HoREA has just sent a petition to the Prime Minister and the Ministry of Finance to consider amending and supplementing a number of provisions of Decree No. 132/2020/ND-CP dated November 5, 2020 on "regulations on tax management for enterprises with related-party transactions".
Decree No. 132 issued by the Government in early November 2020 stipulates the principles, methods, and procedures for determining transfer pricing factors; the rights and obligations of taxpayers in determining transfer pricing, declaration procedures; and the responsibilities of state agencies in tax administration for taxpayers with related-party transactions.
Regarding the regulations on interest expenses arising during the period of taxpayers, according to Decree No. 132, which inherits Decree No. 68, amends and supplements Clause 3, Article 8 of Decree 20/2017, in which the control level is increased from 20% to 30% of interest after deducting interest on deposits and loans; allows interest expenses to be carried forward to the next 5 years and expands the subjects exempted from the control regulations.
On July 15, 2023, the Government issued Resolution No. 105 on tasks and solutions to remove difficulties for production and business. In particular, the Government assigned the Ministry of Finance to preside over and coordinate with ministries and agencies to research and propose amendments to Decree 132, and report to the Prime Minister on the amendments in the fourth quarter of 2023.
On October 18, the General Department of Taxation (Ministry of Finance) sent a document asking for opinions from departments and offices on this issue.
In a document sent to the Prime Minister and the Ministry of Finance, HoREA stated that Clause 3, Article 16 of Decree 132 has partially resolved the difficulties and shortcomings of Decree No. 20/2017/ND-CP on determining the "ceiling" of total deductible interest expenses when determining taxable income for corporate income tax.
However, the Association proposed to amend Decree 132 to remove the 30% ceiling because it believes that this is unreasonable and has made the picture of investment, production and business activities of enterprises not be reflected honestly, fully and promptly.
Specifically, HoREA pointed out 4 reasons why controlling the "ceiling" of total interest expenses becomes inappropriate.
Firstly, interest expenses for investment, production and business activities of enterprises are legal expenses as prescribed in Clause 2, Article 5 of the Investment Law 2020, or Clause 1, Article 94 of the Law on Credit Institutions 2010, or Point a, Clause 2, Article 14 of Decree 43/2014/ND-CP.
Second, interest expenses are legal expenses that need to be recognized by the State and need to be included in the total operating costs of investment, production and business of the enterprise in the fiscal year (period) of the enterprise.
Third, there is also a minority of domestic enterprises, including domestic enterprises with affiliated activities that may have transfer pricing activities, inflated prices to increase "virtual" costs to evade taxes, and especially for some multinational corporations with affiliated activities, there may have been transfer pricing activities that need to be controlled. Although currently preparing to implement the global minimum tax, there are still many difficult issues that need to be further considered and resolved.
Fourth, the time to transfer interest expenses calculated continuously is not more than 5 years from the year following the year in which non-deductible interest expenses arise, which may cause disadvantages for businesses in the next 5 years if they break even or suffer losses.
Even in the case of profit, if the enterprise unfortunately falls into the case where "the total deductible interest expense arising in the next tax period" is not "lower than the prescribed level", then the entire "non-deductible interest expense carried forward to the next tax period" is considered lost.
Therefore, HoREA finds it unnecessary and inappropriate to control the ceiling of 30%. The Association proposes to amend and supplement in the direction of only applying to foreign enterprises with related-party transactions and not applying the global minimum tax, but not applying to domestic enterprises with related-party transactions.
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