ACCA f6 taxation vietnam 2011 dec answer

b VCM JSC Corporate income tax CIT payable for the year ended 31 December 2010: VP project Other projects Transfer of Other income real property VND million VND million VND million VND m

Answers

Fundamentals Level – Skills Module, Paper F6 (VNM) December 2011 Answers

Marks

1 (a) Fortune-4ever Ltd

(i) Depreciation expense – car

Depreciable Non-depreciable VND million VND million Purchase price before VAT (1,540 million/1·1) 1,400 1 Non-deductible input VAT as paid in cash, being deductible

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Total costs to be capitalised 1,770

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Depreciation expense (1,600 million/5) 320 0·5

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(ii) Depreciation expense – finance leased machine (Article 4.3 Circular 203)

Depreciable Non-depreciable VND million VND million

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Depreciable period (5 years from 1 July 2010 to 30 June 2015) 1 Depreciation expense (450 million/5 years * 6/12) 45 1

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(iii) Distribution expenses

Deductible Subject to Non-deductible

10% cap

Overseas tours for distributors (not related to business) 2,500 1 Promoters hiring (a form of support costs for

Sample products for customers (60% borne by

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(b) VCM JSC

Corporate income tax (CIT) payable for the year ended 31 December 2010:

VP project Other projects Transfer of Other income

real property VND million VND million VND million VND million Taxable income

VP project – [600,000 –

Other projects – [200,000 –

Real property transfers – [500,000 –

Real property transfers are accounted

Taxable income after offset 216,000 0 150,000 0

Losses carried forward 2009 (40,000) (45,000) (10,000) 0 2 Losses transferred (from other projects

Taxable income after losses carried

––– 12 ––– Working 1 (W1) Other income

(deductible) non-deductible

Net unrealised foreign exchange gain from payables –

Net unrealised foreign exchange gain from translation of receivables

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30

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2 Ms Hanh

(a) Family deduction

– Children who satisfy one of the following conditions:

– study in university or high school; and having no income or having an average monthly income of

– A spouse who satisfies one the following conditions:

– out of working age without income or having an average monthly income of less than

– Parents who satisfy one the following conditions:

– out of working age without income or having an average monthly income of less than

– within working age but handicapped and having an average monthly income of less than

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(b) 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 Amount Explanation

VND million

Daughter 19·2 Studying in high school with an income less than VND6 million

Husband 19·2 Out of working age and has no income (value of assets is not income) 1

Ms Hanh’s mother 19·2 Out of working age and has no income (remittance is to her husband’s

Ms Hanh’s father 0·0 Out of working age but has remittance income 0·5

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(c) Personal income tax liabilities for the year 2010

VND

Tuition fee for first child (USD20,000 x 21,000) (c) 420,000,000 1

Private car (120 million * (20% + 30%)) (e) 60,000,000 2 Gym membership (567 million/3 years/3 partners) (f) 63,000,000 1 Tax accountant costs (cannot be allocated to

Loyalty gift – tour costs paid to travel agent (h) 200,000,000 1 Additional costs in US (not borne by firm) (i) – 1

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Total gross taxable income before housing (k) 3,021,000,000

Housing benefits

– 15% of gross income (l) = k * 15% 453,150,000

– Actual housing (31·5 million * 12 months) (m) 378,000,000

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Total employment income (o) = k + n 3,399,000,000

Insurance [(13 million * 4 months + 14·6 million

* 8 months) * (6% + 1·5% + 1%)] (p) (14,348,000) 1·5

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Annual assessable employment income (r) 3,259,852,000

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Monthly tax payable

(Income * 35% – 9·85 million) (t) = pit(s) 85,229,017 1 Annual tax payable (u) = t * 12 1,022,748,200

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(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

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 do so 2 Only if HNSN selects to file tax under the actual method will its tax filing obligations be similar to a company

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

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

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(Note: credit would be given to other appropriate answers)

(b) Foreign contractor tax (FCT) using the deemed method

Items Net contract Corporate Gross contract

amount income amount [Net/ CIT USD tax (CIT) (1 – CIT rate)] (Gross – net)

Machinery and equipment 80,000,000 1% 80,808,081 808,081 1·5 Construction and installation (10 – 8) 2,000,000 2% 2,040,816 40,816 2 Other services (7 + 4 + 1·2 + 0·5) 12,700,000 5% 13,368,421 668,421 2 Total revised contract price/CIT portion 96,217,318 1,517,318

VAT charged by local sub-contractor

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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

USD Corporate income tax (CIT) payable

Value added tax (VAT) payable

Output VAT (7 + 10 + 4 + 1·2 + 0·5) = 22·7 * 10% 2,270,000 1 Input VAT charged by local sub-contractor (non-recoverable) (8 * 10%) (800,000) 0·5

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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 1·5

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4 (a) (i) Types of invoices to be issued

Case 1: Company A must issue a VAT invoice to Company B 1 Case 2: Company A must issue an export invoice to Company C 1 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) 1 Case 4: Company E should issue a special invoice (international air freight receipt) to Company A 1 Case 5: The tickets themselves will be invoices, if they have been registered as such with the authorities 1

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(ii) 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 1

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 1

A printed invoice which is either:

– 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 1 – an invoice printed by order of the tax authorities to distribute or sell to the taxpayer 1

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(b) Situations where settlement is deemed to have been made via a bank

Settlement is deemed as being made via a bank where:

(i) 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; 1 (ii) 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 1 (iii) the buyer authorises a third party to pay the amount due via a bank to the seller, if this is provided for

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(c) Input value added tax (VAT) implications

(i) 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)

(ii) 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

(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 1

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15

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Tutorial note: the company must calculate the output VAT based on market value (this was not asked for in

the exam).

5 Mai Hoang Co

Corporate income tax (CIT) filing obligations

Types of return and dates of submission Tax authority Quarterly Annual One-off

Mai Hoang Co 30 April 2010, 31 March 2011 N/A Hanoi 2·5

30 July 2010,

30 October 2010,

30 January 2011 Dependent manufacturing Same as Same as N/A Hanoi and 1

Mai Hoang Co Mai Hoang Co Vinh Phuc

(part of central

Mai Hoang Co return)

Ho Chi Minh City subsidiary Same as Same as N/A Ho Chi Minh 1

Mai Hoang Co Mai Hoang Co City Dong Nai subsidiary 30 July 2010, 30 June 2011 N/A Dong Nai 2·5

30 December 2010

30 April 2011 Purchase of 49% of N/A N/A 11 December 2010 Quang Ninh 2 Quang Ninh subsidiary

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