Attempts to avoid tax shelters in associated transactions

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Source: Internet

Clear regulations and close to international practice

Decree 20 introduced a number of major changes in comparison with current regulations related to the declaration and determination of associated transaction prices in Vietnam, including the preparation of associated transaction price declaration dossiers in three levels, a new form of associated transactions statement, and guidelines for deducting expenses arising from associated transactions and interest expenses. In particular, the Decree provides detailed guidance on comparative analysis, including the database used, selection of associated transactions price determination methods, the minimum number of independent comparators and other adjustment factors (For example geographical cost advantage). Financial data of independent auditors must be the same fiscal year of the taxpayer or the same date of the transaction.

According to Dr. Le Xuan Truong, Senior Lecturer in Tax Department, Academy of Finance, 6 years ago, with the introduction of Circular 66/2010 / TT-BTC (Circular 66) about determining the associated transactions market, for the first time in Vietnam a legal document on control of transfer pricing applies to all types of enterprises, including FDI enterprises and many other companies. However, the implementation of Circular 66 shows that there are some inadequacies that need to be rectified, supplemented and upgraded in legal documents on controlling transfer pricing. Decree 20 in accordance with Circular 66 with necessary adjustments stems from difficulties in tax administration practice, especially stating clearly the related parties as well as the principles, method, procedures, order for associated transactions price determination, and responsibilities of State bodies in tax management and inspection.

"The issuance of Decree 20 about tax administration for enterprises with associated transactions at this time is very important because it provides a stronger legal basis for combating price changes and timely remediation inadequacies of Circular 66. Also, improves the effectiveness of combating price transfer, against the loss of State budget. These regulations are feasible, and in line with international practice and practice in Vietnam, "said Prof. Dr. Le Xuan Truong.

Many economists also point out that the Ministry of Finance is working to make regulations clearer and closer to international standards. This decree inherits much of the world's experience, most notably the OECD rules defining associated transactions, the definition of stakeholders, and transfer pricing methods. Other regulations about associated transactions declarations and handling transfer pricing and violation of enterprises when declaring the associated transactions are also clearly shown in this decree.

Will issue written guidelines soon

Decree 20 takes effect from 1st May 2017. However, in order to put a legal document into practice, it must be in line with objective relations, in the current context and in the future.

Dr. Le Xuan Truong said that "Through studying the content of Decree 20 and observing the process of decree development, I think that the decree will create a good legal basis for general tax administration and control, transfer pricing and anti-tax losses in the coming years as they have been carefully researched, surveyed and consulted with field staff, listened to experts' comments and discussed international experiences. At the same time, the Decree stipulates only the core contents, while specific contents to be amended and supplemented in time due to the change of the subject of the adjustment; the Ministry of Finance shall provide specific guidance. Therefore, the influence of the Decree would be large.

Nguyen Huong Giang, Deputy General director of Tax Consultancy Services, PwC Vietnam, warned that although Decree 20 is not yet effective but with potential impacts on issues beyond the range of associated transaction price, taxpayers should research and evaluate the magnitude of these potential impacts on compliance with tax regulations in Vietnam as well as on their business operations. "

Lawyer Nguyen Hung, The Light Law Firm said: "To make Decree 20 acceptable, firstly, the Ministry of Finance should quickly develop and issue a circular guiding the Decree in order to create a comprehensive legal basis for the implementation of the Decree. The officer who performs this task must be qualified, trained and have some experience in transfer pricing. Especially, the propaganda for taxpayers and enterprises to raise awareness and do associated transactions declaration by themselves. Also, determining taxable prices in accordance with the provisions of the Decree and the Circular of guidance, hence reduction of negligible errors which waste time for many parties ".

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Currently, the General Department of Taxation is trying to build and perfect a database system of enterprise information as a basis for associated transactions price control. At the same time, directing the price transfer inspection department to focus on building a database on associated transactions, on the rate of profit of independent trading enterprises in some sectors, and sectors with trade and transfer pricing.