ATX SUB-CONTRACTED 80% OF THE SERVICES WORKS IN VIETNAM TO ITSSUB...

2014.ATX sub-contracted 80% of the services works in Vietnam to itssubsidiary in Vietnam, and purchased goods for an amount ofUSD 100,000 from Vietnamese suppliers for the supply of theequipment. These amounts are net of 10% value added tax(VAT).All tax incurred in Vietnam is to be borne by TMTX.LS Co (LS) which hasUSD1,800,000 LS leased an item of equipment to TMTX for five years, startingno P/E in Vietnamfrom 1 January 2013, under an operating lease. Rentals are tobe paid in arrears in ten instalments, on 1 July and 1 Januaryevery year. LS will bear the insurance costs for the equipment during thelease period. For 2013, LS has documents to prove that it paid aUSD 20,000 premium for insuring the equipment.TMTX is to bear the VAT portion of foreign contractor tax (FCT),while the corporate income tax (CIT) portion is to be borne byLS.Required: (a) Calculate the foreign contractor tax (FCT) to be declared and paid in 2013 in respect of each of the abovecontracts by TMTX Co and LS Co. (13 marks)(b) Estimate the total FCT to be declared and paid by TMTX Co in respect of the contract with ATX Co, if ATX Co uses the hybrid method for all of its contracts when filing FCT in Vietnam. (7 marks)Note: All calculations should be in US dollars (USD). (20 marks)4 The following questions relating to value added tax (VAT) have been raised by clients of PMVB Co, a tax consultingfirm in Vietnam:(a) ANX Co (ANX) exported goods to a foreign buyer in April 2013. ANX authorised an export agent in Vietnam tosign the contracts with the foreign buyer. The export agent conducted all necessary procedures for the export,and obtained sufficient documents for the export. The deadline for payment in accordance with the exportcontract and authorisation contract was 10 May 2013. The foreign buyer remitted money to the agent via a bankon 6 May 2013, however, the agent had not transferred the money to ANX by 31 May 2013. ANX had incurred input VAT for the exported goods in February 2013 but has not yet claimed this input VAT.ANX did claim credit for the input VAT in their May 2013 VAT return but are not sure if they were eligible for thecredit. ANX want to know: what the primary requirements for an input VAT credit are in this case, whether they areeligible for such a credit and what action (if any) they should now take. (7 marks)(b) TIS Co (TIS) is a Vietnamese subsidiary of a foreign company processing and exporting software to its parentcompany. TIS usually packages the software and relevant code on a DVD and exports the DVD to its parentcompany. However, in April 2013, due to urgent requests from its parent company, TIS transmitted the softwareto the parent company via the internet. TIS does not have a customs declaration for this transmission. The parent company agreed with TIS in the contract for the software that they will offset the softwaredevelopment fee against an amount which the parent company has paid to an overseas supplier on behalf ofTIS.TIS want to know: whether they can claim an input VAT credit for the expenses incurred which relate to thesoftware exported in April 2013 and what action (if any) they should now take. (4 marks)(c) ESS Co (ESS) provided research services in Vietnam to INVS, a foreign company, for INVS to consider and decidewhether to go ahead with a potential investment project in Vietnam. ESS has incurred input VAT for these services starting from March 2013, and requested INVS to provide aconfirmation that it has no permanent establishment (P/E) in Vietnam. However, at the end of April 2013, INVSreplied that they did not want to provide such a confirmation to ESS and that they did not understand why theyhad to provide such a confirmation. ESS wants to know: why INVS is required to issue such a confirmation, and what the implications are for bothINVS and ESS if INVS continues to refuse to provide such confirmation. (4 marks)Provide the advice as requested by each of PMVB Co’s clients.Note: The mark allocation is as shown against each client’s query.(15 marks)5 (a) State the applicable provisions for the periods 1 January to 30 June 2013, and 1 July to 31 December 2013respectively, with regard to the following:(i) The penalty for the late payment of tax liabilities. (2 marks)(ii) The penalty for tax under-declaration. (2 marks)(iii) The statute of limitation for tax collection in cases where the tax authorities have identified tax evasionby the taxpayer. (2 marks)(iv) The statute of limitation for penalties in cases where the tax authorities have identified tax evasion bythe taxpayer. (1 mark)(b) State the requirements for the declaration of transactions with related parties. (3 marks)(10 marks)End of Question Paper