Name of recommendations: Regulations on tax in the transfer of land use rights in the Decree No. 209/2013 / ND-CP dated December 18, 2013, the Circular No. 219/2013 / TT-BTC dated December 31, 2013 are not appropriate with the current Law onValue Added Tax.

Status: Responded

Recommended by units: Mr. Vo Thai Son - Address: 9/32, 30/4 Street, Residential Area No.9, Xuan Khanh Ward, Ninh Kieu District, and Can Tho Province

Official letter: No 3353/PTM - VP, dated: 2017-12-14

Recommended contents:

Pursuant to the current Law on Value Added Tax, including:

• Law on Value Added Tax (Law No. 13/2008 / QH12 dated June 3, 2008)

• Laws amending and supplementing a number of articles of the Law on VAT (the Law 31/2013 / QH13 dated 19 June 2013, the Law No 71/2014 / QH13 dated 26 November 2014, Law No. 106/2016 / QH13 on April 6, 2016)

Until now, Clause 6, Article 5, Chapter I of the Law on Value Added Tax has stipulated that the transfer of land use rights is not subject to the Value Added Tax shall still have legal effect.

This provision is guided in detail in Clause 3, Article 4, Chapter II of the Circular No. 129/2008 / TT-BTC as follows:

 “For a business activity of the real estate, taxable price is the real estate transfer price minus (-) the actual land price at the time of transfer. If the actual land price at the time of transfer is lower than the land price prescribed by the People's Committee of the province or city directly under the Central Government, the land price to be subtracted shall be calculated at the price set by the People's Committee of the province or city directly under the Central Government at the time of the transfer of real estate”.

However, in the Decree No. 209/2013 / ND-CP signed by  Government’s Prime Minister Nguyen Tan Dung dated December 18, 2013 (detailing and guiding the implementation of some articles of the Law on Value Added Tax), Clause 5 , Article 6 of the Law on Value Added Tax has been violated by the Decree specified in Item a, Clause 3, Article 4 (Taxable Price), Chapter 2 (based on the Method of Tax Calculation) as follows:

“When a taxpayer receives land tenure from another entity, deductible land value is the land price when the transfer is made, inclusive of the value of infrastructure (if any); the taxpayer must not deduct input VAT on infrastructure value that has been included in the deductible land value.

If the deductible land value is exclusive of infrastructure value, the taxpayer may deduct input VAT on the infrastructure.

If the land price on the transferring date cannot be determined, deductible land value is the land price imposed by the People’s Committee of the province when the transfer contract is signed”.

The above provisions of the Decree 209 have added Value when transferring land use rights into Value Added Tax be contrary to the current Law on Value Added Tax.

Pursuant to the Decree 209, the Ministry of Finance issued Circular No. 219/2013 / TT-BTC dated December 31, 2013 (Guiding the implementation of Law on Value Added Tax and Decree No. 209/2013 / ND-CP,  also contains provisions which are contrary to the Law on VAT. Since then, the General Department of Taxation and local taxation departments have guided and implemented the tax calculation and the VAT collection on land use rights - this is contrary to the current Law  on VAT.

In Clause 6, Article 4, Chapter I of Circular No. 219/2013 / TT-BTC, the Law on Value Added Tax is correctly defined as "Transfer of land use rights" which is not subject to VAT. However, Clause 10, Article 7, Chapter II provides guidelines in conflict with the above regulation:

 “10. When transferring real estate, taxable price is the transferring price minus (-) deductible land value.

1. Deductible land value is calculated as follows:

a.4) When a taxpayer receives land tenure from another entity, deductible land value is the land price when the transfer is made, inclusive of the value of infrastructure (if any); the taxpayer must not deduct input VAT on infrastructure value that has been included in the deductible land value.

If the deductible land value is exclusive of infrastructure value, the taxpayer may deduct input VAT on the infrastructure.

If the land price on the transferring date cannot be determined, deductible land value is the land price imposed by the People’s Committee of the province when the transfer contract is signed.

Example 37: In August 2013, company A buys 200 m2 of land from Mr. B in Binh An Residential Area in province X for 6 billion VND. Company A sign a land transfer contract, which is notarized in accordance with land laws, and has a receipt for the payment of 6 billion VND. Company does not build any thing on this piece of land. In October 2014, company A sells this piece of land for 9 billion VND. Company A must issue a VAT invoice and pay VAT. The land value deducted from the taxable price is 6 billion VND.

Example 38: In November 2013, company A buys 300 m2 of land and infrastructure thereon from Mr. B for 10 billion VND without sufficient documents to determine the land price at that time. In April 2014, company A sells this piece of land together with the infrastructure thereon for 14 billion VND. Accordingly, the deductible land value is the land price imposed by the People’s Committee of the province when company A buys the piece of land (November 2013).”

Clause 10, Article 4, Chapter II of Circular 219/2013 / TT-BTC is contrary to the current Law on Value Added Tax, since the value added tax is levied on the value of land use rights.

In the example 37, because Company A does not invest in anything on land, it can be confirmed that the difference of VND 6 billions to VND 9 billions is entirely the added value of land use rights. If VAT is collected on more than 3 billion of these differences, then it is the VAT of the land use rights - this is contrary to the Law. If not, what this value added is collected by added value?

In Example 38: The transfer price of VND 14 billions of the Company A is collected including the value of the workshop at the time of transfer and the value of land at the time of transfer. Therefore, if the Law on VAT is in force, the value of land to be deducted when calculating the VAT must be the land price at the time of transfer (April 2014). If only the land price at the time of the company A receives the transfer (November 2013), the added value of the land use right as of April 2014 is charged VAT.

To see this more clearly in the following example:

• In November 2013, Company A received a transfer of individual B of the plot N with the price equal to the price of the provincial People's Committee at that time is 6 billions, the contract is legally notarized. The Company A does not invest in any construction on this land.
•  In August 2014 Company A transferred the land plot N to the Company C at the price equal to the price of the provincial People's Committee at that time is VND 9 billions, the contract is legally notarized. The Company C does not invest in any construction on this land.
•  In October 2015, the Company C transferred the land plot N to the company D at the price of VND 11 billions at the time of the legal notice. The contract is legallynotarized.

If under the guidance of Circular 219/2013 / TT-BTC:

+ When the company A transfers to the company C, VAT will be calculated as follows:

                           (VND 9 billions - 6 VND billions) x 10% = VND 300 millions.

+ Total amount of VAT on both transfer of land use rights is VND 500 million.

Obviously, each time the land use rights are transferred, the added value shall be subject to VAT if the goods belong to the value added tax group. This is completely contrary to the provisions in Clause 6, Article 5, Chapter I of the Law on Value Added Tax.