Official Dispatch 3870/TCT-DNNCN 2022 regarding tax declaration and payment on behalf of business households, individuals for promotional bonuses and commercial discounts

To: 4 Oranges Co., LTD.

The General Department of Taxation receives Official Dispatch No. 13/2021/CV-KETO dated December 30, 2021 from Oranges Co., LTD, regarding tax declaration and payment on behalf of business households and individuals paying taxes by the tax presumption method, and has the following comments:

1. Regarding promotional gifts

- Article 92 of the Commercial Law No. 36/2005/QH11 prescribes forms of sale promotion as follows:

“Article 92. Forms of sale promotion

1. Giving samples of goods or providing samples of services to customers for trial use free of charge.

2. Presenting goods as gifts or providing free-of-charge services to customers.

3. Selling goods or providing services at prices lower than goods sale prices or service provision charge rates previously applied during the period of sale promotion already registered or announced.  In case of goods or services subject to the State management over their prices, the sale promotion in this form shall comply with regulations of the Government.

4. Selling goods or providing services together with coupons that allow customers to enjoy one or several benefits.

5. Selling goods or providing services together with prize-contest entrance tickets to customers, for purpose of selecting prize winners according to the rules and prizes already announced.

6. Selling goods or providing services together with opportunities for customers to participate in games of chance, the participation in which comes after the purchase of goods or services and the winning of prizes depends on the luck of participants according to the rules and prizes already announced.

7. Organizing programs for frequent customers whereby gifts are presented to customers on the basis of the quantities or values of goods purchased or services used by such customers and expressed in forms of customers' cards, coupons acknowledging the purchase of goods or services, or other forms.

8. Organizing cultural, artistic or entertainment programs or other events for customers for the purpose of sale promotion.

9. Other forms of sale promotion if approved by the State management agency in charge of commerce.”

- Clause 10 Article 3 of the Law on Personal Income Tax issued on November 21, 2007, by the National Assembly, regulates that:

“10. Incomes from gifts that are securities, capital holdings in economic organizations or business establishments, real estate and other assets subject to ownership or use registration.”

Pursuant to the above provisions, if the Company gives a gift of property that must be registered for ownership or use rights to a customer without the purchase or sale of goods, the gift that the customer receives is subject to personal income tax from the gift.  In case the Company provides support in cash or kind to households that achieve sales targets, it shall comply with Point d Clause 5 Article 7 of Decree No. 126/2020/ND-CP dated October 19, 2020, of the Government, detailing a number of articles of the Law on Tax Administration.

2. Regarding promotional bonuses and commercial discounts

On February 9, 2022, the General Department of Taxation issues Official Dispatch No. 346/TCT-DNNCN guiding the tax declaration and payment on behalf of contracted households for promotional bonuses and commercial discounts (Official Dispatch No. 346/TCT-DNNCN attached).

3. Regarding to tax amount the Company pays on behalf of customers receiving promotional gifts and commercial discounts

- Clause 2 Article 12 of the Law on Value-added Tax issued on June 3, 2008, by the National Assembly, regulates that:

“2. Conditions on a business establishment to be entitled to input value-added tax credit are specified as follows:

a) Having an added-value invoice on goods or service purchase or a document proving the payment of value-added tax at the stage of importation;

b) Having a via-bank payment document of purchased goods or services, except goods or services valued at under twenty million Vietnam dong upon each time of purchase;

c) For exported goods and services, apart from the conditions specified at Points a and b of this Clause, the business establishment must also have a contract signed with a foreign party on goods sale or processing or service provision, a goods or service sale invoice, a via-bank payment document and a customs declaration.

Payment for exported goods or services by clearing between exported goods or services and imported goods or services or paying debts on behalf of the State is regarded as via-bank payment.”

- According to Clause 5 Article 1 of the Law Amending and Supplementing A Number of Articles of the Law on Enterprise Income Tax dated June 19, 2013, of the National Assembly:

“Article 9. Deductible and non-deductible expenses when determining taxable incomes

1. Except the expenses specified in Clause 2 of this Article, when determining taxable incomes an enterprise may deduct all expenses that fully meet the following conditions:

a) Actual expenses are related to the enterprise’s production and business activities; expenses are paid for the performance of the enterprise’s defense and security tasks in accordance with law;

b) Expenses have sufficient invoices and documents as prescribed by law. Goods and service purchase invoices with a value of twenty million Vietnam dong or more each must have non-cash payment documents, except the cases in which these documents are not required by law.”

Pursuant to the aforesaid provisions, if 4 Oranges Co., LTD makes payment for promotional gifts and commercial discounts, etc. for individuals and pay taxes on behalf of them, it shall not be entitled to input value-added tax credit, and such amount shall not be included in deductible expenses when determining income subject to enterprise income tax, for the tax amount it pays on behalf of individuals.

The General Department of Taxation hereby informs 4 Oranges Co., LTD for implementation./.

PP. The Director General

For the Director of the Department for Tax Administration at Small- and Medium-Sized Enterprises and for Business Households and Individuals

The Deputy Director

TA THI PHUONG LAN