Confusion over regulation results in reimbursements

Enterprises that will benefit from the move are those which conducted investment within the aforementioned period, but did not see an increase in production scale, capacity or technology improvement against the registered figures.

These enterprises, if involved in a tax arrears decision or in the midst of settling a complaint, will be allowed to offset the tax arrears amount to the income of the next financial year, or will qualify for reimbursement.

The direction was included in the newly-released Dispatch 4769/BTC-TCT by the General Department of Taxation (GDT) in response to the European Chamber of Commerce’s (EuroCham) request, after seeking the advice of related authorities.

There are several cases of EuroCham member companies which had newly purchased or replaced fixed assets during the 2009-2013 period.

These purchases, as such, were deemed to be “business expansions” by the tax authority, which had abolished the investment incentives from 2009 onward. The EuroCham companies were then asked by the GDT to pay tax arrears on their declared income from “business expansion” activities which qualified for the incentives.

EuroCham filed documents to the tax authorities, claiming that the purchases should not be considered as business expansion activities, since they did not result in any increase in investment capital or production capacity.

EuroCham’s request was then endorsed by the Ministry of Planning and Investment (MPI), after the tax authority consulted the ministry on the issue.

“According to prevailing regulations, business expansions are defined as investment resulting in an increase in scale, capacity, and technology innovation,” the MPI stated.

As such, purchases of fixed assets to replace old ones, which do not result in an increase, are not business expansions. Instead, the MPI referred to such activities as “frequent investments”.

The MPI recommended that the tax authority reimburse tax arrears in cases where enterprises were confused by the unclear definition of business expansions, and proposed that the Ministry of Finance  amend Circular 151/2014/TT-BTC on taxation to include the definition of “frequent investment”.