VNED HAD THE FOLLOWING TRANSACTIONS RELATING TO THE CONTRACT

2012, VNED had the following transactions relating to the contract:– VNED collected fees totalling VND42,000 million from Vietnamese senders for delivery to overseasrecipients. According to the contract, VNED was entitled to commission of 5% of the fees collected. VNEDconverted the fees to USD and remitted them (net of commission and other deduction, if any) to DUP.– VNED received a statement from DUP, informing VNED that the fees collected by DUP for delivery servicesfrom overseas senders to Vietnamese recipients was USD150,000. According to their contract, VNED is alsoentitled to commission of 5% of the fees that DUP collected from overseas senders.Required:Assuming DUP wishes to adopt the deemed method for paying foreign contractor tax (FCT) in Vietnam:(i) Briefly explain to DUP and VNED the FCT treatment (taxability, tax rates, taxable revenue) of the feesthat VNED collected from domestic senders, and the fees that DUP collected from overseas senders;(5 marks)(ii) Calculate the FCT liability (in VND million) that VNED will be required to withhold and declare on behalfof DUP for the above transactions in Vietnam, assuming that under the contract all FCT will be borneby VNED; (3 marks)(iii) Calculate the FCT liability (in VND million) that VNED will be required to withhold and declare on behalfby DUP. (3 marks)(b) VIGLACONST JSC (VIGLACONST), a construction company in Vietnam, is developing a residential complex inDang Xa, Gia Lam, Hanoi. VIGLACONST signed a contract to purchase specialised construction equipment fromGinie Ltd, a company established in Singapore.The contract price is USD1 million and the terms of delivery is DDU (Delivered Duty Unpaid, Incoterms) DangXa. That means the price will cover all costs (equipment, insurance, transportation etc) to the delivery point atVIGLACONST’s site premises in Dang Xa, Gia Lam, Hanoi. Risks will be transferred to VIGLACONST at thedestination, before the equipment is unloaded from the carrier’s truck. VIGLACONST will install the equipmentthemselves.The contract is silent on which party will bear tax in Vietnam.Given the tight credit terms from banks, VIGLACONST was late in arranging payment to Ginie Ltd and wassubject to a contractual penalty of USD50,000 plus a USD10,000 interest charge for late payment.VIGLACONST has now fully settled the total amount of USD1,060,000 to Ginie Ltd.Assuming that following settlement of the total amount of USD1,060,000, Ginie Ltd has insisted that theywill not be responsible for any foreign contractor tax (FCT) in Vietnam:(i) Explain VIGLACONST JSC’s potential liability (if any) for FCT as a result of the contract with Ginie Ltd;(ii) Assuming both parties then agree that Ginie Ltd bears FCT in Vietnam, calculate the maximum FCTliabilities that may be applied to each component of the USD1,060,000 payment from VIGLACONSTJSC to Ginie Ltd. (4 marks)(20 marks)4 (a) Thanh Hung Ltd (THL) is a manufacturing company headquartered in Hanoi. THL has two dependentmanufacturing factories, which do not maintain an accounting function, located in Hai Duong and Vinh Phucprovinces. All of the products manufactured by the headquarters and the manufacturing units are sold in Hanoi,with a value added tax (VAT) rate of 10%.In January 2012, the total revenue (exclusive of VAT) from sales of the units manufactured in the Hai Duong,Vinh Phuc and Hanoi factories was VND800 million, VND1,000 million and VND200 million, respectively.Calculate (in VND million) the amount of value added tax (VAT) to be paid to the Hai Duong, Vinh Phuc andHanoi tax authorities by Thanh Hung Ltd if:(i) The amount of VAT payable according to the tax declaration of the headquarters (i.e. output VAT – inputVAT) in January 2012 is VND50 million; (3 marks)(ii) The amount of VAT payable according to the tax declaration of the headquarters (i.e. output VAT – inputVAT) in January 2012 is VND30 million; (3 marks)(iii) The amount of VAT refundable according to the tax declaration of the headquarters (i.e. input VAT –output VAT) in January 2012 is VND30 million. (1 mark)(b) When preparing the VAT return for June 2012, THL’s accounting department discovered that materials purchasedand received in early April 2012 under an invoice with input VAT of VND30 million had been damaged duringthe reception of the goods because of the negligence by their store-keepers. However, the invoice had still beendeclared in the list of deductible input VAT in the VAT return for April 2012.Advise Thanh Hung Ltd of the correct VAT treatment of this invoice, and the appropriate actions to be takenregarding the VAT returns in order to comply with the current regulations in the above case. (4 marks)(c) In October, November and December 2011, THL had three consecutive months with aggregate input VATexceeding output VAT. So the company requested a refund of VAT of VND300 million in December 2011 andreceived this refund in March 2012. However, in June 2012 THL discovered that they had mistakenly declaredan invoice for sales, issued in December 2011 with an output VAT amount of VND200 million, as an invoice forpurchases.Advise Thanh Hung Ltd of the appropriate actions to be taken in order to comply with the current regulationsin the above case. (4 marks)(15 marks)5 TD Vietnam (TDV) is a subsidiary of TDG, a large Japanese group. In 2011, TDV had numerous purchases of goodsand services from TDG.Based on the guidance on the determination of arm’s length price transactions between related parties providedin Circular 66/2010/TT-BTC dated 22 April 2010 (‘Circular 66’):(a) Define the terms ‘arm’s length price’ and ‘independent transactions’. (2 marks)(b) Explain the requirements for TD Vietnam to disclose its transactions with TDG at the year end as stipulatedin Circular 66. (3 marks)(c) List THREE categories of information about transactions with related parties that TD Vietnam will be requiredto prepare and keep for the request of tax authorities in respect of its transactions with TDG.(3 marks)(d) State the power of the tax authorities in determining taxable income if TD Vietnam fails to provide sufficientinformation for determining arm’s length prices. (2 marks)(10 marks)End of Question Paper