At the end of the year enterprises have a lot of works to do when it comes to finalising tax. They may also get ready for inspections by the taxman.
On the sidelines of Deloitte Vietnam’s Tax Update Seminar on November 26 where Deloitte experts shared experiences in year-end tax finalisation and exposures from recent tax inspections, The Saigon Times Daily spoke with Phan Vu Hoang, Tax Partner of Deloitte Vietnam, over some tax issues that might be of enterprises’ interest.
* What issues taxpayers should pay particular attention to in tax inspections and audits this year?
In 2013, in line with the newly amended Law on Tax Administration (“LOTA”) effective from July 2013, tax authorities have strengthened tax audit and tax inspection activities. One notable issue in the amended LOTA is that tax authorities will manage taxpayers through frequent analysis of financial statements, assessment of compliance level, and consequently classification of risk level with regard to tax compliance. Accordingly, tax authorities would more frequently investigate and audit corporate taxpayers with high tax compliance risk than others.
From a closer look at Directive 02/CT-BTC issued on 8 August 2013 and Directive 04/CT-BTC issued on 6 November 2013 by the Minister of Finance, some official letters issued by the Ministry of Finance and General Tax Department, and from our experience of assisting our clients, we would like to highlight the following cases that are viewed as indications of high compliance risk taxpayers, for which special consideration and preparation in advance for snap tax audit and tax inspections are highly recommended.
Firstly, enterprises with transfer pricing indications, for example, those having significant transactions with related parties, or those repeatedly making losses but still expanding business continuously. Secondly, enterprises with tax incentives and investment expansion in the period from 2009 to 2013. Thirdly, enterprises in some specific industries such as credit, banking, e-commerce, online business, mining, real estate, tourism and services. Fourthly, enterprises with large and frequent Value Added Tax (“VAT”) refunds, exporters of agricultural products, trading companies who export goods cross border, especially those with typical indicators, such as registered capital much lower than revenue, companies operating trading activities without physical premises, and settlement for export transactions via current accounts.
It should be noted that for most high risk taxpayers, tax refund will be remarkably more difficult than usual, and in most cases would be subject to investigations before refund, instead of the current common “refund first, check later” mechanism.
* So what can enterprises do to avoid any troubles with tax finalisation?
In our observations of recent tax finalisation audits conducted by tax authorities, we would like to draw your attention to some common issues in tax finalisation. Various enterprises wrongly declared, or under-declared tax in an unintended manner due to mistakes or misunderstanding of current regulations. These issues or mistakes, if not settled in a timely and appropriate manner, might result in large amounts of tax recollection and penalty when tax authorities visited for tax investigations or audits. Below are three common cases, among many others.
Enterprises with business expansion in the period 2009-2013 will not be entitled to tax incentives on their income from the business expansion. Therefore, even if the enterprise is entitled to Corporate Income Tax (“CIT”) exemption and reduction, income from business expansion would still be subject to tax at the standard tax rate. Taxpayers are required to account separately for the income from business expansion, or allocate such income using acceptable methods under prevailing regulations for CIT determination and compliance purposes.
Performance bonuses, holiday bonuses, and ad hoc bonuses for the employees should be determined and stipulated as early and clearly as possible. Many enterprises are not allowed to deduct these reasonable expenses from their taxable income because they did not specify the conditions for and level of entitlements in Labor contracts, Collective Labor Agreement or Financial Policy.
Promotion and rebate programs are usually accompanied by tax risks. Accordingly, enterprises with frequent promotion activities should take into consideration the requirements and regulations under the Law on Commerce, as well as the requirements for invoices and supporting documents in each program. For example, when an enterprise gives away gifts to their customers, they have to register these programs to the Department of Industry and Trade prior to launching, otherwise they will be required to issue invoices and recognize the revenue as normal sales for VAT and CIT purposes with regard to these free gifts. In case of discount, the discount must be clearly stipulated on the relevant invoices.
* Given the VAT evasion cases in the past, getting VAT refund is tougher. Do you have advice for taxpayers to avoid unnecessary issues involving this matter?
Recently, the amended regulations on invoices have facilitated more flexibility and autonomy by enterprises in their business operations. However, VAT evasion caused by “ghost” enterprises, issuance of fraudulent invoices or frauds also inflated vastly. In this context, the Ministry of Finance has implemented various schemes for prevention of such invasions, from issuing directives and official letters to the General Department of Taxation, provincial Tax Departments requesting a strengthening of tax refund investigations for better compliance, classification of risks with regard to VAT refund applications of exporters for investigations before refund.
These schemes, while on one hand reinforcing the VAT collection of some fraudulent enterprises, on the other hand causing various difficulties to “bona fide” enterprises. For VAT refund, instead of only investigating the direct vendor who supplies goods to the enterprises as previously, tax authorities now investigate upstream even to the first supplier in the supply chain. Exporters, especially those who have to gather materials from multiple locations, from various levels of vendors, would face recurrent difficulties and delays in VAT refund, since only one minor infringement by one vendor in the chain, the whole VAT refund process will be suspended.
Therefore, apart from aggressively petitioning to tax authorities directly or via consultants to seek solutions, enterprises should also actively set up an internal control mechanism to avoid unnecessary issues from the VAT refund process.
In particular, it is recommended that frequent VAT refund applicants should consider purchasing from reliable vendors and obtain sufficient information regarding the related supply chain from the vendor. In addition, enterprises should frequently update themselves on the latest regulations and requirements, especially those regarding invoices and documentation from tax authorities. There should also be policies and procedures for various related departments and units within the organisation to check invoices thoroughly, and frequent updates of absconding enterprises from the authorities’ database. Furthermore, the issuance of invoices by the enterprises should also be taken seriously, since an invalid output invoice may result in non-creditability of corresponding input VAT in various circumstances.
The above activities, if implemented appropriately, can help enterprises to actively relieve themselves from various challenges regarding invoices and supporting documents upon tax investigations/audits, to intensify the chances for getting full input VAT refund and to ensure deductibility of their valid and reasonable expenses from business operations./
On the sidelines of Deloitte Vietnam’s Tax Update Seminar on November 26 where Deloitte experts shared experiences in year-end tax finalisation and exposures from recent tax inspections, The Saigon Times Daily spoke with Phan Vu Hoang, Tax Partner of Deloitte Vietnam, over some tax issues that might be of enterprises’ interest.
* What issues taxpayers should pay particular attention to in tax inspections and audits this year?
In 2013, in line with the newly amended Law on Tax Administration (“LOTA”) effective from July 2013, tax authorities have strengthened tax audit and tax inspection activities. One notable issue in the amended LOTA is that tax authorities will manage taxpayers through frequent analysis of financial statements, assessment of compliance level, and consequently classification of risk level with regard to tax compliance. Accordingly, tax authorities would more frequently investigate and audit corporate taxpayers with high tax compliance risk than others.
From a closer look at Directive 02/CT-BTC issued on 8 August 2013 and Directive 04/CT-BTC issued on 6 November 2013 by the Minister of Finance, some official letters issued by the Ministry of Finance and General Tax Department, and from our experience of assisting our clients, we would like to highlight the following cases that are viewed as indications of high compliance risk taxpayers, for which special consideration and preparation in advance for snap tax audit and tax inspections are highly recommended.
Firstly, enterprises with transfer pricing indications, for example, those having significant transactions with related parties, or those repeatedly making losses but still expanding business continuously. Secondly, enterprises with tax incentives and investment expansion in the period from 2009 to 2013. Thirdly, enterprises in some specific industries such as credit, banking, e-commerce, online business, mining, real estate, tourism and services. Fourthly, enterprises with large and frequent Value Added Tax (“VAT”) refunds, exporters of agricultural products, trading companies who export goods cross border, especially those with typical indicators, such as registered capital much lower than revenue, companies operating trading activities without physical premises, and settlement for export transactions via current accounts.
It should be noted that for most high risk taxpayers, tax refund will be remarkably more difficult than usual, and in most cases would be subject to investigations before refund, instead of the current common “refund first, check later” mechanism.
* So what can enterprises do to avoid any troubles with tax finalisation?
In our observations of recent tax finalisation audits conducted by tax authorities, we would like to draw your attention to some common issues in tax finalisation. Various enterprises wrongly declared, or under-declared tax in an unintended manner due to mistakes or misunderstanding of current regulations. These issues or mistakes, if not settled in a timely and appropriate manner, might result in large amounts of tax recollection and penalty when tax authorities visited for tax investigations or audits. Below are three common cases, among many others.
Enterprises with business expansion in the period 2009-2013 will not be entitled to tax incentives on their income from the business expansion. Therefore, even if the enterprise is entitled to Corporate Income Tax (“CIT”) exemption and reduction, income from business expansion would still be subject to tax at the standard tax rate. Taxpayers are required to account separately for the income from business expansion, or allocate such income using acceptable methods under prevailing regulations for CIT determination and compliance purposes.
Performance bonuses, holiday bonuses, and ad hoc bonuses for the employees should be determined and stipulated as early and clearly as possible. Many enterprises are not allowed to deduct these reasonable expenses from their taxable income because they did not specify the conditions for and level of entitlements in Labor contracts, Collective Labor Agreement or Financial Policy.
Promotion and rebate programs are usually accompanied by tax risks. Accordingly, enterprises with frequent promotion activities should take into consideration the requirements and regulations under the Law on Commerce, as well as the requirements for invoices and supporting documents in each program. For example, when an enterprise gives away gifts to their customers, they have to register these programs to the Department of Industry and Trade prior to launching, otherwise they will be required to issue invoices and recognize the revenue as normal sales for VAT and CIT purposes with regard to these free gifts. In case of discount, the discount must be clearly stipulated on the relevant invoices.
* Given the VAT evasion cases in the past, getting VAT refund is tougher. Do you have advice for taxpayers to avoid unnecessary issues involving this matter?
Recently, the amended regulations on invoices have facilitated more flexibility and autonomy by enterprises in their business operations. However, VAT evasion caused by “ghost” enterprises, issuance of fraudulent invoices or frauds also inflated vastly. In this context, the Ministry of Finance has implemented various schemes for prevention of such invasions, from issuing directives and official letters to the General Department of Taxation, provincial Tax Departments requesting a strengthening of tax refund investigations for better compliance, classification of risks with regard to VAT refund applications of exporters for investigations before refund.
These schemes, while on one hand reinforcing the VAT collection of some fraudulent enterprises, on the other hand causing various difficulties to “bona fide” enterprises. For VAT refund, instead of only investigating the direct vendor who supplies goods to the enterprises as previously, tax authorities now investigate upstream even to the first supplier in the supply chain. Exporters, especially those who have to gather materials from multiple locations, from various levels of vendors, would face recurrent difficulties and delays in VAT refund, since only one minor infringement by one vendor in the chain, the whole VAT refund process will be suspended.
Therefore, apart from aggressively petitioning to tax authorities directly or via consultants to seek solutions, enterprises should also actively set up an internal control mechanism to avoid unnecessary issues from the VAT refund process.
In particular, it is recommended that frequent VAT refund applicants should consider purchasing from reliable vendors and obtain sufficient information regarding the related supply chain from the vendor. In addition, enterprises should frequently update themselves on the latest regulations and requirements, especially those regarding invoices and documentation from tax authorities. There should also be policies and procedures for various related departments and units within the organisation to check invoices thoroughly, and frequent updates of absconding enterprises from the authorities’ database. Furthermore, the issuance of invoices by the enterprises should also be taken seriously, since an invalid output invoice may result in non-creditability of corresponding input VAT in various circumstances.
The above activities, if implemented appropriately, can help enterprises to actively relieve themselves from various challenges regarding invoices and supporting documents upon tax investigations/audits, to intensify the chances for getting full input VAT refund and to ensure deductibility of their valid and reasonable expenses from business operations./
