Corporate income tax (CIT) incentives granted during the period 2009-2013 have increasingly been challenged by tax authorities and particularly by state auditors with an inclination towards reassessment of such incentives.
The assessment of CIT incentive entitlements, particularly in the case of an existing enterprise involved in business expansion or the acquisition of new fixed assets, is complicated and constitutes a high level of tax risk due to frequent changes in the regulations on the CIT incentives. According to Circular 130/2008/TT-BTC dated 26 December 2008 issued by the Ministry of Finance, business expansion during the period from 2009 to 2013 is not entitled to CIT incentives. Consequently, existing corporate taxpayers who engaged in business expansion activities during this period may be at risk of CIT reassessment if the income from business expansion was included in the total income for CIT calculation purposes.
In practice, we have seen in certain cases that reassessment by state auditors is based on the increase in fixed assets value of existing companies, even though these companies were not involved in any new investment projects or needed to have their license amended due to an increase of investment capital or production capacity.
The recent involvement of state auditors in tax audit matters is now of a nature rarely seen in the past. In the past few years, due to state budget deficits, state auditors have examine the tax compliance status of taxpayers or even reexamined the outcomes of audits conducted by tax authorities, focusing on certain high value and complicated areas of taxation such as CIT incentives. If the state auditors disagree with previous tax audit results, they may reassess the tax liabilities of relevant taxpayers, including fiscal years already audited by the tax authorities. This means that taxpayers now have to deal with several layers of audits and that years previously audited by the tax authorities are no longer safe or completely “closed”.
To stay informed of these developments, we recommend that taxpayers consult the Official Letter 4769 (OL 4769) dated 7 April 2016 issued by the Ministry of Finance which states that a company’s “regular investment” activities (including the acquisition of fixed assets) during the period 2009-2013 will not be deemed as business expansion, provided that the regular investment in acquisition of machinery and equipment for replacement is funded from one of the following internal resources:
- A depreciation fund; or
- After tax profit (for reinvestment); or
- Investment capital already registered with authorities.
Moreover, the above regular investment should not result in the increase of production capacity or business size in comparison with the registered capacity or business size prior to “regular investment”.
Those corporate taxpayers that have treated their CIT differently from the guidance of OL 4769 are allowed to reassess and revise their CIT computation. In cases where the tax reassessed by tax authorities is not in line with OL 4769, the tax reassessment (if already paid) may be offset against subsequent tax liabilities or may be refunded.
OL 4769 therefore offers a form of leverage to corporate taxpayers who must deal with this issue. Those taxpayers to whom the above issues apply should review and reassess their CIT treatment including tax previously reassessed by the authorities or state auditors for tax cost saving purposes.
We are pleased to assist or discuss individual cases should you need further details or clarification on this.
Partner, Regional Tax Practice Group
Phan Thi Lieu
Senior Tax Manager
*The information provided is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.