The National Assembly of Vietnam on 19 June 2017 approved the Law on Technology Transfer No. 07/2017 / QH14 (“LTT 2017”). The new law (LTT 2017) comes into force on 1 July 2018 and replaces the Law on Technology Transfer No. 80/2006 / QH11 of 29 November 2006. New processes relating to technology transfer have the following tax and transfer pricing effects in Vietnam:
Tax incentives: According to the new law (LTT 2017) tax incentives are introduced for the following items:
- Machines, equipment, spare parts, materials, samples and technologies not yet created in the country and imported for direct use in research and development, decoding, technological innovation and transfer; scientific documents and books for creative start-ups, development of science and technology enterprises;
- Technological incubators, science and technology enterprises incubators, organisations and individuals that invest in and support creative start-ups; intermediaries of the science and technology market which earn income from the provision of technology transfer services;
- Organisations and individuals transferring technology from Vietnam to foreign countries; organisations and individuals engaged in scientific research and technological development, technology transfer and technology decoding at enterprises; and
- Organisations and individuals transferring technologies that are encouraged to be transferred.
Enterprises should pay attention to the above items if a technology transfer is carried out.
Tax audits: The tax authorities in Vietnam generally require that taxpayers offer technology transfer contract registration dossiers for the assessment of claims for the deductibility of technology transfer fees. The 2006 Act did not require the registration of transfer contracts. However, with the new Law on Technology Transfer, the tax authorities will have stronger legal grounds to exclude the costs of the technology transfer from deductible expenses if the technology transfer contract is not registered.
The 2017 law also specifies that the technology transfer price in the following instances must be audited and implemented in accordance with the tax and price law:
- Technological transfer between parties, if one or more parties have received capital from a national institution;
- technology transfer between related parties within a holding company; and
- Technology transfer between related parties according to tax laws.
According to the new regulation, the tax authorities may request the enterprises receiving the technology to provide the audited technology transfer dossiers and the dossiers on the determination of market prices for the transferred technologies in order to determine the expenses deductible for CIT calculation purposes.
On 5 June 2017 the IMF issued a report following the completion of discussions with Vietnam under Article IV of the IMF’s articles of agreement.
The report notes that Vietnam’s economy has been performing well with growth of 6.2% in 2016 and projected growth of 6.3% in 2017, moderating to around 5% in the medium term. The momentum for growth remains strong despite weakness in the oil sector and there has been strong manufacturing activity and foreign direct investment as well as robust domestic demand.
The government is developing a wide reform agenda. Fiscal consolidation is required owing to rising public debt. Bank reforms are progressing but the problem of non-performing loans needs to be resolved. Progress has also been made on the framework for the reform of state owned enterprises although implementation has been slow. The reforms aim to promote sustainable growth led by the private sector.
Downside risks to the economy include high public debt, slow resolution of the problem of non-performing loans, rising protectionism globally and the failure of the Trans Pacific Partnership. However the successful implementation of the reform agenda could increase the potential for economic growth. Implementation of the trade agreement with the European Union and other bilateral agreements could increase the level of exports and foreign direct investment.
In their report the IMF emphasized the importance of measures to enhance revenue such as unifying the VAT rates, increasing the level of excise and environmental protection taxes, and introducing a property tax. The IMF also encouraged Vietnam to reduce tax exemptions and incentives and to strengthen the tax administration.
The IMF directors welcomed the ongoing structural reforms and noted that reform of institutions is necessary to increase potential growth. They emphasized that higher environmental taxes and better pricing of externalities in the energy sector could encourage a more environmentally friendly and resilient economy.
The Ministry of Finance on 22 June 2017 published Circular 41/2017 / TT-BTC (28 April 2017), which provides some guidelines for the application of Decree No 20/2017 and this Circular will take effect on 1 May 2017.
Circular 41/2017 introduced some guidelines, principles, methods and procedures for the determination of transfer pricing, including the adoption of guidance and documentation requirements from the OECD project on base erosion and profit shifting (BEPS). The main points of Circular 41/2017 are summarised below:
Comparability analysis: Circular 41/2017 provides a standard formula to calculate the arm’s length range. Where the taxpayer’s related party price, profit margin or profit allocation falls within the arm’s length range no TP adjustment is required. Nevertheless, if the taxpayer is deemed non-compliant with the requirements of Decree 20/2017, the tax authorities have the right to make a TP adjustment to the median point of the arm’s length range. However the question of whether the taxpayer is ‘non-compliant’ could be highly subjective, resulting in potential disputes.
Languages: Decree 20/2017 prioritizes the use of Vietnamese data for benchmarking purposes. In certain circumstances regional data may be used, but only when local data is not available, or not appropriate. Circular 41/2017 gives more detail on this requirement and requires that when regional data is used, it will be necessary to adjust for local factors and considerations. This is understood to mean that adjustments for location and cost differentials are necessary when relying on the use of any regional data.
TP Methods: Circular 41/2017 provides general guidance on the application of the TP methods endorsed by Decree 20. Clarity on the calculation of financial ratios for each of the TP methods has been provided in this Circular.
TP Compliance: One of the more controversial aspects of Decree 20/2017 is the introduction of four new TP declaration forms as part of the annual corporate income tax compliance process and Circular 41/2017 provides detailed instructions for completing these forms. Circular 41/2017 confirms that the ultimate parent company in Vietnam should prepare a country by country report (CbCR) if the consolidated revenue is VND 18 trillion or more.
TP Documentation: The related documentation must be completed by taxpayers by the statutory deadline (i.e. 90 days after the fiscal year end). While Decree 20/2017 requires the taxpayer to prepare a Master File and maintain a copy of the ultimate parent company’s CbCR, it does not clarify which Master File and CbCR should be maintained when the taxpayer has multiple parent companies (i.e. a joint venture). Circular 41/2017 addresses this issue by requiring taxpayers to maintain the Master File and CbCR for each investor or shareholder that consolidates the financial statements of the taxpayer in Vietnam. Additionally, Circular 41/2017 clarifies that if the taxpayer cannot provide the CbCR for any tax year under review, the taxpayer may provide a CbCR for the preceding tax year.
Safe harbor rule: Circular 41/2017 also provides clarification when applying a “safe harbor rule” for companies that perform multiple functions. Specifically, where a taxpayer has multiple businesses divisions, it will be allowed to segment revenue and expenses for each business division to determine if the company achieved a corresponding profit ratio (for each separate business division). Where the taxpayer cannot reliably segment the financial data by business division, the highest safe harbor ratio (i.e., that is relevant to any one of the taxpayer’s separate business divisions) shall be applied to determine whether the company qualifies for exemption.
On 21 June 2017, the OECD published a new list of countries and jurisdictions participating in the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Based on this list, Vietnam has become the 100th jurisdiction to join the Inclusive Framework (IF) on BEPS.
BEPS refers to tax avoidance strategies that use gaps and mismatches in tax regulations to shift the profits artificially too low or non-tax locations. Within the framework of the IF, over 100 countries and jurisdictions work together to implement the BEPS measures and combat the BEPS.
On 12 June, the National Assembly passed the Law on the support of small and medium-sized enterprises (SMEs). The measure will help to improve the quality of growth and change the nation’s economic growth model.
Under the new law, SMEs include micro-enterprises and small- and medium-sized enterprises whose average number of employees with social insurance is less than 200 in the year. These companies must also meet one of the following two criteria:
- Total investment capital of a maximum of US $ 10 billion (US $ 4.4 million) and a total annual turnover of US $ 100 billion; or
- Companies must be operating in the fields of agriculture, forestry, fisheries, industry, construction, trade and services.
SMEs that meet these requirements can be eligible for various incentives, such as assistance with credit access, support for tax and accounting or support for the acquisition of production areas, among others. In addition, the new measures provide for specific support measures for innovative start-up companies and SMEs involved in industrial interconnection clusters and value chains in the area of production and processing.
The law will take effect on January 1, 2018.
The Vietnam E-Commerce and Information Technology Agency (“VECITA”) published a notice on 20 April 2017 on its web page aiming to promote the authentication of information on counterfeit, prohibited or restricted infringing goods on e-commerce websites.
Within the framework of the notice VECITA requests following procedures:
-Assessment, review and elimination of posting of infringing goods on e-commerce platforms;
-Procedures to prevent the posting and removal of information about infringing goods from e-commerce platforms (like blocking by keywords such as “falsification”, “super fake”, etc.); and
-Implementing procedures to handle requests and reports from brand owners or from regulatory authorities on posts on websites concerning infringing products or other illegal business practices.
The notice also provides that non-compliance with the requests for information from dealers and organizations having e-commerce platforms will result in penalties ranging from VND 40 million to VND 80 million in accordance with Article 83 of Decree 124/2015/ND-CP which regulating penalties for administrative violations in commercial activities, production and trading in counterfeit and banned goods, and protection of consumer rights.
On March 30 2017, the Ministry of Industry and Trade officially decided to levy anti-dumping duties on imported coated steel from mainland China including Hong Kong and the Republic of Korea.
Therefore, Bazhou Sanqiang Metal Products will be taxed 26.36%, BX Steel POSCO Cold Rolled Sheet 38.34 %, Bengang Steel Plates-27.36%, Tianjin Haigang Steel Coil – 26.32%, Hebei Iron & Steel Co Ltd, Tangshan Branch – 38.34%, Wuhan Iron and Steel – 33.49%.
However, Chinese Yeih Phui Technomaterial was taxed at the lowest rate of 3.17%. South Korean POSCO of the RoK will be charged 7.02% anti-dumping tax while other RoK exporters will be taxed 19%.
The decision takes effect after 15 days after the signing and will be in place for five years.