Grant Thornton Vietnam would like to provide some notable points on risks of Corporate Income Tax and Transfer Pricing for Enterprises with fiscal year ending 31 December for your reference.
Risks of Corporate Income Tax (“CIT”)
Recently, many Enterprises have received notifications of outstanding tax liabilities, fines and associated penalties issued by the Division of Tax Debt Management and Enforcement of the local tax authority.
In some cases, tax debts were arisen due to error of the tax authority’s system during the data conversion which resulted in the incorrect records of tax balances.
In some other cases, tax debts could arise if the total provisional CIT payment made during a tax period was less than the annual CIT finalised amount by 20% or more, consequently penalties will be imposed on these differences.
As per Grant Thornton Vietnam’s observation, only a few Enterprises made CIT planning for its whole fiscal year and they did not dedicate sufficient time and attention to prepare the reasonable computation of quarterly CIT payable amount, but only relied on adjustments on CIT finalisation at the year end. As mentioned above, this could lead to risks of underpayment of the CIT liabilities and penalties. In addition, opportunities to secure tax savings or tax incentives were overlooked in some cases due to the lack of CIT planning.
Please contact with Grant Thornton Vietnam’s professional tax advisors if the Enterprises would like to improve their quarterly CIT liabilities calculation and strive to seek solution for time-cost savings and CIT risks control.
Risks of Transfer Pricing
For Enterprises with fiscal year ending on 31 December, the declaration of related party transactions (Form 03-7/TNDN) is required to be submitted together with the CIT finalisation return within 90 days after the end of the fiscal year (i.e. 31 March 2016 for fiscal year ending on 31 December 2015).
Transfer pricing documentation should be in place to substantiate the declared information in columns named "The reassessed amounts based on market price" (Column 4 and Column 8) of Form 03-7/TNDN. As per Grant Thornton Vietnam’s observation, Enterprises often use accounting records to fill in these columns without proper supporting documents, this practice could result in risks of tax adjustments at the later stage.
Currently, there is a tendency that the tax authority will conduct tax inspection on transfer pricing matters for enterprises having related party transactions but did not submit the form 03-7/TNDN or declared with inaccurate information. If this is the case, the tax authority will reassess the transfer prices or deem a profit for tax purpose which can trigger additional tax liabilities and late payment interest (including cases where tax audit/ inspections were completed but the tax audit/ inspection minutes did not conclude on the compliance of transfer pricing regulations for the related party transactions).