IT MAY NOT BE POSSIBLE TO APPLY FOR AN EXEMPTION FROM INCOME TAX FO...

2. It may not be possible to apply for an exemption from income tax for the profits earned from the project underthe double tax treaty (DTA) between Korea and Vietnam. According to Article 7 of the DTA between Korea and Vietnam, where a foreign company has a P/E in Vietnam, theprofits attributable to that P/E may be taxed in Vietnam.In addition, HNSN is concerned about the tax implications of the different methods of tax filing for the project inVietnam. HNSN would like to use the deemed method for filing for FCT but does not know if this will be permitted.Required:(a) Briefly advise HNSN of the consequences for having a permanent establishment (P/E) in Vietnam. You shouldspecifically address HNSN’s concerns about its corporate tax filing requirements and the applicability of anytax treaty (DTA) exemption. (9 marks)(b) During the contract negotiations, AHN requested HNSN to quote a revised price for the contract, on the basisthat AHN will bear the VAT and HNSN will bear the CIT portion of the FCT (i.e. a price gross of CIT and net ofVAT). Assuming that HNSN will use the deemed method of filing for foreign contractor tax (FCT), calculate therevised total contract price (gross of CIT and net of VAT) as requested by AHN JSC, together with the totaltax cost to HNSN based on this contract price.(c) AHN and HNSN have decided to enter into the contract using the revised contract price (i.e gross of CIT and netof VAT, as calculated in (b) above), but HNSN now thinks that it would be better for it to apply the hybrid methodfor FCT declaration purposes.Calculate the value added tax (VAT) and corporate income tax (CIT) portions of the foreign contractor tax(FCT) that will be payable by HNSN if it uses the hybrid method for FCT declaration purposes and adviseHNSN if they are correct in believing that this method will result in a lower total tax cost for them.Notes: