Taxation bodies keep keen eye on franchisers
VietNamNet Bridge - The HCM City Taxation Agency has vowed to keep a keen eye on businesses which have conducted capital transfer deals and paid royalty fees to holding companies.
Metro was forced to pay tax arrears of VND507 billion in 2015 after the taxation body did not accept some of its expense items
The agency stated that the enterprises would be the top priority task in its ‘to-inspect list’. It will not accept expenses declared as royalty fees to foreign holdings companies if businesses don’t have franchise licenses.
An official of the agency said many trademarks now being used in Vietnam only have their intellectual property registered at the National Office of Intellectual Property (NOIP), an arm of the Ministry of Science & Technology (MST).
A lot of companies have been found paying ‘abnormally high royalty fees’ to foreign holding companies. This has led to high production costs and helped reduce taxable income.
The HCM City Taxation Agency has vowed to keep a keen eye on businesses which have conducted capital transfer deals and paid royalty fees to holding companies.
Under the Commercial Law, franchising is a type of conditional business and all legal entities and individuals who do business in the field must be licensed by the Ministry of Industry and Trade (MOIT).
The expenses paid to franchisers must be considered as unlawful expenses only if the franchise activities are not registered at Vietnamese agencies.
The agency has told its inspectors to refer to the list of registered franchisers/franchisees shown on the MOIT’s official website.
If enterprises have not completed the franchising registrations, the taxation body will have to right to exclude the expenses declared by enterprises as ‘royalty fees’ out of the list of regular expense items.
Enterprises have been reminded that even if they have done the intellectual property registrations for trademarks with local industry & trade departments, they won’t be eligible for paying royalty fees, because the intellectual property registration only recognizes ownership over trademarks, while it does not recognize the right for trademark franchising.
Metro Cash & Carry Vietnam is a typical example. The retailer from Germany was forced to pay tax arrears of VND507 billion in 2015 after the taxation body did not accept some of its expense items, including the royalty fee paid to the holding company, because it did not register the franchise with competent agencies.
In 2012-2013, Metro Cash & Carry Vietnam declared pay of VND7.5 billion in royalty to Metro AG in Germany. The royalty fee was not recognized as regular expenses when calculating taxable income.
A MOIT report shows that the ministry has granted 140 franchise licenses since 2007.
In 2015 alone, the HCM City Taxation Agency conducted 444 tax inspection tours to businesses in the fields of wholesale and retail and businesses which had capital transfer deals.