Deducting online advertising expenses: a hard nut to crack

While businesses in Vietnam find it convenient and effective to advertise through social networks, it is getting difficult to prove that this kind of marketing is eligible for tax deductions.

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Online advertising expenses are posing a tough nut to crack for businesses in Vietnam as they find circulars guiding tax regulations on it vague to make claims for deductibles.

On the side-lines of the Taxing Times Symposium 2018 held by EY Vietnam on September 12, Pham Thi Hue, chief accountant at water purification equipment provider AO Smith Vietnam Company Ltd., expressed her concerns that as her company regularly advertises products on Facebook, they may not be able to claim this as an advertising expense due to a lack of supporting documents like contracts signed with Facebook or invoices issued from the social networking service company.

“We are paying up to VND1 billion ($44,247) a month to Facebook for advertisements. To be eligible for a tax deduction, we ought to have an invoice or proof of purchase to back up our claim,” she stressed. “However, Facebook does not issue an invoice or sign a contract for the advertising services that we use.”

Hue further explained that Facebook requests customers to pay for the purchases via credit card and the credit card of a company is often authorised to an employee. As a results, tax authorities may view this as personal expense as the bank statement of the credit card is issued under the name of the employee.

“When a tax audit arises, we are all worried that this cost would not be considered as a corporate expense and thus it would not be eligible for tax deduction when we finalise our corporate income tax (CIT) at the end of the financial year.”

“Circulars to guide taxpayers are not completely clear and businesses like us are having trouble with following the tax authority’s instructions to fulfil our tax obligations,” noted Hue. “We are afraid that we may interpret the tax regulations or guiding circulars incorrectly.”

According to Hue, AO Smith Vietnam Company Ltd. has sent enquiries to the Hanoi Tax Department for further guidance on the issue but has yet to receive a response. “The Hanoi Tax Department has forwarded our questions to the General Tax Department and it has been two months that we have not heard anything from them.”

Not only AO Smith Vietnam Company Ltd., many others are also making use of Facebook as an effective channel of advertising for their business, and they are more or less facing the same issue: their advertising costs are on the rise, but they may not be entitled for tax deductions.

CIT and value-added tax (VAT) are the tax areas many companies operating in Vietnam are paying particular attention to on the back of the digitalisation age. E-invoice, for now, has emerged as a new form of proof of purchase and thus requires tax authorities to respond in due course to come up with appropriate guidance on its treatment.

With this, for businesses like AO Smith Vietnam, a bank statement showing the advertisement payment can serve as a proof of purchase or for e-commerce businesses, an e-invoice can be sufficient in itself.

“We are hoping that with the move towards e-invoices, the [VAT] refund procedure will be simplified and the transparency can be improved,” said Robert King, EY partner and tax leader for Vietnam, Laos, and Cambodia.