Regulations on increasing the control of deductible loan interest expenses for Enterprises with associated transactions

On November 5, 2020, the Government issued Decree No. 132/2020/ND-CP stipulating tax administration for enterprises with associated transactions (“Decree No. 132”). Accordingly, Decree No. 132 amends the regulations on the total deductible interest expense when determining the taxable income for enterprises with associated transactions as follows:

Firstly, Decree No. 132 has raised the limit of interest expense control from 20% to 30%.

Accordingly, the total interest expense (after deducting deposit interest and loan interest) incurred during the period is deductible when determining taxable income for CIT does not exceed 30% of the total net profit from business activities in the period plus interest expense (after deducting interest on deposits and loan interest) incurred in the period plus depreciation expense incurred during the period.

In addition, within a period of not more than 5 years, the non-deductible interest expense is carried over to the next tax period when determining the total deductible interest expense in case the total deductible interest expense of the period is determined. subsequent tax calculation is lower than the rate specified above (30%)

Secondly, taxpayers can request tax authorities to re-determine the amount of tax payable.

According to Decree No. 132, if the tax authority or the competent authority has carried out the inspection and has reached a conclusion, the enterprise has the right to request the tax authority to re-determine the payable tax amount. The tax authority shall re-determine the payable tax amount and the corresponding late payment interest to offset the difference in 2020 and the next 5 years if it has not yet been fully settled.

Decree 132/2020/ND-CP takes effect from December 20, 2020 and applies to the corporate income tax period of 2020. At the same time, businesses are allowed to submit additional declarations of finalized corporate income tax for the years 2017 and 2018 to determine the interest expense, the corresponding tax payable before January 1, 2021.