Related to the settlement of bad debts and collateral of bad debts of credit institutions, foreign bank branches and bad debt purchasers/managers, the Ministry of Finance has issued a written response to Ben Tre's elector on this issue.

According to the representative of Ben Tre province, on the pilot settlement of bad debts of credit institutions under the National Assembly's Resolution 42/2017 / QH 14, the priority order for payment upon collateral handling is provided in Article 12 and the transfer of collateral is specified in Article 15 of this Resolution.

Regarding personal income tax from real estate transfers, those who have real estate for transfer (including judgment debtor) areliable for personal income tax as prescribed in Clause 5, Article 3 of Decree No. 65/2013 / ND-CP detailing the implementation of a number of articles of the Law on Personal Income Tax (PIT) and the Law amending and supplementing a number of articles of the Law on PIT.

However, Article 12 of Resolution No. 42 stipulates proceeds from the liquidation of the collateral are given priority to be paid to the credit institution prior to tax liabilities.

In most cases, proceeds from the liquidation of collateral are not enough to pay credit institutions so there is no longer a need to fulfill tax liabilities. Meanwhile, Official Dispatch No. 4606 / BTC-TCT dated April 20, 2018 of the Ministry of Finance guiding implementation of Resolution No. 42 does not provide specific guidance on this case.

Therefore, tax authorities affirmed that if tax liabilities are not met, the nametransfer procedure for the buyer will not be done, unsatisfying the buyer, whichwill lead to complaints and denunciations, even petitions.

Also according to Clause 2, Article 17 of Resolution 42 on the application of the law:“Where there are different between this resolution and other laws on the same issue on handling of bad debts and collateral of bad debts of credit institutions, foreign bank branches, bad debt purchasers/managers, the provisions of this Resolution will be applied.”

Therefore, Ben Tre’s representative proposed the Ministry of Finance to review and remove this problem to ensure the uniform of legal documents from the central to local levels.

For this problem, first of all, related to provisions of Resolution 42, the Ministry of Finance said, Article 12 of Resolution 42 stipulates: “Proceeds from the liquidation of collateral, after subtracting expenses associated with storage, seizure and liquidation shall be preferentially paid to debts secured by the credit institution or bad debt purchaser/manager prior to tax liabilities and other unsecured liabilities taken over by the grantor. If an item of collateral is secured for multiple obligations, the order of payment in which joint creditors stand is prescribed in regulations of law.”

Clause 2, Article 15 of Resolution 42 stipulates: “Tax payment made by grantor or transferor relating to the transfer of collateral is prescribed in regulations of law on taxation. The grantee or transferee is not required to cover tax or fee liabilities payable by the grantor from the transferring amount upon formalities of registration or changes of right to ownership or use of collateral.”

Clause 1, Article 17 of Resolution 42 stipulates: The settlement of bad debt and collateral of bad debts of credit institutions, foreign bank branches or bad debt purchaser/manager shall comply with this resolution. If the resolution does not cover, the prevailing laws shall be applied.

The Ministry of Finance said Resolution 42 regulates the payment order (Article 12) and tax liabilities (Article 15) upon liquidation of collateral.

Resolution 42 also stipulates the method of law application, matters that are described in the resolution shall comply with the prevailing laws.

Regarding provisions in tax legal documents, pursuant to Clause 1, Article 1 of the Law amending and supplementing articles of the Law on Personal Income Tax dated November 22, 2012; Article 17 of Decree No. 83 / ND-CP dated July 22, 2013 detailing the implementation of a number of articles of the Law on Tax Administration and the Law amending and supplementing the Law on Tax Administration on declaring personal income tax; Article 30 of Decree No. 65/2013 / ND-CP dated June 27, 2013 detailing a number of articles of the Law on Personal Income Tax and the Law amending and supplementing the Law on Personal Income Tax, the transferor must be declare personal income tax for each transfer of real estate.

Per Point a, Clause 3, Article 26 of the Finance Ministry's Circular No. 111/2013 / TT-BTC guiding personal income tax; Point a, Clause 3, Article 16 of Circular No. 156/2013 / TT-BTC guiding the implementation of the Law on Tax Administration; Law amending and supplementing the Law on Tax Administration and Decree No. 83/2013 / ND-CP, it is required to declare and pay personal income tax before paying personal debts upon real estate transfer.

Regarding fulfillment of tax liabilities from collateral liquidation under Resolution 42, the Ministry of Finance issued Document No. 12331 / BTC-TCT dated October 8, 2018 to the Government Office to report to the Prime Minister on problems in implementation.

At ameeting on problems in the implementation of Resolution No. 42, Deputy Prime Minister Truong HoaBinh concluded: “Regarding the personal income tax: the State Bank of Vietnam requests credit institutions to negotiate with related parties on how to pay related taxes and fees in the process of collateral settlement”(Notice No. 106 / TB-VPCP dated March 22, 2019 of the Government Office).

Thereby, the Ministry of Finance issued Official Letter No. 5477 / BTC-TCT dated May 14, 2019 to the State Bank on the tax collection in accordance with Resolution No. 42. The letter states: “Pursuant to the Law on Tax Administration, the Tax Laws and Resolution No. 42/2017 / QH14 on pilot settlement of bad debts of credit institutions, when individuals or organisations make taxable transfer, they shall have to pay taxes to the State Budget according to law provisions.”

The State Bank of Vietnam is asked to direct credit institutions to comply with regulations and request credit institution to negotiate with parties on how to pay personal income taxes arising in the process of collateral settlement according to the content of Notice No. 106 / TB-VPCP dated March 22, 2019 of the Office of the Government.