding submission of international or country-by-country reports:

Previous regulations:

Paragraph c of clause 4 of Article 10 of the Decree No. 20/2017/ND-CP sets out the following regulations: 

“c) Country-by-Country report of an ultimate parent company prepared by using the Form No. 04 given in the Appendix to this Decree.

If a taxpayer having an ultimate parent company operates within the territory of Vietnam and generates at least eighteen thousand billions of Vietnam dong in global consolidated revenue, then it takes responsibility for preparing a Country-by-Country report included in the transfer pricing documentation package prepared by using the Form No. 04 given in the Appendix to this Decree.   

For a taxpayer having an overseas ultimate parent company, the taxpayer shall be responsible for submitting a copy of its ultimate parent company’s Country-by-Country report if that ultimate parent company is required to submit this report to the host-country tax authority by using the declaration form given by that tax authority or the declaration form No. 04/ND-GDLK given in the Appendix to this Decree. Where a taxpayer fails to provide a Country-by-Country report, that taxpayer is obligated to provide a written explanation letter in which reasons for such failure, legal bases, and references to specific legislative regulations of the counterpartner country on prohibiting taxpayers from providing Country-by-Country reports, should be stated.”

Current regulations:

Clause 5 of Article 18 of the Decree No. 132/2020/ND-CP sets out the following regulations: 

“5. Taxpayers’ obligations related to Country-by-Country reports:

a) If a taxpayer is an ultimate parent company in Vietnam that generates at least eighteen thousand billions of Vietnam dong in their global consolidated revenue, then they shall take responsibility for preparing a Country-by-Country report included in the transfer pricing file referred to in Appendix IV hereto. The duration of submission of these reports to tax authorities shall be 12 months starting from the ending date of the ultimate parent company’s financial year.

b) Taxpayers in Vietnam having overseas ultimate parent companies responsible for submitting a Country-by-Country reports under the host country’s legislation must submit such reports to tax authorities in the following cases:

- Countries, territories where ultimate parent companies are residents enter into international taxation agreements with Vietnam, but do not have any agreement with competent regulatory authorities by the deadline for submission of reports under the provisions of paragraph a of this clause. 

- Overseas countries, territories where ultimate parent companies are residents have agreements between competent regulatory authorities with Vietnam, but have terminated the automatic communication mechanism or fail to automatically provide Vietnam with Country-by-Country reports of enterprise groups that are residents in these countries or territories. 

- In case where a multinational group having more than one taxpayer in Vietnam and an ultimate parent company in an overseas country issues a written notification to designate one of the taxpayers in Vietnam to submit a Country-by-Country report, the designated taxpayer shall be obliged to submit such report to a tax authority.  Taxpayer shall be obliged to submit the written notification of designation issued by the ultimate parent company to the tax authority by or on the ending date of the financial year of the taxpayer’s ultimate parent company.

c) Regulations laid down in paragraph b of this clause shall not apply to the cases where ultimate parent companies of taxpayers in Vietnam designate other entities to act on their behalf to submit Country-by-Country reports to tax authorities of host countries by or on the date prescribed in paragraph a of this clause, and meet the following requirements:

- Countries, territories where entities entrusted with submission of reports are residents adopt regulations requiring the submission of Country-by-Country reports.

- Countries, territories where entities entrusted to submit reports are residents have agreements between competent regulatory authorities with Vietnam as signatories at the date due for submission of these reports as per paragraph a of this clause. 

- Countries, territories where entities entrusted with submission of reports are residents have agreements between competent regulatory authorities with Vietnam, but have not terminated the automatic communication mechanism and provide Vietnam with Country-by-Country reports of enterprise groups that are residents in these countries or territories. 

- Entities entrusted with submission of reports shall be obliged to show their written notifications stating that they are designated to submit Country-by-Country reports to tax authorities of host countries by or on the ending date of the financial year of the enterprise group’s ultimate parent company.

- Written notifications of designation of entities entrusted with submission of reports which are provided by taxpayers in Vietnam to Vietnamese tax authorities under the provisions of paragraph b of this clause.

- Taxpayers in Vietnam must inform Vietnamese tax authorities in writing of names, tax identification numbers and host countries of ultimate parent companies or entities entrusted with submission of reports by or on the ending date of the enterprise group’s financial year.

d) If taxpayers' overseas ultimate parent companies are bound to submit Country-by-Country reports under the regulations of host countries, tax authorities must automatically communicate under commitments made under international taxation agreements by Vietnam.

dd) If taxpayers' ultimate parent companies are not bound to submit Country-by-Country reports under the regulations of host countries, tax treaties must be observed.”

6. Adding regulations on responsibilities and powers of tax authorities in management of prices of related-party transactions

Adding regulations regarding management of international or country-by-country reports.

In particular, paragraph c of clause 1 of Article 20 of the Decree No. 132/2020/ND-CP sets out the following regulation: 

“c) Manage and use Country-by-Country reports of taxpayers for the risk management and communication tasks under regulations and commitments of Vietnam under international taxation agreements, not for tax imposition purposes.”

7. Regulations on entry into force:

Article 22 of the Decree No. 132/2020/ND-CP sets out the following regulations:

“1. This Decree shall enter into force as of December 20, 2020 and the taxation period for corporate income taxes accrued in 2020.

2. The Decree No. 20/2017/ND-CP dated February 24, 2017 and the Decree No. 68/2020/ND-CP dated June 24, 2020 of the Government, regulating the tax administration for enterprises engaged in the transfer pricing, shall be repealed from the effective date of this Decree.

3. Declaration and finalization of 2017 and 2018 corporate income taxes:

a) If taxpayers subject to the requirement for supplements to corporate income tax finalization returns in 2017 and 2018 under the provisions of clause 2 of Article 2 of the Government’s Decree No. 68/2020/ND-CP dated June 24, 2020 have not yet made additional declaration for incorporate income tax finalization returns, they may continue to do so by January 1, 2021; 

b) If taxpayers already receiving inspections, examinations or audits of tax authorities or competent regulatory authorities and obtaining conclusions therefrom and handling decisions for the 2017 and 2018 taxation period fall within the cases in which they are qualified for the redetermination of tax amounts payable under paragraph c of clause 2 of Article 2 in the Decree No. 68/2020/ND-CP dated June 24, 2020, but have not yet submitted applications to tax authorities till the effective date of this Decree, they shall be entitled to request directly supervisory tax authorities to redetermine tax amounts payable;    

c) In case where taxpayers’ corporate income tax amounts or late payment amounts in 2017 and 2018 already paid to the state budget are greater than redetermined ones, the difference shall be offset against the amounts of corporate income tax accrued for the period from 2020 to end of 2024. After such period expires, tax amounts that remain after such offsetting shall not be further handled.

4. In case where loan interest costs are carried forward to the following taxation period upon the finalization of corporate income tax in 2019 under the Decree No. 68/2020/ND-CP , the time limit for carry-forward of loan interest costs shall not be longer than 5 consecutive years after the 2020’s CIT period. After expiry of such 5-year period, if such costs are not completely carried forward, the remaining portion of loan interest costs shall not be brought forward to the following taxation periods.