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SUGGESTED ANSWERS TO THE REVISION QUESTIONS TP, DTA AND TAX ADMINISTRATION QUESTION 1: c) (ii) ROA of 123 = 1,000/2,000 = 50% Profit of ABC when applying this ratio: 1,500 x 50% = 750, which is higher than the declared amount of 500. Therefore the taxable profit that ABC may want to adjust for 2012 CIT purposes could be 750. ABC may want to prepare reasonable reasons to explain to the local tax authorities in future if no adjustment is made. QUESTION 2: Failure to comply strictly with requirements on accounting system, maintaining accounting records, registration, declarations, finalization, amendment of the submitted return and payment of tax will, depending on the nature and seriousness of the breach, be subject to warning or fine. The fine will be imposed in accordance with the tax laws and the prevailing regulations on administrative offences. Major offences include: Late submission of tax returns are subject to fine, depending on the number of days delayed. Late payments of tax are subject to a fine of 0.05% of the unpaid amount for each day of delay. Tax evasion will be subject to penalty of 1 to 3 times the amount involved and/or criminal prosecution. Failure to pay tax or fines in accordance with a notice or tax decision, the following action may be taken: a) Appropriation of deposits at banks, Treasury or credit institutions for the purposes of

payment of taxes or fines;

b) Temporary seizure of goods and material evidence in order to recover the full amount of taxes or fines payable;

c) Confiscation of assets in accordance with law for the purpose of recovery of any

outstanding amount of taxes and fines

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QUESTION 3: Individuals/organizations is entitled to lodge with tax office issuing the tax notice complaints within 30 days from the date of receipt of tax notice. Otherwise the tax notice shall become final. Pending resolution of complaints, tax payers must still pay the tax and fines in full and in a timely manner. The office which receives the complaint shall be responsible for considering and resolving the complaint within 15 days from the date of receipt of the complaint. Where the complainant is not satisfied with the resolution of the complaint by the tax offices or where the complaints is not resolved within the said above time frame, the complainant may appeal to the higher tax authority or bring the case to the Court within 30 days upon receipt of the resolution, otherwise the resolution will become final. Decision of the higher tax office shall be considered final. QUESTION 4: a) According to the Vietnam prevailing tax regulations, foreign organization doing business in Vietnam without the establishment of a legal entity in Vietnam under the provisions of the Law on Investment will be regarded as foreign contractor and be liable to, among other things, Vietnam FCT (comprising VAT and CIT) and other taxes, where applicable. Income that is subject to FCT and FCT liabilities will be determined in accordance with the provisions of the prevailing FCT regulations. Therefore, Bank N is regarded as foreign contractor for FCT purposes. If Bank N elects not to adopting VAS, the interest received by Bank N will be subject to CIT at 5% (as the loan contract was signed on 01 June 2012). Such interest is exempted from VAT. According to the provisions of Article 11 of the DTA signed by Vietnam and Singapore, interest arising in Vietnam and paid to a resident of Singapore may be taxed in Singapore. However, such interest may also be taxed in Vietnam in according to the laws of Vietnam, but if the recipient is the beneficial owner of such interest the tax so charged shall not exceed 10% of the gross amount of the interest. Thus, the interest received by Bank N (the beneficial owner), under the provisions of the Vietnam-Singapore DTA, is regarded as arising in Vietnam and being taxed in Vietnam at the maximum rate of 10%. This maximum tax rate is higher to that prescribed in Vietnams current CIT regulations. So, Vietnam reserves the right to tax (on the basis of withholding at source) such an interest at the rate of 5% on the gross interest.

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b) Bank F is not the beneficial owner of the interest, therefore Bank F cannot request to apply the provisions of the DTA signed by Vietnam and France to the received interest. QUESTION 5: a) According to Vietnam PIT regulation, Mr. A is regarded as non-resident for Vietnam PIT purposes as it appears that he resides in Vietnam less than 183 days during his first tax year. Accordingly, he will be subject to Vietnam PIT at 20% on his Vietnam-sourced income. According to the provisions of the Vietnam-Singapore DTA (Article 15), salaries, wages and other similar remuneration derived by a resident of Singapore in respect of an employment exercised in the Vietnam are not taxable in Vietnam if: the recipient is present in Vietnam for a period or periods not exceeding in the

aggregate 183 days in the calendar year concerned, and

the remuneration is paid by, or on behalf of, an employer who is not a resident of Vietnam, and

the remuneration is not borne by a permanent establishment or a fixed base which

the employer has in Vietnam. In case of Mr. A, as his remuneration is paid by B a resident in Vietnam, the above three conditions are not simultaneously met, Mr. A is not entitled to the exemption of PIT liability on his Vietnam-sourced income under the provisions of the Vietnam-Singapore DTA. b) Mr A. is not present in Vietnam more than 183 days in 2009; and his remuneration is paid by C who is not resident in Vietnam; and the remuneration is not borne by a permanent establishment or a fixed base which C has in Vietnam. Accordingly, Mr A is entitled to Vietnam PIT exemption in accordance with the provisions of the Vietnam-Singapore DTA.

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c) Although, in form, his remuneration is borne by C; but in substance his employer is B a resident in Vietnam, and his remuneration is regarded as paid on behalf of B. Therefore, the conditions for exemption of tax under Article 15 are not simultaneously met, Mr. A is not entitled to the exemption of PIT liability on his Vietnam-sourced income under the provisions of the Vietnam-Singapore DTA. QUESTION 6 (JUNE 2009) (a) A preferential (reduced) corporate income tax rate of 10% for 15 years is

applicable to business establishments and enterprises which are (i) Newly established enterprises from investment projects in the areas of:

- must be a newly established enterprise (1 mark) - the enterprise must be established in the socialisation sector operating in areas

with difficult or specially difficult socio-economic conditions as listed in the Government list (1 mark)

(ii) Newly established enterprises from investment projects in the sectors of:

- high-tech as stipulated by law; scientific research and technological development; (1 mark)

- investment in development of water plants, power plants and water supply systems; in bridges, roads and railways; in airports, seaports and river-ports; in air fields, stations and other specially important infrastructure works as decided by the Prime Minister of the Government; and (2 mark)

- computer software products. (1 mark) (6 marks)

(b) With regard to a tax inspection: (1) Within three working days of its signing, the decision must be sent to the taxpayer.

(1 mark) (2) Examination must be conducted within 10 days (maximum length of examination is

five days from commencement of examination). (1 mark) (3) At least one day before the end of the examination, the tax inspector can extend the

examination up to a maximum of five additional days. (2 marks) (4 marks)

QUESTION 7 (DECEMBER 2009)

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(a) Circular 66 on market prices is not applicable to business transactions between

affiliates which are subject to price control in accordance with the Ordinance on Prices. (2 marks)

(b) The items required as part of the initial application for exemption by a foreign

contractor are: 1. a notice of eligibility for tax exemption or reduction under an agreement; (1.5

marks) 2. the original certificate of tax residency in the year preceding the notification of

eligibility; (1.5 marks) 3. copies of the contracts signed between the foreign party and the Vietnamese parties.

(15 marks) 4. copies of the business registration certificate or tax registration certificate; and (1.5

marks)

(6 marks)

(c) A business establishment that falsely declares or evades tax will in addition to the full amount of tax due be liable to pay a fine of between one and three times the amount evaded and pay late payment penalties of 0,05% per day. (1 mark)

Also, where the amount evaded is large or the breach serious, be prosecuted for criminal liability. (1 mark)

(2 marks) QUESTION 8 (JUNE 2010) (a) Foreign entities (established outside of Vietnam) are subject to separate guidance of

the Ministry of Finance with respect to the sale of security shares. Hence, the tax treatment comes under the foreign contractor tax (FCT) regime i.e. Circular 60. (1.5 marks)

Under the FCT regulations, the Cayman Fund, as a foreign organisation (with or without permanent establishments in Vietnam) doing business or earning income in Vietnam in accordance with contracts, agreements signed with Vietnamese organisations and individuals, will be subject to FCT which normally comprises an element of value added tax (VAT) and an element of corporate income tax (CIT). However, the sale of security shares is not subject to the VAT element, but only the CIT element. (1.5 marks)

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The transaction is taxed at 0,1% of the total sale proceeds regardless whether a gain or loss is derived from the sale. Since the tax is levied on the total sale proceeds, hence, brokerage fees, commissions, etc are not deductible from the sale proceeds for tax purposes. (1.5 marks)

The Vietnamese tax liability will be that of the Cayman Fund itself, not of the individual partners of the Cayman Fund. (1 mark)

Tax will be applied through a withholding mechanism and typically the brokerage institution would withhold the tax liability on the sale and pay the same to the local tax authorities on behalf of the foreign investors. (1.5 marks)

(07 marks) (b) When the British Virgin Islands investment fund distributes profits to its investors,

it will do so outside the tax jurisdiction of Vietnam. Therefore, it will not need to withhold any Vietnam taxes nor make a tax declaration or payment on behalf of the investors to the Vietnam tax authorities. (2 marks)

(c) Profit remittance tax is no longer payable by foreign investors when remitting

their profits abroad, thus, provided that all tax obligations towards the Government of Vietnam have been cleared, no additional tax arises on overseas remittances. (1 marks)

QUESTION 9 (DECEMBER 2010 - AMENDED) (a) Errors in submitted tax return (i) According to the Tax Administration Management regulations (Circular

28/2011/TT-BTC) when a taxpayer detects errors in a tax declaration that has been submitted to the tax authorities which can affect the tax payable amount, he/she can submit a supplemental (additional) declaration to the tax authorities. (1 mark)

Such a supplemental declaration can be submitted on any working day, not depending on the deadline for submission of subsequent declaration, but must be submitted before the tax authorities announce decisions on tax inspection at the taxpayers office. (2 marks)

(ii) If the supplemental declaration results in an increase in the tax payable amount, the

taxpayer must self-assess the penalty/fine for late tax payment based on the late payment amount, number of days it is late and the penalty level specified in Tax Administration regulations, and pay such penalty/fine to the tax authorities. (2 marks)

(iii) If the supplemental declaration results in a decrease in the tax payable amount, the

taxpayer is allowed to amend (i.e. reduce) the tax liabilities (and tax penalty (if

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any)) at the last date of the month when the supplemental declaration is submitted; or can offset the tax reduction to the tax liabilities of a subsequent tax declaration. (2 marks)

(b) Time limits for the submission of corporate income tax (CIT) declarations

The deadline for the submission of quarterly CIT declarations to the tax authorities is the 30th day of the quarter following the one in which tax liabilities arise. (1 marks)

The deadline for the submission of the annual CIT declaration to the tax authorities is the 90th day from the end of the calendar year or, where the companys tax assessment period does not end on 31 December, from the end of the fiscal year. (2 marks)