The Vietnamese Tax Authorities (TA) are being instructed to increase tax revenue by enforcing greater compliance on the part of taxpayers. For the 2018 Tax Audits, the General Department of Taxation1 instructed the TAs to focus also on implementing a software-based Risk Analysis System and specifically to target Foreign Invested Companies (FIC). The basic principles outlined for the 2018 audits are also to be applied in the following years. For 2019, the Ministry of Finance (MOF)2 instructed the TAs to focus additionally on tax evasion and fraud. For 20203, the MOF instructed TAs to focus on VAT, TP, and to combat smuggling and trade fraud. In addition, all three regulations are establishing a systematic approach to tax audits. The intention is to reduce the importance of the special relationship of the taxpayer to the local tax officer, which in the past was absolutely crucial.
Until now, TP issues of FICs have not been taken very seriously in many cases. The current regulation became effective as of 1 May 20174. It is expected that a lot of work will be required of the TAs to identify some cases of non-compliance5 in the 2020 audits.
The TP documentation must be available by the deadline for the final submission of CIT (the 90th day of the next financial year). The TP documentation must consist of a LF, MF and CbCR and should be prepared in Vietnamese. At the request of the TA, those reports must be filed within 15 working days.
No TP documentation must be prepared by companies that specifically have
- Total revenue below 50 billion VND (around USD 2.15 mil) and related party transactions below 30 Mio VND (around USD 1.29 mil);
- Signed an APA and have submitted the annual report insofar as the transactions are covered by the APA.
- A business with simple functions, with no revenue or expenses from the exploitation or use of intangibles, with revenue of less than 200 billion VND (around USD 8.59 mil) and the following pre-loan interest and pre-CIT net profit on turnover ratios in these sectors:
- Distribution: 5% or more;
- Production: 10% or more;
- Processing: 15% or more.
It is highly recommended that all FICs should prepare well for a potential tax audit in 2020, particularly regarding TP requirements. For companies with the calendar year as their FY, the TP documentation must be ready before the end of March 2020. It must be submitted to TA within 15 working days at the TA’s request.
The prime target for these audits will be companies with high risk alerts on tax and TP
- not being audited for a longer period;
- having a high revenue;
- making a loss or with unusually low profits;
- enjoying tax incentives;
- enterprises in real estate, oil & gas, electricity, etc.
- banks and credit institutions;
- enterprises with capital assignment, franchise, and project transfer;
- enterprises with new and special business lines;
- VAT refund; or
- enterprises that appear to be using illegal invoices.
Production costs and all high-value transactions such as interest, royalties and service fees of all kinds will be scrutinised in particular.
1 Official Letter from the General Department of Taxation 5339/TCT-TTr, dated 20 November 2017
2 Official Letter from the Ministry of Finance 13185/BTC-TTr, dated 26 October 2018
3 Circular 38/2019/TT-BTC, dated 28 June 2019
4 Decree 20/2017/ND-CP, dated 24 February 2017
5 Official Letter No. 13288/BTC-TTr dated 4 November 2019
Contact
Nguyen Thi Thu Thuy
Email: nguyen.thi.thu.thuy@wtsvietnam.com
