ACCA f6 taxation vietnam 2011 dec answer

Answers Fundamentals Level – Skills Module, Paper F6 (VNM) Taxation (Vietnam) December 2011 Answers and Marking Scheme Marks (a) Fortune-4ever Ltd (i) Depreciation expense – car Purchase price before VAT (1,540 million/1·1) Non-deductible input VAT as paid in cash, being deductible expense for CIT (1,400 * 10% * 50%) Registration fee Total costs to be capitalised Depreciable amount (capped) Depreciation expense (1,600 million/5) (ii) Depreciable VND million 1,400 Non-depreciable VND million 70 300 –––––– 1,770 –––––– 1,600 320 0·5 0·5 ––– ––– Depreciation expense – finance leased machine (Article 4.3 Circular 203) Depreciable Non-depreciable VND million VND million 400 50 ––––– 450 ––––– Cost (outright purchase price) Installation costs Total depreciable costs Depreciable period (5 years from July 2010 to 30 June 2015) Depreciation expense (450 million/5 years * 6/12) 1 1 ––– ––– 45 (iii) Distribution expenses Deductible Invoice discount 1,500 Cash discount Costs of goods for promotion campaign Commission for sales force 2,000 Payment discount Market research costs 300 Overseas tours for distributors (not related to business) Promoters hiring (a form of support costs for advertising and promotion) Booth rental at festivals 600 Display fees 1,200 Support costs to distributors Conference organising Sample products for customers (60% borne by Fortune) –––––– Total 5,600 –––––– 17 Subject to 10% cap Non-deductible 100 400 250 2,500 200 0·5 0·5 1 350 650 240 –––––– 2,090 –––––– 0·5 0·5 0·5 0·5 –––––– 2,600 –––––– ––– 10 ––– Marks (b) VCM JSC Corporate income tax (CIT) payable for the year ended 31 December 2010: Taxable income VP project – [600,000 – 400,000 + 20,000] Other projects – [200,000 – 240,000] Real property transfers – [500,000 – 350,000] Other income (working 1) Offset between activities VP project Other projects VND million VND million Transfer of real property VND million Other income VND million 220,000 (40,000) 0·5 150,000 36,000 (36,000) 36,000 4,000 (4,000) Real property transfers are accounted for separately – no offset Taxable income after offset 216,000 Losses carried forward 2009 (40,000) Losses transferred (from other projects to VP project) (45,000) Taxable income after losses carried forward 131,000 Tax rate Exempt Tax payable Remaining losses carried forward 0 (45,000) 150,000 (10,000) 0 45,000 0 0·5 1 140,000 25% 35,000 0 0 0·5 0·5 ––– 12 ––– Working (W1) Other income Items Waste disposal loss Net unrealised foreign exchange gain from payables – [50,000 – 30,000] Net unrealised foreign exchange gain from translation of receivables [5,000 – 3,000] Gain from securities trading Net interest income – [3,000 – 2,000] Total Taxable/ (deductible) (10,000) Non-taxable/ non-deductible 0·5 20,000 0·5 2,000 25,000 1,000 36,000 0·5 0·5 ––– ––– 30 ––– Ms Hanh (a) Family deduction – Children who satisfy one of the following conditions: – – – – below 18 years old; or above 18 years old but handicapped; or study in university or high school; and having no income or having an average monthly income of less than VND0·5 million per month 1 A spouse who satisfies one the following conditions: – – out of working age without income or having an average monthly income of less than VND0·5 million per month, or within working age but handicapped and having an average monthly income of less than VND0·5 million per month 18 1 Marks – Parents who satisfy one the following conditions: – – (b) out of working age without income or having an average monthly income of less than VND0·5 million per month, or within working age but handicapped and having an average monthly income of less than VND0·5 million per month ––– ––– Ms Hanh’s family deductions (VND1·6 million per month * 12 months = VND19·2 million per qualified person per year plus VND4 million per month * 12 months = VND48 million self relief): Person Self relief Son Daughter Amount VND million 48·0 19·2 19·2 Husband Ms Hanh’s mother Ms Hanh’s father Total (c) 19·2 19·2 0·0 –––––– 124·8 –––––– Explanation Per regulations 18 years old but studying Studying in high school with an income less than VND6 million (0·5 million * 12 months) Out of working age and has no income (value of assets is not income) Out of working age and has no income (remittance is to her husband’s name) Out of working age but has remittance income 0·5 1 1 0·5 ––– ––– Personal income tax liabilities for the year 2010 Items Salary Performance bonus Tuition fee for first child (USD20,000 x 21,000) Tuition fee for second child Private car (120 million * (20% + 30%)) Gym membership (567 million/3 years/3 partners) Tax accountant costs (cannot be allocated to specific person) Loyalty gift – tour costs paid to travel agent Additional costs in US (not borne by firm) (a) (b) (c) (d) (e) (f) Total gross taxable income before housing Housing benefits – 15% of gross income – Actual housing (31·5 million * 12 months) (k) Taxable housing (g) (h) (i) (l) = k * 15% 453,150,000 (m) 378,000,000 –––––––––––– (n) = min(l,m) (o) = k + n Amount VND 1,300,000,000 600,000,000 420,000,000 378,000,000 60,000,000 63,000,000 – 200,000,000 – –––––––––––––– 3,021,000,000 1 378,000,000 –––––––––––––– 3,399,000,000 1·5 1·5 Total employment income Insurance [(13 million * months + 14·6 million * months) * (6% + 1·5% + 1%)] Deduction (from part (b)) (p) (q) Annual assessable employment income (r) Monthly average Monthly tax payable (Income * 35% – 9·85 million) Annual tax payable (s) = r/12 (14,348,000) (124,800,000) –––––––––––––– 3,259,852,000 –––––––––––––– 271,654,333 (t) = pit(s) (u) = t * 12 85,229,017 1,022,748,200 19 0·5 0·5 1 1 ––– 13 ––– 25 ––– Marks HNSN (a) Consequences of having a permanent establishment (P/E) in Vietnam Even if the project constitutes a P/E of HNSN in Vietnam, it does not mean that HNSN will automatically be required to declare and pay corporate income tax (CIT) and value added tax (VAT) as a subsidiary/branch of HNSN in Vietnam The CIT regulations refer to the concept of a P/E and state that a foreign company having a P/E is subject to CIT in Vietnam, but is silent on how the foreign company files for tax in Vietnam 1·5 According to the foreign contractor tax (FCT) regulations, HNSN can select the tax filing method, i.e it is a choice, not a requirement, so HNSN can use the deemed method if it wishes to so Only if HNSN selects to file tax under the actual method will its tax filing obligations be similar to a company incorporated in Vietnam A further potential disadvantage of using the actual method is that if HNSN files tax under this method for the current project, then it would also have to use the actual method for any subsequent projects it undertakes in Vietnam 1·5 According to the double tax treaty (DTA) between Korea and Vietnam, as the project constitutes a P/E of HNSN in Vietnam, it would not be entitled to a CIT exemption for the business profits attributable to the P/E under the DTA ––– ––– (Note: credit would be given to other appropriate answers) (b) Foreign contractor tax (FCT) using the deemed method Items Net contract amount USD Corporate income tax (CIT) tax rate 1% 2% 5% Machinery and equipment 80,000,000 Construction and installation (10 – 8) 2,000,000 Other services (7 + + 1·2 + 0·5) 12,700,000 Total revised contract price/CIT portion VAT charged by local sub-contractor (non-recoverable) (8 * 10%) Total tax costs Gross contract amount [Net/ (1 – CIT rate)] USD 80,808,081 2,040,816 13,368,421 96,217,318 CIT (Gross – net) USD 808,081 40,816 668,421 1,517,318 800,000 2,317,318 1·5 2 1·5 ––– ––– Note: credit is also given to answers with Construction and installation at 5% CIT as highest rate for the combined activities, for which the values of each activity are not separable (c) Foreign contractor tax (FCT) using the hybrid method Items USD Corporate income tax (CIT) payable As in part (b) above Value added tax (VAT) payable Output VAT (7 + 10 + + 1·2 + 0·5) = 22·7 * 10% Input VAT charged by local sub-contractor (non-recoverable) (8 * 10%) VAT payable Tax amount USD 1,517,318 2,270,000 (800,000) –––––––––– 1 0·5 1,470,000 –––––––––– 2,987,318 –––––––––– HNSN is correct in thinking that the hybrid method will result in lower tax costs to them (i.e USD1,517,318 v USD2,317,318 million), because the VAT portion of the FCT will be collected from AHN JSC 20 1·5 ––– ––– 20 ––– Marks (a) (i) Types of invoices to be issued Case 1: Company A must issue a VAT invoice to Company B Case 2: Company A must issue an export invoice to Company C Case 3: Company D should issue a sales invoice to Company A (a foreign exchange trader must use the direct method for foreign exchange trading) Case 4: Company E should issue a special invoice (international air freight receipt) to Company A Case 5: The tickets themselves will be invoices, if they have been registered as such with the authorities (ii) 1 1 ––– ––– Allowable forms of invoices A self-printed invoice, which is printed by the taxpayer from their own computers, cash registers or other machines upon the sale of goods or provision of services An electronic invoice, being a collection of electronic data on the sale transaction which is created, handled, stored and managed under the regulations on Electronic Transactions A printed invoice which is either: – – (b) an invoice printed by order of the taxpayer in accordance with a format (registered by the taxpayer) for the sale of goods or provision of services; or an invoice printed by order of the tax authorities to distribute or sell to the taxpayer 1 ––– ––– Situations where settlement is deemed to have been made via a bank Settlement is deemed as being made via a bank where: (i) (ii) the value of goods and services purchased is offset with the value of goods/services sold to the same party (or ‘bartering’), if this is provided for in the contract; the value of goods and services supplied by the seller is offset with a debt that the seller is owing to the buyer, if this is provided for in the contract; and (iii) the buyer authorises a third party to pay the amount due via a bank to the seller, if this is provided for in the contract (c) ––– ––– Input value added tax (VAT) implications (i) (ii) Input VAT on a fixed asset being a building used as the head office of a life insurance company is not deductible for VAT purposes, but is added to the cost of the building for corporate income tax (CIT) purposes Input VAT on the villa destroyed by fire is not deductible for VAT, and is not added to deductible expenses for CIT purposes as in this case the total cost including the VAT is covered by the insurance company compensation (iii) Input VAT on the villa sold to the CEO at a significant discount is deductible in full as it is treated as a normal sales transaction by the company There are no CIT implications Tutorial note: the company must calculate the output VAT based on market value (this was not asked for in the exam) 21 ––– ––– 15 ––– Marks Mai Hoang Co Corporate income tax (CIT) filing obligations Mai Hoang Co Dependent manufacturing Dependent sales offices (part of central Mai Hoang Co return) Ho Chi Minh City subsidiary Dong Nai subsidiary Purchase of 49% of Quang Ninh subsidiary Types of return Quarterly 30 April 2010, 30 July 2010, 30 October 2010, 30 January 2011 Same as Mai Hoang Co N/A and dates of submission Annual One-off 31 March 2011 N/A Tax authority Same as Mai Hoang Co N/A N/A Hanoi and Vinh Phuc N/A Same as Mai Hoang Co 30 July 2010, 30 October 2010, 30 December 2010 30 April 2011 N/A Same as Mai Hoang Co 30 June 2011 N/A N/A 11 December 2010 N/A N/A Hanoi Ho Chi Minh City Dong Nai Province Quang Ninh 2·5 1 2·5 ––– 10 ––– 22 ...Fundamentals Level – Skills Module, Paper F6 (VNM) Taxation (Vietnam) December 2011 Answers and Marking Scheme Marks (a) Fortune-4ever Ltd (i) Depreciation expense... N/A Same as Mai Hoang Co 30 July 2010, 30 October 2010, 30 December 2010 30 April 2011 N/A Same as Mai Hoang Co 30 June 2011 N/A N/A 11 December 2010 N/A N/A Hanoi Ho Chi Minh City Dong Nai Province... subsequent projects it undertakes in Vietnam 1·5 According to the double tax treaty (DTA) between Korea and Vietnam, as the project constitutes a P/E of HNSN in Vietnam, it would not be entitled