Official Dispatch No. 3730/TCT-CS dated August 18, 2016 of the General Department of Taxation on the introduction of the Joint Circular No. 12/2016/TTLT-BKHCN-BTC on the allocation and management of the science and technology development fund in enterprises

THE MINISTRY OF FINANCE
THE GENERAL DEPARTMENT OF TAXATION

Official Dispatch No.3730/TCT-CS dated August 18, 2016 of the General Department of Taxation on the introduction of the Joint Circular No. 12/2016/TTLT-BKHCN-BTC on the allocation and management of the science and technology development fund in enterprises

To:Provincial Tax Departments.

Ministry of Science and Technology and Ministry of Finance, on June 28, 2016, promulgated the Joint Circular No. 12/2016/TTLT-BKHCN-BTC on guidelines for the allocation and management of the science and technology development fund in enterprises (referred to as TTLT 12). General Department of Taxation introduces certain details of TTLT 12 as follows:

1. Scope of adjustment and subject of application (Article 1)

- Scope: The Circular provides guidelines for the allocation and management of the science and technology development fund in enterprises

- Regulated entities: Enterprises incorporated as per the laws, government agencies and other relevant entities.

2. Organization of the Fund (Article 3)

The fund can be organized in either of these two manners:

- As an organization without judicial personality and directly under an enterprise.

- Be not established as an organization and operated by the enterprise’s officials who conduct multiple concurrent tasks.

Circular No. 15/2011/TT-BTC dated February 09, 2011 by the Ministry of Finance on guidelines for the establishment, organization, operation, management and allocation of science and technology development funds of the enterprises (referred to as Circular No. 15) defined that: The fund is a part, without juridical personality, of an enterprise.

3. Financing of the Fund (Article 4)

- Sources of financing: The fund shall be financed by two sources:

+ Incomes from which corporate income tax is calculated during a tax period;

+ The corporation or parent enterprise transfers its science and technology development fund to the relevant funds of its subsidiaries or affiliates or vice versa.

- Level of contribution of taxable incomes to the Fund during a tax period:

+ For state-owned enterprises: The Fund receives 3% to 10% of incomes from which corporate income tax is calculated during the tax period;

+ For non-state owned enterprises: The level of contribution is left to their discretion but is limited to at most 10% of incomes from which corporate income tax is calculated during the tax period.

Circular No. 15 defined that: Enterprises shall at their discretion decide the level of contribution that, however, shall not exceed 10% of incomes from which corporate income tax is calculated during the tax period.

- The transfer of the Fund shall not be permissible for:

+ Foreign-invested enterprises transfer their fund to that of the overseas parent enterprise;

+ The parent enterprise in Vietnam transfers the Fund to those of overseas subsidiaries.

4. Responsibilities and rights of organizations and individuals managing the Fund (Article 5)

The article specifies the following responsibilities and rights over the Fund: Formulate and present to competent individuals of the enterprise, for approval, the plans on annual spending and contributions of the Fund, on the enterprise’s scientific and technological activities and on expenditure for the management of the Fund; inspect and assess the implementation of scientific and technological activities that have been financed by the Fund; Formulate and present to competent individuals of the enterprise, for approval, the transfer of one Fund to another, etc.

5. Science and technology council of an enterprise (Article 6)

The article specifies the authority to decide the establishment of the Council, structure and criteria of members of the Council, occupational principles of the Council and the procedure for appraisal, verification and finalization of science and technology missions.

6. Implementation of science and technology missions (Article 7)

The article defines the science and technology missions that the Fund finances:

- Science and technology missions at national level, ministerial level and provincial level;

- Science and technology missions of the enterprise.

Science and technology missions of the enterprises as per their regulation on science and technology; expenditure of science and technology missions, whose contents have been verified by the Council(s) of science and technology of the enterprises, shall be subject to the regulation on allocation and use of the Fund; the level of allocations for science and technology missions of the enterprise as formulated, regulated by its competent individuals who assume relevant responsibilities to the laws; the assignment of allocations to finished products or to segments of science and technology missions shall be defined in the enterprise s regulation on science and technology and be permissibly governed by the Joint Circular No. 27/2015/TTLT/BKHCN-BTC dated December 30, 2015 by the Ministry of Science and Technology and the Ministry of Finance on the assignment of finances to state-funded missions in science and technology.

7. Support to the science and technology development in enterprises (Article 8)

The article specifies supports to the enterprises’ development of science and technology: Physical and technical infrastructure for science and technology activities of the enterprises; purchase of rights of use and ownership: Machines and equipment; remuneration for specialists hired or engagement in contracts with science and technology organizations that carry out science and technology activities of the enterprises; allocations for assessment, experiment, standardization and quality control, advertisement and commercialization of new products and technologies, registration of intellectual property; allocations for the implementation of projects or development of new products despite the failed sale of such products or the stagnation of such projects due to objective causes as determined by the Council of science and technology of the enterprises.

8. Training of corporate personnel in science and technology (Article 9)

The article specifies the training of corporate personnel in science and technology: The contents and forms of training; planning and financial estimation for the training of personnel in science and technology; details and predetermined rate of allocations for science and technology training.

9. Cooperation in science and technology (Article 10).

The article defines the activities of cooperation by local and foreign individuals, organizations and enterprises in science and technology; modes of cooperation in science and technology; activities of cooperation in science and technology, which the government encourages and prioritizes.

Circular No. 15 only stated that the expenses of activities of cooperation with local enterprises in research and development of science and technology are deemed as supports for an enterprise science and technology development.

10. Additional definition of the expenditure for the management of the Fund (Article 11)

Added is the regulation on the spending on the management of the Fund (e.g. salary, contributions to social insurance, unemployment insurance, health care insurance and other regulated contributions, allowances for persons holding concurrent positions; office rental (if any); etc.) and the predetermined rate of spending on and the ratio of allocations for the management of the Fund at the discretion of the competent individuals of the enterprise.

12. Financial management for the Fund (Article 12)

This article defines the principles of spending, invoice and papers on allocations from the Fund.

13. Management of assets that originate from the Fund (Article 13)

This article regulates the management, repair, upgrade or transfer of assets and the assets that result from the achievement of science and technology missions; transfer of sources of the Fund upon the transfer of relevant assets; liquidation of assets. Certain details are:

- If fixed assets, in which the Fund has been invested, have yet to depreciate fully but are assigned to the enterprises’ business operations, the remaining value of the fixed assets shall be recorded as other incomes and be depreciated as tax deductible expense.

- If fixed assets, whose creation is a result of the enterprises science and technology development missions, are assigned to the enterprises business operations, the value of the fixed assets shall be recorded as other incomes and be depreciated as tax deductible expense.

- When the fixed assets defined in Section 1, Section 2 and Section 3 of Article 8 are financed by another source as stated in Section 2, Article 4 of TTLT 12, the enterprises shall determine the remaining value of such assets to adjust the sources of the science and technology fund.

- The liquidation of assets that avail the science and technology activities of the enterprises shall be subject to current regulations.

Circular No. 15 only stated that enterprises record the relevant decrease in the Fund and do not depreciate but monitor the deterioration of fixed assets.

14. Settlement of the Fund being unused, underused or misused (Article 14)

14.1.Added is the definition of the amounts allocated from the Fund:

The allocated amounts of the Fund shall include all the sums finalized in accounting records, the sums advanced, recorded in writing but unsuited for finalization for the implementation of activities of the Fund as defined in Article 7, Article 8, Article 9, Article 10 and Article 11  of TTLT 12, and the sums apportioned from the Fund as stated in Section 2, Article 4 of TTLT 12.

14.2.Utilization of the Fund:

-Regarding the enterprises that have used none or less than 70% of the Fund that has been financed (and the additional regulation on the making of donation(s) to the national science and technology development fund or the science and technology development funds of the governing ministries and provinces and cities where the enterprises register to pay taxes):

If total allocations and contributions of the national science and technology development fund or the science and technology development fund(s) of the governing ministry or province where the enterprises register to pay taxes do not occupy 70% of the funds contributed and additionally financed by transfers (if any) after 05 years upon the establishment of such fund, the enterprises shall incur a corporate income tax, which is levied on the remaining amount in the Fund, and an interest such corporate income tax.

The rate of the corporate income tax redeemed shall be the tax rate imposed on the enterprise during the establishment of the Fund.

The rate of interest on the redeemed tax, which is levied on the unused amount of the Fund, shall be the rate of interest on the 1-year treasury bond (or the 1-year treasury bill) in effect upon the redemption. Moreover, such interest shall be imposed in two years. 

- Regarding enterprises that misuses the Fund:

If the enterprise misuses the Fund during the establishment of the latter, the enterprise shall incur a corporate income tax levied on the part of incomes it has contributed to the Fund and has misused. Also incurred is an interest on such corporate income tax.

The rate of the corporate income tax redeemed shall be the tax rate imposed on the enterprise during the establishment of the Fund.

The rate of interest on the redeemed tax that is levied on the misused amounts of the Fund shall be the rate of fine on tax deferral as per the Law on tax administration and guiding documents. The interest shall be imposed upon the occurrence of the violation until the payment of the financial obligation to the state budget.

Circular No. 15 defined that: If the Fund is not used, used by less than 70% or misused, in 5 years starting from the year succeeding the year of its establishment, the enterprise shall pay the corporate income tax levied on the income(s) contributed to the Fund, which has (have) been unused, used by less than 70% or misused, and the interest on such corporate income tax into the state budget.

14.3.Handling of the Fund by business type:

The amount in the Fund, none or less than 70% of which the enterprise has used in 05 years upon the establishment of the fund, or the misused amount(s) thereof shall be settled in line with the business type of the enterprise in the following manner:

a) For state-owned enterprises

- A state-owned enterprise’s use of the Fund is subject to Point a, Section 1, Article 4 of TTLT 12. If none or less than 70% of the Fund contributed and additionally financed by any transfers is used, the enterprise shall dispense the unused or underused part(s) of the Fund to the national science and technology development fund or the science and technology development fund of the governing ministries or provinces where the enterprise registers to pay taxes.

The amount dispensed to the national science and technology development fund or the science and technology development funds of the governing ministries or provinces shall be at least 20% of the Fund, none or less than 70% of which has been used, of the Fund contributed and additionally financed by any transfers.

- If total allocations and contributions of the national science and technology development fund or the science and technology development fund(s) of the governing ministry or province where the enterprises register to pay taxes do not reach 70% of the fund contributed and additionally financed by transfers (if any), the enterprises shall incur a corporate income tax, which is levied on the remaining amount in the Fund, and an interest on such corporate income tax.

The remaining amount in the Fund, after the regulated obligations are paid, shall be at the enterprise s disposal as per regulations.

- If the state-owned enterprise misuses the Fund, it shall incur a corporate income tax levied on the part of incomes it has contributed to the Fund and has misused. Also incurred is the interest on such corporate income tax.

b) For other enterprises

- Other (non-state owned) enterprises can contribute to the science and technology development funds of the provinces and cities where they register to pay taxes.

- If an enterprise does not or does contribute to the provincial science and technology development funds but none or less than 70% of the funds are used (including any contributions to such funds) or the funds are misused, the enterprise shall incur a corporate income tax on the amount of incomes, which the enterprise has contributed to the funds but has not used, has underused by less than 70% or misused, and an interest on such corporate income tax.

Added are the examples for each situation.

14.4 Added is the regulation on the handling of the Fund of a transferee enterprise that is receiving corporate income tax incentive

If a transferee enterprise uses none or less than 70% of its Fund (including transfers) or misuses such fund, the transferee enterprise shall incur a corporate income tax plus interest as regulated to the state budget.If the transferee enterprise benefits from corporation income tax incentive(s) upon its contribution to its Fund, the corporate income tax redeemed shall be:

- The corporate income tax shall be determined according to tax incentives granted to the transferred enterprise upon the establishment of its Fund.

- The corporate income tax levied on fund transfers from other enterprises shall be determined according to the rate of corporate income tax imposed on the transferred enterprise upon the receipt of such transfers.

The unused or misused transfers shall be defined according to the proportion of such transfers to the value of the Fund that includes transfers.

Added are specific examples.

15. Added is the regulation on enterprises’ right to request supports from science and technology development funds of the country, ministries and local authorities in Article 15:

- When in need of finances for their science and technology missions, the enterprises that have contributed to the science and technology development funds of the country, ministries or local authorities, as stated in Point a and Point b, Section 7, Article 14 of TTLT 12 are entitled to request supports from such science and technology development funds.

- The science and technology development funds of the country, ministries and local bodies, which have received external contributions, shall provide supports equivalent to such contributions and prioritize extra aids within the capacity of such funds according to the cost estimates of the said science and technology missions. The financial supports and extra aids from the science and technology development funds of the country, ministries and local bodies shall be managed and supervised in accordance with the operational regulations of such funds.

- Added are the procedure and formalities to request financial supports from the science and technology development funds of the country, ministries and local bodies.

16. Reporting to state management authorities

16.1.Establishment of the Fund and Regulation of science, technology, allocation and utilization of the Fund of an enterprise:

When an enterprise establishes the Fund, the enterprise shall send its decision on establishment of the Fund to the Department of Science and Technology in the province or centrally-affiliated city, where the enterprise’s head office is based, in 30 days upon the issuance of such decision.

The enterprise shall also send the corporate regulation on science and technology and the regulation on the allocation and use of the fund to the tax authority administering the area where the enterprise is mainly based upon the enterprise s submission of the report on the initial allocation of the fund.

16.2.Reporting of contribution, transfer and allocation of the Fund

The enterprises shall make annual reports on contributions, transfers and allocations of their Fund according to Form No. 2 enclosed to TTLT 12.

If the Fund of a corporation or parent enterprise incorporates transfers from the funds of its subsidiaries and affiliates or vice versa, the enterprise receiving transfers and allocating the Fund shall report the transfers and allocations of the Fund that incorporates transfers. Such reports must indicate the years when contributions and transfers to the Fund occur.

Reports on the contribution, transfer and use of the Fund shall be delivered to tax agencies, with which the enterprises register to pay corporate income tax, Departments of Science and Technology and Departments of Finance. The reports shall be submitting upon the filing of the finalization return on the enterprise s annual corporate income tax.

17. Effect and implementation (Article 18)

- Joint Circular No. 12 comes into force on September 01, 2016 and applies to the contribution, management and allocation of the enterprises science and technology funds since their corporate income tax period in 2016.

- The enterprises that have established and contributed to the Funds according to previous legislative documents shall manage and allocate such Funds as per TTLT 12 upon the effect of TTLT 12.

Such contents are quoted from the Joint Circular No. 12/2016/TTLT-BKHCN-BTC. General Department of Taxation requests tax departments to propagate and announce the content of TTLT 12 to tax officials and taxpayers under their management for strict compliance. Tax departments shall report difficulties ensuing to the Ministry of Science and Technology (Department of Finance) or Ministry of Finance (General Department of Taxation) accordingly in prompt manner for timely solutions./.

For the Head

The Deputy Head

Cao Anh Tuan