New regulations on tax administration in respect of enterprises having associated transactions

On 24 June 2020, the Government issued the Decree 68/2020/ND-Cp on amending and supplementing Clause 3 Article 8 of Decree 20/2017/ND-CP dated 24 February 2017 by the Government on tax administration in respect of enterprises having associated transactions

(“Decree 68”). Accordingly, Decree 68 has some noteworthy new points as follows:

Increasing loan interest expenses from 20%to 30%

Decree 68 amends regulations on the total loan interest expense to be deducted from the income subject to corporate income tax (CIT) in respect of enterprises having associated transactions as follows:

– The total loan interest expense (after deducting the interest accrued from deposits and loans) arising in a period eligible to be deducted upon determining the income subject to CIT will not exceed 30% of total net profit generated from business activities plus loan interest expense (after deducting the interest of deposits and loans) plus the depreciation cost arising in that period.

– For the part of loan interest expense ineligible to be deducted shall be transferred to the next tax period if the total loan interest expense in the next tax period is lower than the level prescribed.

– Time for transferring the loan interest expense shall not exceed 05 years from the following year of the year in which the nondeducted loan interest expense arises.

Subjects which are not subject to the regulation on controling loan interest expense

According to Decree 68, the following subjects shall not be subject to the regulations on controling loan interest expenses:

– Credit institutions according to the Law on credit institutions.

– Organizations engaged in insurance business according to the Law on insurance business.

– Loans for official development assistance (ODA).

– Preferential loans of the Government which the Government borrows from foreign countries and re-lends to enterprises.

– Loans for implementation of the national targets (programs of new rural areas and sustainable poverty reduction).

– Loans for implementation of programs and projects on social welfare policy of the State (resettlement housing, worker and student housing and other social welfare projects).

Allow to offset corporate income tax for 5 years if overpaid

– For the tax period of 2017 and 2018, enterprises are allowed to supplement the dossier of tax settlement declaration to determine the loan interest expense and amount of CIT to be paid respectively (if any) and pay to the tax administration agency before 01 January 2021.

If there is any amount of CIT subject to reduction after supplementing the tax declaration, the late payment will be reduced accordingly.

– In case the tax payer has the paid amounts of CIT and late payment more than the CIT and late payment amounts re-determined, the differences will be offset from the amount of payable CIT in 2020. If the offset is not completed in 2020, the remaining amount will be offset in the following years but no more than 05 years from 2020. At the end of the above time limit, the remaining tax will not be offset.

Not to re-audit or re-check the payable tax amount at the office of

the tax payer

– In the case where the taxation agency or the competent State agency has conducted inspection and issued the results of inspection along with the decision on tax settlement in accordance with the Law on

Tax administration, tax payers will be entitled to request the taxation agency to re-determine the amount of payable CIT. The redetermination of the payable tax amount will be conducted at the office of the taxation agency instead of the office of the tax payer, and not to alter the inspection results issued previously.

– However, if the administrative violation on tax has been sanctioned or is being handled in accordance with the procedure of complaint settlement, the amount of fine for administrative violations on tax will

not be modified.

Decree 68 takes effect from 24 June 2020 and will be applied to the 2019 period of CIT.

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