ENTERPRISES ARE DEDUCTED 30% OF LOAN INTEREST COST IN THE RELATED-PARTY TRANSACTION
The Decree No. 68/2020/ND-CP about amending, supplementing Clause 3 Article 8 of Decree No. 20/2017/ND-CP about tax administration for enterprises engaged in the related-party transaction has taken effect since June 24th, 2020.
1. Increasing the ceiling of loan interest cost from 20% to 30%
The Decree No. 20/2017/ND-CP prescribed that taxpayer’s total loan interest cost arising within a specified tax period qualified as a deduction from income subject to corporate income tax shall not exceed 20% of total net profit generated from business activities plus loan interest costs and amortization costs arising within that period. The Decree No. 68/2020/ND-CP stipulates that total loan interest cost (excluding deposit interests and lending interests) arising within a specific tax period qualified as a deduction from income subject to corporate income tax shall not exceed 30% of total net profit generated from business activities plus loan interest costs (excluding deposit interests and lending interests) and amortization costs arising within that period. Therefore, the deductible interest expense shall not exceed 30% net profit, increasing 10% compared to the old provision.
The comparison of the deductible total loan interest cost in Decree No. 20/2017/ND-CP and Decree No. 68/2020/ND-CP
| Decree No. 20/2017/ND-CP | Decree No. 68/2020/ND-CP | |
| Subjects of application | Gross loan interest expense | Net loan interest expense = Total interest expense - Interest of bank deposit - loan interest |
| The condition for total loan interest cost is deducted | The enterprise’s taxable incomes ≤ 20% EBITDA | The enterprise’s taxable incomes ≤ 30% EBITDA |
| EBITDA = Total net profit generated from business activities + Net loan interest expense + Amortization + Drepreciation expense | ||
| The provision shall not apply to loans of taxpayers | They are subjects of application of the Law on Credit Institutions and the Law on Insurance Business. | They are credit institutions as defined in the Law on Credit Institutions or insurance firms as defined in Law on Insurance Business, loans on-lent by the Government from ODA loans and concessional loans, loans grated for implementing national target programs (including new-style rural area development program and sustainable poverty reduction program), and loans granted for investment in programs/projects for implementation of State social welfare policies (projects on construction of houses for relocation, housing for workers or students, and other public utility projects). |
2. Effect and retroactivity
According to Decree No. 68/2020/ND-CP, taxpayers provide supplementary corporate income tax dossiers in 2017, 2018 to determine the loan interest cost, the correspondingly payable corporate income tax amount. Taxpayers must submit them to the supervisory tax authority before January 1st, 2021. After completing the additional declaration, if the total amount of CIT payable is reduced, a corresponding amount of late payment interests shall be also reduced.
If the amount of corporate income tax and late payment interest paid to the state budget is larger than the amount of corporate income tax and late payment interest re-determine, the difference shall be offset against corporate income tax in 2020. If corporate income tax in 2020 does not enough to offset against the total of inequality money, its rest will be offset against the corporate income tax in the next years but must not exceed 05 years since 2020. When ending that phase, the authority shall not refund it to the enterprise.
If the tax authority or the competent authority conducted inspection and investigation, giving tax the inspection conclusion, the tax decision according to provisions of the Law on tax administration, taxpayers will request that the supervisory tax authorities re-determine payable tax. Following the request of taxpayers and related dossiers and documents, the tax authority re-determines the payable tax, late payment interest to offset against the difference between them.
The re-determination of payable tax must conduct at the tax authorities. The tax authority does not adjust inspection conclusions and inspection decisions in 2017, 2018. In cases where penalties for administrative tax offenses were handled or are being settled according to the order of making a complaint, penalties for administrative tax offenses shall not be adjusted.
Thus, the provisions on amending, supplementing Clause 3 Article 8 of Decree No. 20/2017/ND-CP are applied since the corporate income tax period in 2019. Those only apply for late payment in the corporate income tax period in 2017 and 2018. Following Decree No. 68/2020/ND-CP, the tax authorities do not refund tax amounts that enterprises paid for them in 2017 and 2018.
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