On June 24, 2020, the government promulgated Decree No. 68/2020 / ND-CP (“Decree 68”) amending Article 8.3 of Decree No. 20/2017 / ND-CP of February 24, 2017 regulating fiscal management companies with related transactions. [transfer pricing] (“Decree 20”) with respect to the total loan interest deductible in the assessment of taxable income for corporate tax (“IS”) purposes. Decree 68 entered into force on June 24, 2020 and will apply to companies with related transactions from the 2019 financial year.
The maximum rate deductible from interest costs on loans is increased from 20% to 30% of the total net profit from operating activities for the period plus interest costs on loans (excluding interest income from deposits, current accounts and loans) and the resulting amortization charges in a given year.
Deferral of non-deductible interest charges on loans
Non-deductible interest charges on sameday loans that exceed 30% will be carried forward when determining the total deductible interest charges on loans. The maximum transfer period for non-deductible debit interest is five consecutive years, starting from the year in which the loan interest charges are not deducted.
Interest charges on loans not applicable
The deductible rate of interest costs on loans does not apply for: (i) loans from taxpayers who are credit institutions under the law on credit institutions and / or insurance organizations in under the Law on Insurance Activities; (ii) loans for official development assistance (ODA); (iii) government concessional loans implemented by the foreign borrowing method for enterprises to be re-borrowed; (iv) loans for the implementation of specific national programs (including the new rural areas program and the sustainable poverty reduction program); (v) loans to finance programs and projects related to national welfare policies (housing for resettlement, for workers, students and other public welfare projects).
Retroactive application for fiscal years 2017 and 2018
Under Decree 68, the deductible rate of 30% of interest charges on loans is applied to companies with related transactions that occurred in 2017 and 2018. Therefore, before January 1, 2021, companies must submit a supplement / a review of their declarations of finalization of the corporate tax in 2017 and 2018 to the tax authorities in order to recalculate the interest charges on loans and the corresponding amounts of corporate tax payable (if applicable). In particular,
a) if the companies have not yet been inspected / controlled by the tax authorities, they will compensate the difference between the excess CIT and late interest (if applicable) with the CIT payable in 2020. If the he year 2020 is not fully compensated, the difference will be compensated by the corporate tax payable for the next five years from 2020; and
(b) if the companies have already been inspected / controlled by the tax administration and have received an inspection finding or decision, they should request the tax administration to redefine the CIT payable and the corresponding late payment for offset the difference (if any) to the CIT payable in 2020.
However, the amount of administrative fiscal penalties (if any) will not be adjusted if businesses have already been sanctioned or if their claims are resolved through complaint resolution procedures.
New form 01
Companies must amend the disclosure statement for related transactions in accordance with the new Form 01 attached to Decree 68. This new Form 01 includes a new item 15 in Section IV, which details the loan interest charges carried over from previous periods used for determine the interest charges deductible during the fiscal year.