The regulations on corporate tax administration with associated transactions in Vietnam have ensured a sufficient legal basis, in accordance with international practice, so there is no discrimination between enterprises in Vietnam and foreign business.That is the assertion of Dang Ngoc Minh, Deputy Director of the General Department of Taxation when talking about the contents of Decree 132/2020/ND-CP of the Government issued on November 5, 2020.

Mr. Dang Ngoc Minh, Deputy Director of the General Department of Taxation.

Currently, the fight against price transfer and profit transfer is a "headache" for many countries around the world, including Vietnam. Could you tell us the actual situation in our country?

According to the latest statistics of the General Department of Taxation, by the end of 2019, the total number of enterprises with associates reached over 16,500 units. In which, the number of enterprises having associated transactions is nearly 8,000 and 83% of enterprises with foreign investment.

The Tax Department has continuously inspected businesses with associated transactions. The arrears tax amount in three years (2017-2019) reached nearly VND2,000 billion. In particular, through inspection, a huge number of loss reductions like in 2019 reached VND9,000 billion.

In the first nine months of 2020, the tax sector has inspected and examined 263 enterprises with associated transactions, thereby retrospective collection, retrospective collection and fines of VND525 billion, including 177 foreign invested enterprises with retrospective tax amounts of more than VND440 billion.

There is a fact that not only foreign enterprises have associated transactions, but also Vietnamese enterprises are doing this activity. Can you tell us about these cases?

In fact, domestic enterprises have reached out to foreign investment or domestic enterprises themselves and also have mutual price transfer, because our country has many tax incentives according to geographical areas and 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 if there is no tax difference, the enterprise still has the activity of transferring profits from a profitable enterprise to a losing enterprise.

In addition, Vietnam's corporate income tax currently has many types of incentives, preferential levels, preferential time based on the location of investment and the field of investment.

In order to minimize the obligation to contribute to the State budget, domestic enterprises also carry out the transfer of prices from high tax rate enterprises to low tax enterprises without preferential treatment or if they are not taxable.

Even enterprises in the same group or corporation also have the phenomenon of price transfer because many enterprises operate in multiple industries and fields and in many areas, so in case a certain industry or area has tax incentives, the transfer pricing phenomenon will take place.

In your opinion, do the regulations on anti-transfer pricing in Vietnam have sufficient legal basis, ensuring fairness and transparency?

In order to make investment healthy, the Government has issued regulations on controlling interest expenses with the aim of not allowing businesses to use excessive interest rates to avoid taxes.

Previously, in 2017, the Government issued Decree 20/2017/ND-CP with the regulation to control interest expenses to only 20%. Although this provision has brought good results against transfer pricing for FDI enterprises, many enterprises with domestic associated transactions have faced many difficulties. Therefore, the Government issued Decree No. 68/2020/ND-CP dated June 24, 2020 amending and supplementing Clause 3, Article 8 of Decree 20/2017/ND-CP on tax administration for business with associated transactions.

Recently, Decree No. 132/2020/ND-CP issued by the Government has inherited 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 on tax administration applicable to enterprises with associated transactions.

Decree 132 has set the ceiling interest rate limit to be raised from 20% to 30% and allows businesses to retrospectively raise the interest rate cap from 20% to 30%, and offset with deposit interest, borrowed money from 2017 and 2018. According to the tax authority's calculation, the retroactive interest expense ceiling in 2017 and 2018 makes the expected tax refund or deduction for businesses up to VND4,785 billion.

Specifically, what are the new points in Decree No. 132/2020 / ND-CP, sir?

Decree 132/2020/ND-CP is built on the principle of expressing the views and lines of the Party and State in tax administration, including the content of tax administration for transactions.

Specifically, the Politburo's Resolution No. 50-NQ/TU stated: "Research and develop regulations to overcome the situation of"thin capital", “transfer pricing"; "Completing and supplementing strict provisions in tax lawsto control, manage and prevent price transfer".

In this Decree, the total deductible interest expenses when determining taxable income of the enterprise with associated transactions is raised from 20% to 30% of the total net profit from business activities in the period, plus loan interest incurred in the period, plus depreciation costs incurred, applicable immediately in the tax period of 2019.

In addition, Decree 132 also expands the subject of exclusions to apply the rule of limiting deductible interest expenses when determining taxable income of corporate income tax. Accordingly, in addition to the subjects that include credit institutions and insurance business organizations, the Decree also expands the subject of exclusions, including official development assistance loans (ODA), concessional loans of the Government following the method by which 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 the State's social welfare policies (resettlement housing, housing for workers, students, social housing and other public welfare projects).

Many people worry that regulations on anti-transfer pricing will cause inequity between FDI enterprises and domestic enterprises. What do you think about this issue?

Currently, Vietnam has signed over 80 double taxation avoidance agreements with other countries, in which, in Article 24 of the Agreement on double taxation avoidance, there is no discrimination between domestic enterprises and foreign enterprises.

In addition, according to WTO commitments, there is a principle of prohibiting discrimination among economic sectors in the country on taxation. The principle of fair treatment is referred to in Article 17 of the General Agreement on Trade in Services (GATT) and Article 3 of the GATT on trade-related aspects of intellectual property rights. Therefore, the legal policy to be built in general and tax administration for enterprises with associated transactions in particular must ensure the principle of non-discrimination between domestic and foreign enterprises.

Given the fact that domestic enterprises also carry out price transfer activities, Decree 132 applicable to both foreign and domestic enterprises is appropriate.

Thank you Sir!