Enterprises still in a tax pickle

“The Ministry of Finance (MoF) is working on a draft circular amending Circular 130/2008/TT-BTC guiding some articles of Corporate Income Tax (CIT) Law. However, it is difficult for the MoF to amend the regulations for carrying forward losses because it is related to state budget collection,” a senior MoF Tax Policy Department official told VIR.

Under Circular 130/ 2008/TT-BTC, losses must be carried forward in a “consecutive” manner. Accordingly, after making tax finalisation, loss-suffering enterprises may carry forward losses of the year of tax finalisation to subsequent years’ taxable incomes. The maximum duration for loss carryforward is five consecutive years, counting from the year following the year the losses arise.

“The ruling is silent if a taxpayer is exempted from CIT under the tax incentives regime. In the absence of specific guidance, it is understood that a loss must be offset by profits in any profitable year, including a tax exemption year,” said Phan Vu Hoang, tax director of Ernst & Young.

Hoang said this would cause significant impacts on taxpayers’ business plans and impair the value of tax incentives the government provided in previous regulations and severally restrict the utilisation of tax losses.

“We recommend the requirement for consecutiveness losses as mentioned in the MoF’s Official Letter 7250/BTC-TCT [dated June 7, 2010] should be removed and loss utilisation should be at the discretion of the taxpayer, provided that the loss can only be used within five years,” he added.

Nguyen Thi Cuc, chairwoman of the Vietnam Taxation Consulting Association, agreed that the MoF should allow enterprises to carry forward losses on a “non-consecutive” basis, which means enterprises can choose any year they want to carry forward losses, within five years.

General Department of Taxation (GDT) Tax Policy Department director Cao Anh Tuan said Official Letter 7250 provided specific guidance on “consecutive” for enterprises to carry forward losses.

Official Letter 7250 provides guidance on carrying forward tax losses incurred by enterprises prior to 2009, but still within the five-year cap.

Accordingly, if an enterprise maintained separate records for tax losses incurred by different business activities, it can carry the separate tax loss of each business activity to the taxable profits of the respective activity. However, if the enterprise cannot maintain the separate tax loss of each business activity, it can either separately re-calculate the tax loss incurred during different activities or allocate the tax loss to each business activity with reference to the revenue ratios.

Vu Thi Mai, vice head of General Department of Taxation, said the MoF would gather opinions from enterprises and tax experts, and provide guidance to allow enterprises to meet tax obligations.

Speaking at a recent tax conference with the Ministry of Planning and Investment, Hoang of Ernst & Young highlighted some bones of contention. Firstly, under Circular 130, employee bonuses which are not in the nature of salary or wages and bonuses with conditions for payment of which are not recorded on labour contracts or in collective labour agreement are not deductible.

According to the draft circular amending Circular 130, the phrase “employee bonuses which are not in the nature of salary or wages” is abolished, only “bonuses with conditions for payment of which are not recorded on labour contract or in collective labour agreement” shall not be deductible.

The “realised salary fund” used for making salary payment provisions is defined as total salary expenses actually paid in the related fiscal year until the last date of submission of the year-end tax finalisation.

Secondly, the current treatments of some items such as interest, foreign exchange gains or losses are not consistent. For example, under Official Letter 7250, interest expenses and income can be offset. If the remainder is a gain, it will be treated as other income, for which no incentive is allowed. If there is a loss, it will be treated as operating expenses which will be deducted to taxable profit which would be subject to incentives if any.

Therefore, interest income and interest expenses, foreign exchange gains and losses should be treated consistently because they are incurred in relation to a business’ operations.

Thirdly, there should be clear guidance on how accrued expenses could be deductible, Hoang said.

According to current regulations, when a company issues Value Added Tax (VAT) invoices, normally the company is required to recognise taxable revenue for VAT and CIT purposes, while accounting revenue is not recognised. It is unclear under current regulations whether taxpayer can accrue expenses as deductible expenses in the year of recognising taxable revenue or not.

“In fact, as the expenses are not supported by a proper voucher, it is likely that the expenses will be non-deductible,” Hoang said.

Tuan of GDT said: “Bonuses with conditions for payment need regulating in labour contracts to guarantee clarity between workers and enterprises.”