Circular No. 46/2003/TT-BTC dated May 15, 2003 of the Ministry of Finance guiding the first-time bond purchase by enterprises as well as bond purchase/sale business activities of organizations licensed to trade in bonds

CIRCULAR

GUIDING THE FIRST-TIME BOND PURCHASE BY ENTERPRISES AS WELL AS BOND PURCHASE/SALE BUSINESS ACTIVITIES OF ORGANIZATIONS LICENSED TO TRADE IN BONDS

Pursuant to Ordinance No. 12/1999/UBTVQH10 of April 27, 1999 on the issuance of the national construction bonds;

Pursuant to the Government’s Decree No. 28/2003/ND-CP of March 31, 2003 prescribing the issuance of the 2003 national construction bonds – education bonds;

Pursuant to Enterprise Income Tax Law No. 03/1997/QH9 of May 10, 1997;

The Ministry of Finance hereby guides in detail the use of capital for the first-time bond purchase by enterprises as well as bond purchase/sale business activities of organizations licensed to trade in bonds as follows:

I. GUIDANCE ON THE USE OF CAPITAL FOR THE FIRST-TIME PURCHASE OF BONDS BY ENTERPRISES

1. Capital sources for bond purchase: Enterprises must not use funds which are allocated by the State budget for the performance of public-utility duties, national reserve or price stabilization reserve or which are assigned by the State for the realization of the State-designated objectives, to purchase bonds.

Apart from the above-said funds originated from the State budget, enterprises may use all capital sources within their management scope as prescribed by law to purchase bonds according to the State’s general undertakings.

2. Income from bonds: Enterprises of all economic sectors shall be exempt from income tax on the interests gained from the first-time purchased bonds, which are issued by the State Treasuries.

3. Accounting of the earned bond interests: The interests earned from the above-said purchase of bonds shall be accounted on the principle of temporary inclusion in the enterprises’ income from annual financial activities (particularly for credit institutions, such interests shall be accounted into turnover) according to the following formula:

Of which: The money amount used for bond purchase shall be calculated according to bond denominations

The difference, which is the 5-year actual inflation rate plus (+) the 5-year interest rate, being higher than 40%, shall be additionally repaid by the State and accounted into financial activities’ income (or turnover, for credit institutions) of the final year.

For example: In May 2003, Enterprise A purchased bonds valued at VND 10 billion with the interest rate of 8%/year. By the end of April 2008, the 5-year actual inflation rate plus (+) the 5-year interest rate would reach 45%. The interests earned from these bonds shall be distributed into the enterprise’s annual income as follows:

- In 2003: (10 x 8%) x 8/12 = VND 0.533 billion

- In 2004: (10 x 8%) x 12/12 = VND 0.8 billion

- In 2005: (10 x 8%) x 12/12 = VND 0.8 billion

- In 2006: (10 x 8%) x 12/12 = VND 0.8 billion

- In 2007: (10 x 8%) x 12/12 = VND 0.8 billion

- In 2008: (10 x 8%) x 4/12 + {10 x (45% - 40%)} = VND 0.767 billion

The above-said interest amounts shall be accounted into the enterprises’ annual incomes from financial activities (or turnover, for credit institutions), but not calculated into the enterprises’ incomes liable to enterprise income tax in that fiscal year because income tax is exempt as prescribed in Ordinance No. 12/1999/UBTVQH10 on the issuance of the national construction bonds.

II. GUIDANCE ON BOND PURCHASE/SALE BUSINESS ACTIVITIES OF ORGANIZATIONS LICENSED TO TRADE IN BONDS

1. Organizations licensed to trade in bonds are those being Vietnamese legal entities operating under the Law on Credit Institutions, which are licensed to purchase and/or sell bonds with different organizations and individuals according to the provisions in Article 10 of the Government’s Decree No. 28/2003/ND-CP of March 31, 2003 on the issuance of the 2003 national construction bonds – education bonds.

2. The bond-trading organizations must monitor, fully and clearly account bond-trading activities, and pay tax into the State budget according to the current law provisions and this Circular’s guidance.

3. The bond-trading organizations shall be subject to the inspection and supervision by the finance agencies and specialized State management agencies regarding their bond-trading activities according to law provisions.

4. Organizations falling into the subjects licensed to trade in bonds, when conducting bond-trading activities, shall not have to carry out procedures to apply for permission of State management agencies.

5. In the course of bond trading, the bond-trading organizations must publicly announce the bond purchase and sale prices, and purchase and sell bonds at the announced prices.

For bonds purchased for under 12 months as from the issuance date inscribed thereon, their minimum purchase prices shall not be lower than 90% of the denominations inscribed thereon.

For bonds purchased for full 12 months or more as from the issuance date inscribed thereon, their purchase prices shall be determined on the basis of the bond denominations and interests earned till the time of bond purchase, which must be larger than the bond denominations.

6. The bond-trading organizations must pay income tax according to the provisions of the Enterprise Income Tax Law and current legal documents. The determination of taxable income in different cases shall be as follows:

a/ For income gained from bonds purchased and sold in business activities, the taxable income (if any) shall be determined as follows:

In cases where the bond-trading organizations open accounting books, monitor and separately account all revenues and expenditures related to bond purchase/sale activities:

Bond Purchase price of Corresponding
Taxable income = sale - corresponding - reasonable
price volume of bonds expenses

In cases where the bond-trading organizations cannot separately account revenues and expenditures related to bond purchase/sale activities:

Bond Purchase price of Taxable income = sale - corresponding price volume of bonds

b/ For incomes gained from the purchased bonds, which are not sold but directly repaid by the State treasuries maturely or prematurely, the taxable income (if any) shall be determined as follows:

In cases where the bond-trading organizations open accounting books, monitor and separately account all revenues and expenditures related to bond purchase/sale business activities:

Bond Purchase money price of Corresponding Taxable income = to be repaid - corresponding - reasonable (principals volume expensesand interests) of bonds

In cases where the bond-trading organizations cannot separately account revenues and expenditures related to bond purchase/sale business activities:

Bond money to be Purchase price of Taxable income = repaid (principals - corresponding and interests) volume of bonds

c/ Corresponding reasonable expenses stated at Items a and b above mean the expenses related to purchase capital and organization of bond purchase/sale activities.

7. To strictly prohibit organizations and individuals to speculate in bond trading, thus causing market disorder and resulting in the false increase or decrease of bond purchase/sale prices.

8. For the bond-trading organizations which purchase bonds at the prices lower than the minimum prices prescribed in Clause 5, Section II of this Circular, the difference thereof must be retrospectively collected and remitted into the State budget. If re-committing such violations, they shall be suspended from bond trading activities.

III. IMPLEMENTATION PROVISIONS

1. This Circular applies to the drive of issuance of the 2003 national construction bonds – education bonds, and takes effect as from the effective date of the Government’s Decree No. 28/2003/ND-CP of March 31, 2003.

2. Apart from the provisions in this Circular, enterprises being credit institutions shall also have to strictly implement the current regulations.

3. Any difficulties or problems arising in the course of implementation should be promptly reported to the Ministry of Finance for study and settlement.