CIT POLICY FOR SUPPORTING SERVICES PROVIDED BY PARENT COMPANY TO MEMBER COMPANIES

– Pursuant to Article 4 of Circular 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC stipulating deductible and non-deductible expenses when determining taxable income

“Article 4. Amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC (amended and supplemented in Clause 2, Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC) as follows:

Article 6. Deductible and non-deductible expenses when determining taxable income

1. Except for non-deductible expenses mentioned in Clause 2 of this Article, enterprises may deduct all expenses if they fully satisfy the following conditions:

a) Actual expenses incurred in connection with production and business activities of the enterprise.

b) Expenses with sufficient legal invoices and documents as prescribed by law.

c) Expenses if there is an invoice for purchase of goods and services each time with a value of 20 million VND or more (VAT included) when paying, there must be a non-cash payment voucher.”

– Pursuant to Decree 20/2017/ND-CP dated February 24, 2017 of the Government on tax administration applicable to enterprises having related-party transactions:

+ Clause 3, Article 4 provides for related-party transactions:

“Article 4. Definition

…3. “Related-party transaction” is transactions arising between parties having related-party relationships during their production and business process, including purchase, sale, exchange, hire and rent with(out) rental fee for, transfer, and assignment of machinery, equipment and commodities, and providing services; borrowing, lending, financial service, financial guarantee and other financial instruments; purchase, sale, exchange, hire and rent with(out) rental fee for, transfer and assignment of tangible assets, intangible assets and agreement on joint use of resources such as synergies and cooperations in utilization of human resources; sharing of costs between related parties”

+ Article 5 provides for the related parties:

“Article 5. Related parties

1. Related parties are parties having relationships where:

a) A party participates directly or indirectly in the management, control or equity of the other, or puts investment in the other;

b) Parties participate directly or indirectly in the common management, control, or the capital of or put investment in other parties.

2. Related parties referred to in Clause 1 of this Article shall be subject to the following specific provisions:

a) An enterprise participates directly or indirectly in at least 25% of equity of the other enterprise;

b) Both enterprises own at least 25% of equity in which a third party participates directly or indirectly;

c) An enterprise is the shareholder who has the greatest ownership of equity of the other enterprise, or participates directly or indirectly in at least 10% of total share capital of the other enterprise;…”

Based on the above provisions, in principle as follows:

In case the Parent Company applies the centralized management model of its member units (the Parent Company holds more than 50% of the equity – hereinafter referred to as the Subsidiary), whereby the Parent Company provides support services services for the Subsidiary’s production and business activities of the in accordance with the provisions of law (including centralized procurement, logistics service provision, management support, personnel support, production and business capital support, etc.) in the form of a contract signed by the Parent Company with each Subsidiary, issuing invoices to the Subsidiaries; Parent company records revenue, declares tax according to regulations; Subsidiaries make payments to the Parent Company for expenses incurred under the contract, if it meets the provisions of Article 4 of Circular 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance, the Subsidiaries are included in deductible expenses when determining taxable income.

* In the fiscal year, if the Parent Company and its subsidiaries have transactions mentioned above, they are subject to regulation of the relevant Decree on related-party transactions.