Official Dispatch No. 3790/TCT-DNL dated October 05, 2018 of the General Department of Taxation on responding to recommendations of enterprises related to the implementation of the Decree No. 20/2017/ND-CP

The General Department of Taxation has just received the Official Dispatches of the Government Office (the Official Dispatch No. 9066/VPCP-DMDN dated September 20, 2018, and the Official Dispatch No. 9153/VPCP-DMDN dated September 21, 2018) which were sent to the General Department of Taxation for responding to recommendations of the BOT 36.71 Co., Ltd and Crowe Vietnam Co., Ltd regarding the determination of deducted loan interest costs when determining income subject to enterprise income tax according to the provisions of the Decree No. 20/2017/ND-CP dated February 24, 2017 (hereinafter referred to as the Decree No. 20).

Regarding this issue, the General Department of Taxation gives the following opinions:

- According to the provisions on subjects of application stipulated in Article 2 of the Decree No. 20:

“1. Goods production and trading or service provision organizations (below referred to as taxpayers) that are liable to pay enterprise income tax by the declaration method and have related-party transactions defined in Article 5 of this Decree.”

- Clause 3, Article 8 of the Decree No. 20 provides the provisions on determination of deducted interest costs when determining income subject to enterprise income tax as follows:

“3. The taxpayer’s total loan interest cost arising in a period eligible to be deducted from income subject to enterprise income tax must not exceed 20% of total net profit generated from business activities plus loan interest cost and depreciation cost arising in that period.

This provision does not apply to taxpayers that are subjects of application of the Law on Credit Institutions and Law on Insurance Business.”

The total of the taxpayer’s loan interest cost eligible to be deducted in accordance with Clause 3, Article 8 of the Decree No. 20 shall be calculated on the total interest costs arising in a period, regardless of loan interests arising from related parties or independent parties.

The arising problems related to the provisions on determination of deducted interest costs when determining income subject to enterprise income tax mentioned in the above Official Dispatches (such as the effective date of the Decree No. 20 or where the total net profit from operating activities plus loan interest expenses plus depreciation expenses (EBITDA) is less than or equal to zero (0) etc.) are beyond the settlement authority of the General Department of Taxation. Therefore, the General Department of Taxation acknowledges the units proposals to report to the Ministry of Finance to submit the Prime Minister for consideration and settlement and provide general guidance for the business community to know and implement.

The General Department of Taxation replies to the units./.