On February 24th, 2017, Vietnam Government issued the Decree No. 20/2017/NDCP (hereafter referred to as the Decree) prescribing tax administration for enterprises engaged in transfer pricing. This was an important milestone in the legal system of transfer pricing, helping Vietnam closer reach to international standards of improving transparency and anti-tax evasion.
Having been issued with the target of FDI enterprises engaged in transfer pricing, the practical deployment has shown that this Decree has insufficient problems. In the opinion of Vietnam National Real Estate Association (VNREA), this Decree does not suit the rule of free trade recognized in the Enterprise Law (2014), conflicts with regulations of the standing Tax Law, and includes impractical issues, which have bad impact on enterprises' interests.
In particular, Article 8 of the Decree (about 'Determination of costs for assessment of tax in certain specific cases for enterprises engaged in particular related-party transactions'), Section 3 says: "Taxpayer’s total loan interest cost arising within a specified tax period qualified as a deduction from income subject to corporate income tax shall not exceed 20% of total net profit generated from business activities plus loan interest costs and amortization costs arising within that period."
Mentioning the '20% ceiling rate', statistics of VNREA's members has shown that it is a hard rate for enterprises to access capital, especially ones needed high financing in the fields of real esate, healthcare, agriculture, etc. The current environment of investment is fair among domestic firms and foreign-invested ones. The regulations of tax even need more fairness. For particular sectors needed high capital of investment, that ceiling rate must be restudied.
Mr. Nguyen Tran Nam, former Deputy Minister of Construction, President of VNREA, shares that: As soon as realizing inadequate issues of the Decree No. 20, VNREA has submitted its suggestion to Vietnam Prime Minister, giving the foundation that the '20% ceiling rate of loan interest' would have bad impacts on low-income enterprises.
"VNREA believes that the 'Decree No. 20/2017/NDCP: Inadequate Issues and Solutions' seminar is an important forum for sharing experience and creating critical multi-dimensional perspectives, orientation and solutions for insufficient problems of the Decree No. 20, as well as achieving a business environment of transparency, fairness and tectonics for enterprises." Mr. Nam said.
"After the seminar, VNREA will work on gathering ideas of specialists, scientists and enterprises about this Decree to submit to the Government, the Prime Minister, Ministry of Finance, National Assembly's Economics and Juridical Committees."