Công văn 232/TCT-DTNN

To: HAL Vietnam Company

In response to Official Letter No. H051203-1/KT of December 3, 2005, of the HAL Vietnam Company regarding tax policy on interests on deferred payment upon settlement of debts with its parent company, the General Department of Taxation gives the following opinions:

Pursuant to the provisions of Point 7, Section III, Part B of the Finance Ministry’s Circular No. 128/2003/TT-BTC of December 22, 2003, reasonable expenses deducted from taxable incomes include “payments of interests on loans borrowed for goods production or service provision from banks, credit institutions or economic organizations at the actual interest rates as agreed upon in borrowing contracts; payments of interests on loans from other subjects at the actual interest rates at the time of signing of borrowing contracts, which shall not exceed 1.2 times the lending interest rate applied at the same time by commercial banks having transactions with the business establishments.”

Therefore, the interests paid by Company on its deferred payments, if compliant with the above provisions, shall be accounted as reasonable expenses for determining incomes liable to business income tax. At the same time, according to the provisions of the Finance Ministry’s Circular No. 05/2005/TT-BTC of January 11, 2005, the parent company’s incomes from interests on deferred payments shall be liable to business income tax. So, before making payment to the overseas parent company, the HAL Vietnam Company shall have to withhold and remit tax money into the state budget under the guidance in Circular No. 05/2005/TT-BTC.

The General Department of Taxation hereby gives its reply to the Company for the latter’s knowledge.