Tài liệu thi môn F6 ACCA Việt Nam cho kỳ thi 2011

Tài liệu thi môn F6 ACCA Việt Nam cho kỳ thi 2011 tài liệu, giáo án, bài giảng , luận văn, luận án, đồ án, bài tập lớn v...

F6 Vietnam Taxation

Questions bank June 2011 Intake

PART 1 CORPORATE INCOME TAX

Q1 Explain the following terms using your own words

• Permanent Establishment (5m)

PE is a production or business establishment through which a foreign company perform all or part of its business activities in Vietnam and having taxable revenue there from (2m)

For example, a PE may be: branch, operational office, construction

site, workshop, plant, mines etc (2m)

In addition, a foreign company may also be

viewed/considered/regarded as having a PE in Vietnam if it has agent

or representative in Vietnam with the authority to conclude or sign

contract on its behalf or regularly deliver goods or render services in Vietnam (1)

• Taxable income (thu nhap chiu thue) and assessable income (thu

nhap tinh thue) (2m)

Taxable income is determined as revenue from production/trading or rendering of services less deductible expenses plus other income

Assessable income equals to taxable income less exempt income less tax loss carried forward

Q2 A tax payer said that “The tax period is always based on calendar

years” Provide a brief explanation if you do not agree with his/her

statement (5m)

The statement of tax payer may be not always correct for the following reasons:

+In the case, the company chooses its tax period to its financial year which is different with calendar year and it was accepted by the tax department (e.g it apply the fiscal year from 1 July to 30 June instead of 1 January to 31 December)

Q3 A foreign company received income from providing construction

supervision services to your company (established in Vietnam) The general director of the foreign company told you that the service fees will not be subject to Vietnam CIT as his company is incorporated outside of Vietnam Explain whether you agree or disagree with his view (4 marks)

The general director’s view is not correct Under/According to/In accordance with/Pursuant to the prevailing CIT regulations, a foreign company having

income from doing business in Vietnam is subject to CIT liability

Notwithstanding the above, if there is a DTA (Double Taxation Agreement) between

Vietnam and foreign country where the foreign company is located, the foreign

company may be not subject to CIT liability should it has no PE in Vietnam

Nevertheless, if there is no DTA, the foreign company shall be subject to CIT

liability

Q4 A joint stock company commenced it business on 1 July 2008 Its fiscal year is

from 1 January to 31 December Details of the company income and expenses are as follows:

Net profit before tax as per their accounts:

• From 1 July 2008 to 31 December 2008: VND245,500,000

• From 1 January 2009 to 31 December 2009: VND786,900,000

The following expenses may not be allowed for deduction:

Non-deductible unrealized foreign exchange

loss from assets balances

7,600,000 32,650,000

In 2009, the company identified a turnover of VND54,600,000 that the accountant did not account for in the tax return of 2008 The relevant expenses in respect of this turnover are VND37,900,000 (assume that these expenses are fully deductible and was

also not accounted last year)

Calculate assessable income for each relevant period

Calculation of CIT of XYZ Co

3 Exceed depreciation expenditure 34,560 35,785

4 Non-deductible unrealized foreign

exchange loss

7,600 54,830 32,650 141,905

E Assessable income (Assuming no

exempt income, no losses carried

forward, and no science and

technology fund allocation)

For the provision of services, taxable point of time shall be upon the completion

of services or issuance of invoice, whichever comes earlier, regardless of the

payment has been made or not

The company delivered goods to its customer in the tax period However, at the end of tax period the company has not yet received the goods acceptance note from its customer as agreed in the sale contract so that it can issue the invoice Explain the tax treatment on this turnover

Although it is not clearly as to the ownership and risk associated with the goods was transferred from the seller to the buyer (given the seller not yet received the goods acceptance note), considering the company had delivered goods to its

customers in the tax period, it is likely that the ownership and risk had been transferred and hence, it is qualified to recognize the revenue in the tax period

In accordance with the CIT regulations, the fact that the invoice is not issued will not impact to the recognition of revenue

Q6 Explain on how turnover is determined where the business establishment is:

• a VAT deduction method tax payer; and

• a VAT direct method tax payer

Q7 For sales of goods on installment basis, explain the treatment on determining the

turnover and income for CIT purposes in respect of:

• The installment amount excluding interest on installment; and

• Interest on installment

Q8 Using your own words, explain the CIT treatment in respect of income received

from overseas investment and the associated tax paid in the foreign country

Q9 Details of income of the Brick Co during tax period 200X as follows:

Turnover from production and trading of goods 500,000,000 Deductible expenses in relation to generating the above

turnover

350,000,000

Unrealized foreign exchange gain (assets balance) 12,700,000

After-tax dividend received from the long-term securities

investment (in a domestic company) (exempt)

46,500,000

Net income received from overseas investment project 300,000,000

Opening balance of the provision for inventory devaluation

There is no movement of this provision account during the

fiscal year

57,000,000

Level of the provision for inventory devaluation as

determined in accordance with the Ministry of Finance

guidance at the year-end

38,500,000

Calculate the assessable income Brick Co’s applicable CIT rate is 25% Show your

workings where necessary and give explanation on each item that is not included on your calculation of taxable income

BrickCo Ltd Calculation of CIT FY200x

Add: other income

Unrealized foreign exchange gain (assets

balance – Note 1)

-

Fee on the right to use the company patent 20,000,000

After-tax dividend received from the long-term

securities investment (in a domestic company) –

Reversion of the provision for reduction on

inventory price (57,000,000-38,500,000)

18,500,000 458,500,00

Assessable income (Assuming no losses

carried forward, and no science and technology

fund allocation)

608,500,000

Note:

1 In accordance with Circular 177, unrealized foreign exchange gain from the revaluation of assets balances denoted in foreign currency is not taxable for CIT purpose

2 In accordance with Circular 130, after tax dividend is exempt for CIT purpose

3 CIT in accordance with Vietnamese regulation = VND375,000,000*25% = VND93,750,000, higher than the tax paid overseas Therefore, tax credit is VND75,000,000 only

Q10 Presented below is the draft profit and loss account of Woods Co Ltd for

financial year ended 31 December 2009 The company principal activity is production and trading of confectionary Woods Ltd is a VAT deduction method tax payer

Note VND million

Less:

Notes:

(1) Excluding VAT and after deduction of the cash discount of VND75,000,000, which is not

supported by proper invoice/voucher There is a sale turnover of VND24,000,000

exclusive of VAT that is recognized this year (the associated expenses is VND20,000,000), but was already included in the taxable income last year

(2) Including an excess of VND70,000,000 of depreciation expense of an machinery over the stipulated level

(3) Including an unrealized foreign exchange gain of VND36,000,000 on the year-end

revaluation of receivables and payables

(4) Including an interest income on deposit of VND15,000,000 that is wrongly accounted to financial expenses

(5) Including:

- The amount advertising/promotion/marketing expenses, totaling VND 37,000,0000 which is the excess over the stipulated 10% limit

- A bad debt written-off of VND10,000,000 not in accordance with the prevailing regulations

- Additional provision of doubtful debt of VND38,000,000 not in accordance with the

prevailing regulations

(6) There is a donation to an event raising fund to protect the environment using the company products The company accounted this as an administration expense item at the production

price of VND20,000,000 If these goods are priced at market price the amount will be VND22,000,000

(7) Including the after-tax income earning from contribution of capital to a domestic joint venture company of VND40,000,000

This also includes a net income from the assignment of the land use rights of

VND200,000,000 Deductible expenses in respect of the assignment of land use right is VND800 million

Wood Co Ltd Calculation of CIT FY2009

Adjustments

Cash discount of VND75,000,000, which is not

supported by proper invoice/voucher (Note 1)

75

Taxable revenue already included in the taxable

income last year (Note 2)

(24)

depreciation expense of an machinery over the

stipulated level.

70

Including an interest income on deposit of

VND15,000,000 that is wrongly accounted to

financial expenses (=15*2=30mil)

30

bad debt written-off of VND10,000,000 not in

accordance with the prevailing regulations

10

Additional provision of doubtful debt of

VND38,000,000 not in accordance with the

prevailing regulations

38

There is a donation to an event raising fund to protect

the environment using the company products

22

Including the after-tax income earning from

contribution of capital to a domestic joint venture

company of VND40,000,000.

Total assessable income excluding transfer of

land use right

922

CIT liability (25% *922) (excluding transfer

of land)

230.5

Total CIT liability 280.5

Notes:

1 Cash discount not properly supported by … is not deductible

2

Required:

Compute Woods Ltd tax payable for 2009 tax year The company applicable tax rate is 25%

Q11 Describe the principles to determine non-deductible expenses for CIT purposes

Q12 Explain when expenses are deductible? Provide some examples together with your answer

PART 2 VALUE ADDED TAX

Q1 Explain the rule of determining of turnover for VAT purposes

Q2 Describe the case when goods are deemed to be exports What is the VAT rate for these cases,

especially when the exported goods are VAT exempted goods

Q3 Explain the VAT treatment on VAT withheld upon payment to the foreign

organizations/individuals who conducts business in Vietnam without establishing a legal presence and is a non-VAS user for FCT purposes

Q4 Explain the tax implication in case of an international transportation service company provides

forwarding services (including transport of goods from the factory to domestic ports and from domestic ports to the foreign countries and vice versa) to an enterprise located in an Export

Processing Zone (EPZ)

Q5 Bamboo Ltd., a VAT deduction method tax payer, sells both exempted and VAT-able goods

Explain the tax treatment on the input VAT incurred on goods/services collectively used for both activities Give examples where necessary

Q6 Explain the difference between “zero-rated” sale and “exempt” sale

Q7 Trees Co is VAT deduction method trading company with total sales of the month from 1 July

2009 to 31 July 2009 amounting to VND530 million The total sale figure includes VAT charged to the purchasers where applicable Included in the sales was VND200 million of export sales The company satisfies all required documents/procedures for the export Proceeds from disposal of a fixed asset is VND11 million, inclusive of VAT, and was not included in the total sale figure The fixed asset was subject to 10% VAT on purchase In the same period the company had the following transactions (inclusive of VAT and purchased from VAT deduction method tax payers unless otherwise mentioned)

VND

Purchase of goods for trading from VAT direct method tax payer 65,000,000

Gift stuff for sales promotion purposes (these are still in stock at the end of

the month, VAT at 10%)

55,000,000

Goods purchased for donation to locality (fully used for donation purposes)

The marketable value at the time of use (excluding VAT) is VND19,000,000

19,800,000

The cost of good sold this month included cost of destroyed materials of VND25,000,000 (before VAT) The relevant input VAT has been declared in last 6 months The Company has been able to

claim from insurance company for VND27,500,000 for such materials Company’s goods are subject

to 10% VAT rate

Required:

a) Calculate the VAT payable to or receivable from the tax authority for July 2009 You are required

to show items for which input VAT cannot be claimed stating clearly the reason Round off your calculation to the nearest VND

b) In case of Trees Co, state the latest date for declaration and payment of VAT to the tax authority in respect of July 2009 VAT liability

Q8 Ampere Ltd is a VAT deduction method registered entity in Vietnam engaged in the

manufacturing of voltage stabilizers with a capacity of over 50 KVA In July 2009 the following transactions were undertaken by the company:

Date of

Invoice

Date of receipt of payment

30 June 2009 Sales of 10 voltage stabilizers to an

overseas company The stabilizers were delivered to and used by the customer’s subsidiary in Vietnam The subsidiary engages in hygiene services

for Industrial Zone

1,000,000 (excluding

any applicable VAT)

12 July

2009

31 July 2009 Sale 9 voltage stabilizers to X Ltd, a

local company The contract clearly states that the customer will pay no

more than VN900,000,000

900,000

25 July

2009

Issued a voltage stabilizer for use in its

factory as fixed asset

50,000 (cost, excluding any

2 July 2009 Import duty and VAT assessment notice from Customs

on imported mechanical parts (5% VAT) use for

production All relevant liabilities were paid

700,000

6 February 2009 Purchase of local mechanical parts (5% VAT), this was

not included in the VAT declaration of February 2009

100,000

27 July 2009 Production line consultancy advisory fees 20,000

1 August 2009 Installation fee billed by a local company 25,000

27 July 2009 Restaurant expenses for 10-year anniversary 15,000

1 June 2009 Purchase of ready-to-use electronic cable using for

production This was not declared in June 2009 pending

a dispute on the quantity of goods This month the dispute

was resolved, the company accepted purchased goods in accordance with the invoice quantity

200,000

Required:

a) Ascertain the amount(s) of VAT payable to or recoverable from the tax authority for the relevant prescribed VAT period You should clearly state the reason for including or excluding any item in your calculations

b) How would your answer differ if the stationery is purchased from a VAT direct method taxpayer? c) With reference to (a) above, state the appropriate deadline(s) for filing the monthly VAT return for the relevant prescribed period involved In case of VAT payable, state the latest date for payment to avoid the imposition of late payment penalties

Q9 a) Briefly explain the following:

1) Statutory requirement for VAT registration;

2) In general, for a VAT deduction method taxpayer, how is the taxable price determined for VAT purposes? Particularly in the following cases:

§ Goods for the purposes of exchange, gift or donation, or paid in lieu of wages;

§ Selling with a price discount to customer

3) Conditions for an input VAT to be deductible

b) Good Computers Ltd (a VAT deduction method registered tax payer) sells computer at a 10% discount off the usual selling price of VND8,000,000 (VAT inclusive) Determine the taxable price for VAT purposes What will be the VAT treatment if the Company has a promotion of “buy one computer get one pair of speakers for free”?

c) A VAT deduction method entity wishes to absorb VAT on a product (subject to 10% VAT rate) it

is currently selling for VND20,000,000 before tax Calculate the amount of VAT the entity is

required to account for and the taxable price

Q10 The following 2 companies are VAT deduction method registered taxpayers engaged in varying

business activities (none of them is exemption activities)

c) The company recently disposed a fixed asset

GOODS MANUFACTURER LTD

a) Rent a condominium in Ho Chi Minh City for the accommodation of its employee seconded from overseas, from a VAT credit method tax payer

b) Obtain financial advice from a consultancy firm (VAT deduction method tax payer) in connection with the application of a new computerized management system

c) Apply for corporate membership with AAA Health Club

d) Purchase a 7-seat car for its General Director for business travel at VND1,900,000,000

Required:

Advise the companies on their input/output VAT implications (where relevant) with respect to each transaction mentioned above, including the possibility of input/output offset

PART 3 FOREIGN CONTRACTOR WITHOLDING TAX

Q1 State who is responsible for registering, declaring and paying of tax under a contract signed

between foreign contractors with Vietnamese parties, where:

(a) Foreign contractors adopting Vietnamese Accounting System; or

(b) Foreign contractors not adopting Vietnamese Accounting System (3marks)

Q2 For foreign contractor and foreign subcontractor who do not adopt Vietnamese Accounting

System, briefly explain how the taxable turnover is determined for Corporate Income Tax and Value Added Tax purposes (5 marks)

Q3 For foreign contractor and foreign subcontractor not adopting VAS, discuss how the value of

machineries supplied by foreign contractor and subcontractor is treated for Corporate Income Tax and Value Added Tax purposes (2 marks)

Q4 (a) Discuss the Corporate Income Tax and Value Added Tax implications of foreign

organizations supplying goods to Vietnamese parties (b) Discuss the Personal Income Tax and Value Added Tax implications of foreign individual supplying goods to Vietnamese parties

Q5 For foreign contractor and foreign subcontractor not adopting VAS, discuss how the taxable

turnover is determined where part of the value of contract signed by a foreign contractor with

Vietnamese parties is subcontracted to:

(a) Foreign subcontractors;

(b) Vietnamese subcontractors;

(c) Will your discussions in (b) be different if the foreign contractor signed a contract with Vietnamese supplier to purchases goods in Vietnam to perform the signed foreign

contractor’s contract

Q6 Discuss how loan interest under a foreign loan contract is taxed under the taxation regime

(regulation/laws) for foreign contractors

Q7 State the different types of activities that are not subject to the foreign contractor tax (FCT)

regime in Vietnam

Q8 Faulty Machines Pte Ltd (“FMP”) is a company incorporated in Singapore FMP enters into a

contract with a Vietnamese company to lease a motorbike assembly line under an operating lease contract The contract is for 2 years, leasing fee is US$100,000/month (net of all Vietnam’s taxes) Under the contract, FMP is responsible for insurance and costs of operating personnel During September 2009, FMP received the first payment of US$100,000 and paid the following expenses:

§ Insurance premium of US$5,000 to a Singaporean insurer, contract and invoice are available;

§ Maintenance costs of US$2,500 to a Vietnamese company FMP did not obtain VAT invoice from this company because the company said that it was going to charge addition 10% for such invoice

Required: Calculate the CIT and VAT FMP has to pay for September 2009 (in USD) Ignore the tax treaties

Q9 Quality Construction Limited (QCL), a Singaporean construction and construction consultancy

company, signed contract with JV Limited, a foreign invested enterprise in Vietnam, to construct a factory and install part of the production line in this factory, that are forming the fixed assets of the

JV

According to the contract, installation part will be subcontracted to a foreign subcontractor, part of the construction will be subcontracted to C Ltd a Vietnamese construction company QCL will provide procurement consultancy, construction materials, supervise the installation, will perform their part of construction works Details of the contract are as follows:

Amount (USD) Construction and installation services:

- Perform by QCL

- Subcontracted to C Ltd

- Subcontracted to a foreign contractor

1,500,000 500,000 200,000 Construction materials (assuming 10% VAT rate):

- Those cannot be produced in Vietnam

- Other materials

500,000 1,000,000

b) Discuss whether or not the value of the materials that is purchased from Vietnamese suppliers will

be included in the taxable turnover for FCT purposes

c) Estimate FCT liability of the foreign contractor/foreign subcontractor under this contract The exchange rate for conversion purposes is USD=VND16,000

Ignore the provisions of the tax treaty signed between Vietnam and Singapore at this stage

d) If the contract signed with the JV Ltd does not separate value of each activity, explain the tax implications of this case

Q10 GB Holdings Plc (GBP), a company incorporated in UK, established a 100% owned

manufacturing subsidiary in Vietnam under the Law on Foreign Investment, GB Vietnam Limited

(GBV) GBP has obtained a credit facility with a bank in UK, and re-lended this amount to GBV under a loan contract signed between GBP and GBV on 1 January 2006

The terms of the loan are as follows:

Loan amount USD5,000,000

Interest Fixed 8% per annum, payable on each 6 months The

first due date is 30 June 2006 Lending term 10 years

Loan repayment Principal is payable at 31 December every year, at the

amount of USD500,000 Guaranty fee 2% of the balance of the loan at the beginning of each

year Payable on each 30 June every year The first due date is 30 June 2006

Loan arrangement fee USD50,000, one-off payment on 30 June 2006

Tax GBP s responsible for any Vietnam withholding tax

arising from the loan contract

The loan was registered with the State Bank of Vietnam GBP also granted to GBV the rights to use the brand name of one of its product The contract signed between GBP and GBV on this was

registered with the Vietnam relevant authorities in Vietnam First royalty payment of USD225,000 was made by GBV on July 2006 The royalty paid to GBP is agreed on a net of withholding tax basis

Ignore the provisions of the tax treaty between Vietnam and UK at this stage For your answers of the below requirement, use exchange rate USD1=VND16,000 GBP does not register to apply VAS

Required:

a) Discuss the FCT treatment in respect of interest, loan arrangement fee and guaranty fee under this foreign loan

b) Calculate FCT liability of the first interest and services fee payment on 30 June 2006

c) Calculate FCT liability of the first royalty payment on 31 July 2006

d) If there is an extension or adjustment of the term of the medium/long-term foreign loan that is

signed prior to 1 January 1999, discuss the tax implications of this extension/adjustment

Q11 Foods Vietnam Limited (FVL), a foreign invested enterprise in Vietnam, signed a contract with

Best Design Limited, a US incorporation on 1 April 2005 According to the signed contract Best Design will provide architecture design for FVL’s office and factory and also provide project

management service during the construction phase The construction project will last 2 years Best Design performed their obligations under the contract both in Vietnam and outside of Vietnam Details of its billing at 30 August 2006 to FVL for the period from 1 April 2005 to 30 August 2006

as follows:

Amount (USD) Geological survey performed in Vietnam 85,000

Designing works performed entirely outside of Vietnam 300,000

Project management services for the period from 1 March 2006 to 30 August

2006

200,000 Recharge of accommodation and traveling expenses of Best Design’s specialists 30,000

The billed value of the geological survey service does not include part of this service that was

subcontracted to a Vietnamese subcontractor as agreed in the contract with FVL The subcontracted value is USD25,000

With respect to the designing works, Best Design paid USD10,000 to a consulting firm in US for designing consulting services

All Vietnam taxes arising from the contract is to be borne by FVL There is no tax treaty between Vietnam and US Best Design does not apply to use VAS

Required:

a) With respect of this signed contract, briefly discuss the FCT treatment on:

• The value subcontracted to the Vietnamese subcontractor

• The accommodation and traveling recharges

• Value of the service performed entirely outside of Vietnam

• Value paid to the US consulting firm

(4 marks)

b) Calculate the FCT liability of the first billing by Best Design

(6 marks)

c) Will the FCT be different if the value of each business activity under the contract cannot be

calculated separately, and Best Design bills FVL on a lump sum amount basis

(4 marks)

PART 4 PERSONAL INCOME TAX

Q1 Discuss how the residency status is determined for Vietnam PIT purposes and how the residency

status affects the tax treatments of individuals

Q2 Give 3 examples of benefits that are provided to employees, which are exempted from PIT

Q3 Briefly describe how to determine the assessable income of individuals arising from employment

and from doing business, assuming that the taxable income has been identified

Q4 Briefly describe how to determine the taxable income of individuals doing business

Q5 Explain the various deductions that an individual may claim Are deduction available to all

income categories and both residents as well as non-residents?

Q6 Explain the tax treatments of income from doing business and employment of nonresidents

State the major differences with the tax treatments of the same income for residents

Q7 Kim Yu Na first arrived in Vietnam on 2 January 2009 and subsequently visited Vietnam many

times, in total she stayed in Vietnam for 105 days for the period from 2 January 2009 to 1 January

2010 Determine Kim’s first tax period and her tax residency status

Q8 Mr George Soros is a masterpiece investor specializing in trading listed stocks and bonds with

investment amount of VND2,000 billion He anticipates that 2009 is a very difficult year for the stock exchange and only expects to make 11% gain on his original investment, which includes 1% of relevant expenses (such as brokerage commission, legal and investment consultancy fees, etc.) The gain shall be made from various transactions during the year with a total turnover of VND3,000 billion Soros is considering what method would result in lower tax liability

Q9 Briefly explain the tax treatment of income from transfer of capital for residents and

nonresidents

Q10 Briefly explain the tax treatment of income from capital investment for residents and

non-residents

Q11 Briefly explain the tax treatment of income from transfer of real estate for individuals Is there

any difference between non-residents and residents for PIT purpose in respect of this income

category?

PART 5 PAST YEAR QUESTIONS

Section A – BOTH questions are compulsory and MUST be attempted

1 (a) Identify THREE types of business establishment or activities carried on in Vietnam which are not liable

to pay corporate income tax (CIT) in Vietnam (3 marks)

(b) Gios Vietnam Limited was established in 2004 and manufactures bicycle frames for export to Italy 90% of

the bicycle frames manufactured are sold to its parent company Gios Italy Spa Limited During the 2006 tax year, Gios Vietnam Limited made an accounting profit (before tax) of 10,000,000 Euro The following

transactions (all in Euro), were recorded in its books of account:

(EUR)

Charitable contributions to the Lance Armstrong Cancer Foundation 100,000

Increase in prepaid insurance recorded on the balance sheet 250,000

Uninvoiced allocation of parent company expenses 1,000,000

Required: Calculate the corporate income tax (CIT) payable by Gios Vietnam Limited on 2006 taxable income You should commence your computation with the accounting profit figure and list all the individual items specifically referred to in the question, indicating with ‘0’ those for which no

adjustment is required (i.e they do not affect the calculation) (15 marks)

(c) CAC Limited, which is registered with the tax authorities for value added tax (VAT), incurred the

following expenditure on fixed assets in the year ended 31 December 2006:

(1) On 1 April 2006, a new machine with a purchase price of 7·7 million VND (including VAT) In addition to the purchase price CAC Limited incurred 800,000 VND transporting the machine to its factory premises and 300,000 VND on installing it The anticipated useful life of the machine is eight (8) years

(2) On 1 June 2006, machine tools with a total cost of 4·5 million VND The anticipated useful life of the machine tools is three (3) years

(3) On 1 August 2006, the right to use a patent in respect of the manufacture of specialist K widgets for a period of five (5) years, for 8 million VND CAC Limited will also be required to pay an annual fee of 1,000 VND for every 50 K widgets produced in each of the five years CAC Limited produced a total of 50,000 K widgets in the year ended 31 December 2006 and expects to produce 150,000 K widgets in the year ending 31 December 2007

All amounts are stated exclusive of VAT except where stated otherwise

Required:

Calculate the expenses deductible by CAC Limited for corporate income tax (CIT) purposes as a result

of the above, in the years ended 31 December 2006 and 2007 respectively, giving brief explanations of your treatment in each case (10 marks)

2 Ms Chau Tran, born in Vietnam, is a citizen of the United States and holds only a US passport Ms Tran is a

consultant for Transition, Inc, located in Los Angeles, California During 2007, Ms Tran travelled to Vietnam

to work for Transition, Inc’s affiliated company, Transition-Vietnam Ltd, a company licensed under the Law

on Foreign Investment in Vietnam The secondment was effective from 15 January 2007–15 April 2007 and this was the first year that Ms Tran was in Vietnam for business purposes

During the three months secondment, Ms Tran’s salary continued to be paid by Transition, Inc While in Vietnam, Ms Tran received a per diem allowance for daily expenses such as meals The per diem allowances were paid by Transition-Vietnam Ltd In addition, Transition-Vietnam Ltd provided Ms Tran with an

apartment during her stay in Vietnam and also paid for the utility expenses for this apartment

After the end of her secondment, Ms Tran spent the month travelling through Vietnam, on holiday After her travels, she returned to the USA

Ms Tran had the following income in 2007:

– Salary – USD60,000 (net of tax while she is outside the USA)

– Interest deposited into a USA bank account – USD1,200, earned evenly over the 12 months

– Dividends from stock investments deposited into a US bank account – USD600 earned evenly over the 12 months

– Bonus – USD10,000 received in November 2007 and deposited into a US bank account

Ms Tran had the following expenses deducted from her salary during 2007:

– Non compulsory contributions to an individual retirement account – USD12,000 for the year,

deducted bi-weekly from her after tax pay

– Voluntary contribution to United Way, a non-profit charitable organisation – USD200 in February

2007

This amount was directly deducted from her payroll

From 15 January 2007 through 15 April 2007, Transition-Vietnam Ltd paid for the following in respect of Ms Chau Tran:

– Rent – USD1,000 per month

– Laundry services – USD45 per month

– Utilities – USD200 per month

– Per diem allowance – USD15 per day

Prior to arriving in Vietnam, Ms Tran incurred the following expenses relating to her secondment; these were all subsequently reimbursed by Transition, Inc on presentation of valid invoices All the reimbursements were deposited into her bank account in the USA

– Round trip airfare – USD1,600

– Visa application fee – USD280

– Excess luggage – USD50

While present in Vietnam, Ms Tran noticed that a lot of people were making a lot of money on the stock market in Vietnam On 20 January 2007 she transferred her life savings of USD250,000 into a Vietnam bank’s custodial account and invested heavily in the stock market She was extremely successful and just before Tet (listening to rumours of an imminent share market crash) she sold out of all her positions and made a

USD125,000 gain She kept the gain in Vietnam (for future trading) but transferred the original USD250,000 (less any taxes, bank charges etc) back to the USA

(ii) Give brief explanations of your treatment of:

– the contributions to United Way;

– the rent paid by Transition-Vietnam Ltd; and

– the Vietnamese share gains (3 marks)

(c) Explain how the calculation of Ms Tran’s tax liability would differ if she had spent a further 90 days

in Vietnam in the second half of year ended 31 December 2006 working on an unrelated project

Note: you are not required to calculate her revised tax liability (3 marks)

Section B – THREE questions ONLY to be attempted

3 (a) An establishment imports four Seat cars in complete units with an import tax calculation price of

USD30,000 each

– The import tax rate is 100%, the special sales tax rate is 80%

– The import tax payable is USD30,000

– The special sales tax payable is USD48,000

Required: Calculate the VAT payable on the importation of each car and the total landed cost per car

in Vietnam (excluding freight insurance etc) in USD (3 marks)

(b) A literary publisher sells books to a book distribution company The VAT inclusive cover price per book is

VND12,600 The distribution charge is VND3,150 per book

Required: Calculate the VAT payable per book at the book distribution stage (7 marks)

(c) A motorbike company sells 200 Honda motorbikes for VND30,000,000 per bike, exclusive of VAT The

price per motorbike includes instalment interest of VND750,000

Required: Calculate the value added tax (VAT) calculation price per bike, clearly stating the basis used

(b) Explain the procedure by which a taxpayer can appeal a decision of the tax authority, stating any time limits that apply (7 marks)

5 (a) In late 2006, foreign contractor MMM signed a contract with a Vietnamese party to construct a hydro

power plant valued at USD140 million (net of taxes) The value of the contract comprises:

§ Value of machinery and equipment supplied to the project: USD100 million

§ Value of technological design and other designs: USD10 million

§ Value of buildings, constructed and installed: USD21 million

§ Value of services of supervising and instructing the installation: USD6 million

§ Value of services of technical training and commissioning: USD3 million

MMM has not adopted the Vietnamese accounting system (VAS)

Required:

Calculate the total amount of corporate income tax (CIT) and value added tax (VAT) payable in USD under the contract between Abbott and Benjamin (10 marks)

6 (a) State two circumstances when companies will be ‘associated’ (affiliated parties) for the purposes

of the transfer pricing regulations (2 marks)

(b) Identify the four acceptable transfer pricing methods and briefly state the circumstances in which each may be utilised (8 marks)

(c) Enterprise AIN (AIN) is a subsidiary company of Company HBH and acts as a forwarding service agent

for HBH Enterprise THT (THT) is an independent enterprise specialising in the provision of forwarding services to numerous independent clients The turnover and costs of AIN and THT are as follows:

(c) Describe the two methods that a business establishment, entitled to different exemptions and tax reductions for different parts of its multiple business operations, can use in declaring its taxable income

1 Mr Phi is the chief accountant at Fantasy Limited, which is a Vietnamese company operating a karaoke

business in Ho Chi Minh City He is required to prepare the personal income tax finalisation for the year ended 31 December 2006, and has asked you for assistance

Mr Phi’s accounting records show that the following monthly payments were made to the company’s

employees during the year:

Name Position Basic salary

Monthly net payments (VND)

Months employed Entertainment

allowance

Uniform allowance

Motorbike allowance

allowance and the motorbike allowance are made as cash payments to the employees Huong, Nga and Nam sometimes have to entertain important people, and they, along with Phi, also need to use their motorbikes to travel to and from work They do not need to provide any supporting documentation to claim the allowances The uniform allowance is required under Fantasy Limited’s company policy, because Huong, Nga, Nam and Dung are required under their Labour Contracts to wear the special ‘Fantasy Karaoke’ cap all the time they are

at work

Richard is from Bhutan, but has been living in Vietnam for many years He was a talented singer, but resigned

in June to take up a job in Thailand, where he opened a Vietnamese karaoke business Richard received a severance payment of VND 30,000,000, which was the amount he was entitled to receive under the Labour Code He also received an additional bonus of VND 50,000,000 in return for his excellent singing and the amount of business he had brought to the company

David is from Austria, and he came to Vietnam to take over from Richard when he left to go to Thailand Despite his excellent reputation, David could not sing well enough, and was very unpopular among the

customers David, therefore, failed his probation and returned to Austria after only one month in Vietnam During the year, Fantasy Limited has made provisional payments to the tax department for its Vietnamese employees totalling VND 125,000,000 and for its foreign employees totalling VND 14,000,000

Required:

(a) Prepare the personal income tax (PIT) finalisation calculation for Fantasy Limited’s five Vietnamese employees for the year ended 31 December 2006

Note: You should ignore social insurance and health insurance (10 marks)

(b) Prepare the personal income tax (PIT) finalisation calculation for Fantasy Limited’s two foreign employees for the year ended 31 December 2006 (5 marks)

(c) State the deadline by which Mr Phi must file Fantasy Limited’s tax finalisation report with the tax authority, and the date by which the company must pay any shortfall of tax to the tax authority (2

marks)

(d) Explain the personal tax implications if Fantasy Limited rented a house for Richard to live in while

he worked in Vietnam (4 marks)

(e) State the tests for tax residency in Vietnam for a foreign individual and explain how residency impacts on the amount of tax payable (4 marks)

2 (a) Loser Hosen Vietnam Limited manufactures socks for export to Germany from its factory in Dong Nai

The company was established on 1 January 2001 The company’s investment licence states that it qualifies for

a 15% corporate income tax rate for its first ten years of operation, a two-year tax holiday and a two-year 50% tax reduction

Due to the hot winter weather in Germany over the last few years, German customers have been reluctant to purchase many of the socks as they are uncomfortable to wear in hot weather Trading has been very difficult for Loser Hosen Vietnam Limited and in some years it has earned profits and in others made losses In 2006,

an engineer at Loser Hosen Vietnam Limited invented a new, lightweight cotton sock

The company’s German customers loved the new product and despite Germany’s very hot winters, sales of the new socks were exceptionally good

The company’s taxable results over the first seven years of operation have been:

(i) Assuming Loser Hosen Vietnam Limited utilises its losses as early as possible, calculate the

company’s taxable profit and corporate income tax payable for each of the years from 2001 to 2007, inclusive (6 marks)

(ii) Explain how Loser Hosen Vietnam Limited could have reduced its overall tax liability for these seven years (2001 to 2007) by allocating the losses differently and calculate the company’s revised taxable profits, together with the possible tax savings (6 marks)

(b) Loser Hosen Vietnam Limited’s financing costs in 2007 of USD 9,800,000 relate to the interest on two

(d) The figure for overheads of USD 22,300,000 includes the following items:

– USD 6,000,000 for advertising and trade promotion;

– USD 200,000 for the company’s business licence fee; and

– USD 5,000 donated to a local children’s charity

Required:

State, giving reasons, whether or not each of the above items is deductible as a reasonable expense of Loser Hosen Vietnam Limited (3 marks)

(e) Now that Loser Hosen Vietnam Limited is profitable and paying taxes regularly, the company understands

that it must make provisional tax payments for 2008 However, the company is worried that Germany may have an extremely cold winter in 2008 which would mean customers will stop purchasing the lightweight cotton socks, as it will be too cold

Required:

(i) Describe the requirements for filing a provisional corporate income tax declaration, including the filing deadline, the basis for calculating the tax liability, and the number of payments the company must make (3 marks)

(ii) Explain the process by which Loser Hosen Vietnam Limited can reduce its provisional tax payments

if it starts losing money during 2008 (4 marks)

3 Hanh is the project director for a new Ice Skating Stadium that will be built in Ho Chi Minh City by her

family company, Hanh Fun Company Limited Her father, the chairman of the company, has instructed her to obtain bids for the construction of the stadium from reputable international companies

After a competitive tender process, Hanh has a shortlist of three foreign contractors who may undertake the project All three of the foreign contractors has satisfied the technical criteria, so the decision must be based solely on the total cost of the project All three bidders have submitted a price of USD 20,000,000, excluding foreign contractor tax (FCT) which is to be paid by Hanh Fun Company Limited The three bids were broken down as follows (all figures in USD):

Japan Co French Co Korean Co

Supply of imported equipments 10,000,000 13,000,000

Construction and building 2,000,000 5,000,000

Local subcontractor costs 1,000,000

Required:

a) Calculate the foreign contractor tax (FCT) that would be payable by Hanh Fun Company Limited in the case of each of the three bids, including the breakdown between corporate income tax (CIT) and value added tax (VAT) for each bidder (14 marks)

(b) Based on your calculations in (a) above advise Hanh which contractor to select as the successful bidder Justify your advice (2 marks)

(c) State, giving reasons, whether or not Hanh should consider advising the successful bidder to register

to apply the Vietnamese Accounting System (VAS) (4 marks)

Note: all calculations may be made in USD

4 Mr Tran, the chief accountant at Image Limited, is a keen sportsman, and plans to take a ski vacation to

New Zealand in July He has asked you to complete the company’s VAT declaration for the month of June

2007, as he will be on holiday when the declaration must be filed

Mr Tran supplies you with a list of transactions for this period and tells you to assume that all of the amounts include VAT (where applicable) and that the company has obtained legitimate VAT invoices for all

expenditure

Expenses (VND)

Income (VND)

Sale of an old computer in the local market 5,000,000

Provisional personal income tax (PIT) 11,000,000

Personal gift by the company’s manager to his

teacher on ‘Teachers Day’

11,000,000

Required:

(a) Describe the difference between ‘zero rated’ supplies and ‘exempt’ supplies (3 marks)

(b) For each of the transactions listed, state the VAT treatment and calculate the VAT content and the amount that can be claimed or declared by Image Limited together with the overall VAT payable by Image Limited for the month of June 2007 (10 marks)

(c) State the date(s) by which the June 2007 declaration must be filed and the VAT due paid to the tax authority (2 marks)

5 (a) Describe the general principles (conditions) which must be satisfied to obtain a depreciation

deduction for the purposes of corporate income tax (CIT) in respect of a tangible fixed asset owned by a company (6 marks)

(b) List the four categories of fixed asset that may not be depreciated (4 marks)