Official Dispatch 47476/CT-HTr Hanoi 2015 expenses allocated to permanent establishments in Vietnam

In response to Official Dispatch No. ACC-20150626.01 dated June 26, 2015, of Sumitomo Mitsui Banking Corporation - Hanoi Branch (hereinafter referred to as the Bank), on business management expenses allocated by the parent bank to its branch in Vietnam, Hanoi Tax Department has the following opinions:

- Pursuant to Clause 9, Article 4 of the National Assembly’s Law on Credit Institutions 47/2010/QH12 dated June 16, 2010:

“Foreign bank branch means a foreign bank’s subsidiary without legal entity status and the foreign bank is liable for all of the branch’s obligations and commitments in Vietnam”.

- Pursuant to the Ministry of Finance’s Circular No. 134/2007/TT-BTC dated November 23, 2007, Circular No. 130/2008/TT-BTC dated December 26, 2008, Circular No. 123/2012/TT-BTC dated July 27, 2012, providing guidance on enterprise income tax.

- Pursuant to Clause 2, Article 6 of the Ministry of Finance’s Circular No. 78/2014/TT-BTC dated June 18, 2014, guiding the implementation of the Government’s Decree No. 218/2013/ND-CP of December 26, 2013, detailing and guiding the implementation of the Law on Enterprise Income Tax, non-deductible expenses for determining taxable income include:

“2.28. Business management expenses allocated by overseas companies to their permanent establishments in Vietnam in excess of the expense level calculated by the following formula:

Business management expenses of the overseas company allocated to its permanent establishment in Vietnam shall be taken into account only from the time of setting up the permanent establishment in Vietnam.

The basis for determining expenses and turnover of the overseas company is the financial statement of the company audited by an independent auditing firm which specifies the overseas company’s turnover and management expenses and the management expenses allocated by the overseas company to its permanent establishment in Vietnam.

If the permanent establishment of an overseas company in Vietnam has neither implemented regulations on accounting, invoices and documents nor paid tax by the method of declaration, it may not include in reasonable expenses its business management expense allocated by the overseas company.”

Based on the above-mentioned provisions, if the Bank is the permanent establishment in Vietnam of Sumitomo Mitsui Banking Corporation Japan (SMBC Japan), the business management expenses allocated by SMBC Japan to the Bank shall be included in deductible expenses for determining enterprise income which must not excess of the expense level calculated by the above formula.

Where international practice or Japanese domestic law does not require SMBC Japan to show the share of business management expenses allocated to permanent establishments worldwide, the Bank may attach SMBC Japan's financial statements audited by an independent auditing firm, a Letter of confirmation from an independent auditing firm about SMBC Japan's business management expenses allocated to the Bank. In case SMBC Japan allocates actual business management expenses to all permanent establishments according to the ratio of the gross profit of each permanent establishment to the general profit of the whole group, if the actual expenses allocated by this method are smaller than the expenses allocated according to the above formula, the Bank may include all actual expenses in the deductible expense when determining enterprise income tax. In case the actual allocated expenses are larger than the actual expenses allocated according to the above formula, the Bank is not allowed to include the larger difference in the deductible expenses when determining enterprise income tax.

Hanoi Tax Department hereby informs the Bank for implementation./.