HoREA proposed to soon remove the regulation controlling 30% interest expenses of enterprises with related transactions, the tax industry said it will report to competent authorities for consideration.
This petition has just been sent to the Ministry of Finance by the Ho Chi Minh City Real Estate Association (HoREA).
According to Decree 132/2020, interest expenses for enterprises with related-party transactions must not exceed 30% of total net profit from business activities in the period. In which, related-party transactions are defined as transactions of buying, selling, leasing, lending, transferring assets... with another party having a related-party relationship (ie this enterprise has capital contribution or management personnel at the other enterprise or these two enterprises are jointly managed, or have capital contribution from another enterprise).
"It is not advisable and unnecessary to control the ceiling on interest expenses of enterprises with related-party transactions based on profits, to honestly and promptly reflect the investment, production and business activities of enterprises," HoREA proposed.
For enterprises with related-party transactions that commit transfer pricing and falsify costs to evade taxes, HoREA recommends that state agencies strengthen control and strictly handle them. In the current period, according to the Association, this interest rate ceiling should only be controlled for foreign enterprises with related-party transactions and not yet applying the global minimum tax.
Transaction at a commercial bank. Photo: Giang Huy
Deputy Director of the General Department of Taxation's Inspection and Examination Department To Kim Phuong recently explained that controlling interest expenses is aimed at limiting transfer pricing through interest of enterprises with related-party transactions. This, she said, is also consistent with international practice and the OECD's recommendation that the threshold for deducting interest expenses should be set at 10-30% of total pre-tax profit excluding depreciation and interest.
However, when implementing Decree 132, the tax sector also received opinions from many businesses wanting to remove this regulation. Ms. Phuong said that the tax sector has reviewed the reality in Vietnam, borrowing bank capital to serve the production and business activities of enterprises is a regular and common activity.
"Based on the business's recommendations, the General Department of Taxation will synthesize and report to competent authorities for consideration and amendment," said the Deputy Director of the Inspection and Examination Department.
According to Resolution 105 issued in mid-July, the Government also assigned the Ministry of Finance to preside over and coordinate with ministries and branches to assess the necessity of amending and supplementing Decree 132, in the fourth quarter of 2023.
Quynh Trang
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