The Ministry of Finance has just sent a dossier to the Ministry of Justice for appraisal of the draft Decree amending and supplementing a number of articles of Decree No. 132/2020/ND-CP regulating tax management for enterprises with related-party transactions. Decree 132 (previously Decree 20) was issued to prevent transfer pricing, 'thin capital'... in the business activities of enterprises.

In this draft, the Ministry of Finance has revised and supplemented a number of very important regulations, resolving many problems.

Specifically, there are specific regulations on “related parties” in the case of “an enterprise guaranteeing or lending capital to another enterprise in any form”. The condition is that the total outstanding loans of the borrowing enterprise with the lending or guaranteeing enterprise must be at least 25% of the capital contribution of the owner of the borrowing enterprise and account for more than 50% of the total outstanding loans of all medium- and long-term debts of the borrowing enterprise.

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The Ministry of Finance has revised and supplemented a number of very important regulations, resolving many difficulties for businesses with related-party transactions. Photo: VCB

In addition, the draft has specifically stipulated the "responsibilities of ministries, ministerial-level agencies and People's Committees of provinces and centrally run cities".

It stipulates that the State Bank, within the scope of its duties and powers, is responsible for coordinating the provision of information and data on foreign loans and debt repayments of each specific enterprise with related party transactions based on the list requested by the Tax Authority.

This information includes data on loan turnover, interest rate, interest payment period, principal payment, actual withdrawal, debt repayment (principal, interest) and other relevant information (if any).

Studying the dossier for drafting the Decree amending and supplementing Decree 132/2020/ND-CP, Mr. Le Hoang Chau, Ho Chi Minh City Real Estate Association (HoREA), highly appreciated the Ministry of Finance for being very receptive, listening, and accepting comments from many organizations from the Central to local levels, associations, businesses, and experts to develop the "Draft Decree".

"Basically, the draft Decree meets practical requirements in the current period, both ensuring the strengthening of the state management role in the field of tax administration, preventing tax loss, preventing tax fraud, preventing transfer pricing for enterprises with related transactions, while still creating favorable conditions for enterprises in investment, production and business activities," Mr. Chau assessed.

In an urgent document recently sent to the Prime Minister, the Ministry of Justice and the Ministry of Finance, HoREA especially noted that this Decree applies from the 2024 corporate income tax period . According to HoREA, this will help businesses reduce some of the difficulties caused by the amendment of the Decree that has been extended from 2023 to present. At the same time, it will partly minimize the adverse impacts due to the delay in deducting expenses for tax calculation of businesses.

To keep up with the application schedule from the 2024 corporate income tax period, ministries and branches will have to make great efforts to speed up the progress to help the Government issue this Decree soon.

In addition, HoREA also proposed that the Ministry of Justice and the Ministry of Finance consider submitting to the Government and the Prime Minister to consider amending Clause 3, Article 16 of Decree No. 132/2020/ND-CP to increase the total deductible interest expense to no more than 50% (currently 30%) of the total net profit from business activities.

In the long term, after the State has issued a “global minimum tax” for enterprises belonging to multinational corporations, HoREA proposed not to control the “ceiling” of total deductible interest expenses for “domestic enterprises with related-party transactions”. This is to honestly, fully and promptly reflect the “picture” of investment, production and business activities of enterprises; at the same time, it is recommended that competent state agencies strengthen control and strictly handle enterprises with “transfer pricing” and falsifying costs to evade taxes.

In addition, this Association believes that Decree 132/2020/ND-CP stipulates that "the period for transferring interest expenses calculated continuously shall not exceed 5 years from the year following the year in which non-deductible interest expenses arise" is relatively short, and if within this period the enterprise has not fully deducted the "total deductible interest expenses", the enterprise will lose this amount of money as an asset of the enterprise.

Therefore, the Association proposes to increase the deduction period to 7 years (which, if "generous", should be 10 years) which is more reasonable because interest expenses are assets of the enterprise.

The Ministry of Finance amends the tax payment extension procedure to create the most favorable conditions for taxpayers in cases of natural disasters, catastrophes, epidemics, fires, and unexpected accidents.