Question:
According to the documents from the Business-Government dialogue conference on July 23, 2019, question 12.1, a company (the head office) can pay expenses on behalf of a dependent branch if it meets the conditions stipulated in Article 6 of Circular No. 78/2014/TT-BTC (amended and supplemented in Article 4 of Circular No. 96/2015/TT-BTC). These expenses can then be deducted as allowable costs. This means that the company’s payment on behalf of the branch is considered a non-cash transaction.
However, in official letter No. 3164/CT-TTHT from the Ho Chi Minh City Tax Department, it is stated that when the company (head office) receives money from customers on behalf of the dependent branch, it is considered a payment to a third party. In this case, the company receiving the payment on behalf of the branch must have specific provisions in a written contract.
Why is there a difference in the treatment of payments between the company and its dependent branch when recording expenses and revenue? Specifically, if the company (head office) wishes to receive money for goods or services on behalf of the branch, this payment is considered a payment to a third party. However, if the company (head office) pays expenses on behalf of the branch, this payment is still considered a non-cash transaction?
Answer:
– Based on Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014, issued by the Ministry of Finance, which provides guidance on corporate income tax (CIT), it states: “Non-cash payments shall be conducted in accordance with the provisions of legal documents on value-added tax.”
– Based on Section 10, Article 1 of Circular No. 26/2015/TT-BTC dated February 27, 2015, issued by the Ministry of Finance, amending and supplementing Article 15 (amended and supplemented in Circular No. 119/2014/TT-BTC dated August 25, 2014, and Circular No. 151/2014/TT-BTC dated October 10, 2014) regarding conditions for input VAT deduction, it states:
“……c) In cases where goods or services are purchased and paid through authorization via a third party and paid through a bank (including cases where the seller requests the buyer to make payment through a bank to a third party designated by the seller), the payment through authorization or payment to a third party must be specifically stipulated in a written contract, and the third party must be a legal entity or organization operating in accordance with the provisions of the law.
If, after performing the payment methods mentioned above, a remaining amount with a value of VND 20 million or more is paid, VAT deduction is only applicable to cases with payment vouchers via a bank…”.
– Based on Point b.3, Clause 3, Article 16 of Circular No. 219/2013/TT-BTC dated December 31, 2013, issued by the Ministry of Finance, which provides guidance on value-added tax (VAT), regarding the conditions for deducting and refunding input VAT on goods and services for export, it states: “In cases where the foreign party authorizes a third party, which can be an organization or an individual in a foreign country, to perform payments, the authorization of payments must be stipulated in the export contract (an annex to the contract or an amendment to the contract, if applicable).”
– Based on the regulations, the documents of the Business Dialogue Conference – City Government on July 23, 2019, and Official Letter No. 3164/CT-TTHT from the Tax Department do not have any differences regarding non-cash payments between the Company (head office) and its dependent branch.
=> Therefore, in principle, when the head office receives payment for services rendered or makes payments for services purchased on behalf of the dependent branch (or vice versa), the Purchase Agreement for Services between the head office or the dependent branch and the customer must clearly specify the authorized payment or payment to a third party. Only then can it meet the conditions for deducting input value-added tax (VAT) and including it as deductible expenses when determining taxable income subject to corporate income tax (CIT) regulations.
