In an effort to prevent involved parties from evading tax by inaccurately declaring profits from M A deals MOF plans to tax one percent on the transfer price to be applied to businesses and one percent on income to be applied to individuals
The current CIT Law stipulates that the government determines tax rates on capital transfer deals made by foreign institutions that have no presence in Vietnam.
However, in Decree 12/2015, the government has not set a specific percentage tax rate. Therefore, MOT has set a temporary tax rate of 20% on income.
A problem has arisen that the majority of foreign institutions declared transfer prices equal to cost prices so as to avoid tax. In principle, if they don’t make a profit, they don’t have to pay CIT.
Meanwhile, Vietnam still finds it difficult to check transfer prices. This explains why in recent M&A deals, Vietnam’s taxation agencies could only collect tax on the difference of exchange rates between the time of transfer and time of capital contribution.
To make it easier to control tax collection and avoid loss of revenue for the state budget, MOF believes that it would be better to impose the same tax rate of one percent on revenue. The tax rate would be applied to both foreign institutions with or without resident offices in Vietnam.
The tax duties for transfer deals in the oil & gas sector will be shown in another specific document to be released by MOF.
Many large M&A deals have been made recently, including the transfer of Metro Cash & Carry distribution chain in Vietnam to TCC Group and the takeover of Big C by Central Group. Most recently, Siam City Cement acquired a stake in LafargeHolcim, a cement manufacturer.
Sources said that taxation bodies finally were able to collect trillions of dong in tax from investors in the deals, but they could only do this after many arguments and discussions with involved parties.
The big difficulty was that the legal entities which conducted the transfer deals were outside the Vietnamese territory.
An official of the HCMC Taxation Agency admitted that most foreign institutions declared wrong prices, but the taxation agency still had to accept the deals because it could not prove if the declaration was wrong.
MOF is also facing the same problem with transfer deals made by inpiduals. Under current law, the taxable income in capital transfer deals equals the selling price minus (buying price + related costs). However, taxation agencies find it difficult to discover the transfer price and related costs.