Name of recommendations: Recommendations on amending regulations to control interest expenses under the Decree No. 20/2017 / ND-CP

Status: Responded

Recommended by units: 1) The Binh An Real Estate Investment and Development Joint Stock Company (09 Nguyen Khoai, Ward 1, District 4, Ho Chi Minh City); 2) The Nha Rong Investment and Trading JSC (34-35 Ben Van Don, Ward 12, District 4, Ho Chi Minh City); 3) The RC12 Investment Joint Stock Company (39-39B Ben Van Don, Ward 12, District 4, Ho Chi Minh City) ")

Official letter: No 2716/ PTM - KHTH, dated: 2019-11-15

Recommended contents:

"The Binh An Real Estate Investment and Development JSC, Nha Rong Investment and Trading Joint Stock Company and RC12 Investment Joint Stock Company proposes to revise the Decree No. 20/2017 / ND-CP dated February 24, 2017 on Issues related to interest expenses that were restricted under the Decree No. 20/2017 / ND-CP.

The above companies are enterprises having related relations and having related transactions under the provisions of Clause 3, Article 4, Clause 1, Clause 2 of Article 5 of the Decree No. 20/2017 / ND-CP. According to the presentation, companies are facing difficulties and losses on the issue of deducted interest expenses when determining the corporate income tax, applying the provisions of Clause 3, Article 8 of the Decree No. 20/2017 / ND-CP on determination of expenses for tax calculation in some specific cases for enterprises having specific associated transactions.

Extract from Clause 3, Article 8 of the Decree No. 20/2017 / ND-CP: "" Article 8. Determination of expenses for tax calculation in some specific cases for enterprises having specific associated transactions

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3. The total interest expense incurred in the period of the taxpayer is deductible when determining the taxable income of the enterprise not exceeding 20% ​​of the total net profit from business activities plus the interest expense, depreciation expenses in the taxpayer's period. "

In the the recommendation, the Binh An Real Estate Investment and Development Joint Stock Company, the Nha Rong Investment and Trading Joint Stock Company and RC12 Investment Joint Stock Company raised the following specific difficulties and losses:

1) The Binh An Real Estate Investment and Development Joint Stock Company: In 2017, the Binh An Company mobilized capital from the independent, credit institution. At the same time, the Company has transactions with the Holding Company that owns more than 25% of the equity of the Company. Because Clause 3, Article 8 of the Decree 20/2017 / ND-CP stipulates that the interest expenses incurred in the period of the Company may only be deducted when determining the taxable income of the enterprise not exceeding 20% ​​of the total profit. net profit from operating activities plus interest expenses and amortization expenses during the period, the Company was excluded VND 86,135,110,560 interest expenses arising from capital mobilization from independent parties is Credit institutions. This made the Company increase virtual profit and led to the increase of the Company's corporate income tax amount and payable according to the virtual profit of VND 17,227,022,112.

The Binh An Company believes that, although it has a transaction with the Parent Company (2017), the Company has no incentive to transfer prices when both the Company and the Parent Company share the same CIT rate. In addition, the interest expense of a legal company arising from the capital mobilization of an independent party being a credit institution excluded under the Decree is unreasonable ...

2) The Nha Rong Investment and Trading Joint Stock Company: From May 2017 to December 2017, the Nha Rong Company has related party transactions and incurred interest expenses from an independent party loan amount of VND 10,302 .107.111. In 2017, the Company had an EBITDA of VND 206,952,248 so the interest expense of the Company was not deducted when determining the taxable income of VND 10,260,716,661 (due to exceeding 20% ​​of EBITDA in the period). The non-deductible interest expense reduces the loss carried forward to the tax period 2018, equivalent to VND 10,260,716,661. Therefore, it increases virtual profit before tax compared to the actual business situation of the Company and increases the amount of CIT payable in 2018 compared to VND 2,052,143,332.

According to the Company, the initial goal when issuing the Decree No. 20/2017 / ND-CP is to limit the transfer of prices of FDI enterprises in Vietnam. However, the regulation to control interest expenses of the Decree applied to the Company is unreasonable because the Company and its trading companies share the same corporate income tax rate so there is no incentive to transfer prices.

3) The RC12 Investment Joint Stock Company: RC12 from May 2017 to December 2017 incurred interest expenses from loans of the Holding company and other enterprises totaling VND 5,818,111,637. Because the EBITDA is less than zero, the entire interest expense of the Company is not deductible when determining taxable income. The Company said that applying the Decree No. 20/2017 / ND-CP gives rise to double taxation on the same business transaction - loan interest for trading companies that share the same CIT rate. (The lender must pay corporate income tax on income from loan interest, the borrower must pay tax on the portion of the loan expense that is over the limit).