Circular No. 47/2011/TT-BTC guiding certain contents regarding value-added tax for electricity production and business activities.

CIRCULAR

GUIDANCE ON CERTAIN ASPECTS OF VALUE ADDED TAX FOR ELECTRICITY PRODUCTION AND BUSINESS ACTIVITIES

On the basis of LAW ON TAX ADMINISTRATION NO. 78/2006/QH11 November 29, 2006;
On the basis of Law on Value Added Tax (VAT) No. 13/2008/QH12 June 3, 2008;
Decree No. Decree No. 123/2008/NĐ-CP December 8, 2008 of the Government detailing and guiding certain provisions of and guide the implementation of Decree No.
Decree No. Decree No. 85/2007/NĐ-CP May 25, 2007 of the Government detailing the implementation of certain provisions of the Law on Tax Administration; Decree No. 106/2010/NĐ-CP October 28, 2010 of the Government amending and supplementing certain provisions of Decree No. Decree No. 85/2007/NĐ-CP May 25, 2007 of the Government detailing the implementation of certain provisions of Law on Personal Income Tax and Decree No. 100/2008/NĐ-CP September 8, 2008 of the Government detailing certain provisions of the Law on Personal Income Tax;
Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating functions, tasks, powers, and organizational structure of the Ministry of Finance;
Implementing the guidance of the Prime Minister in Official Letter No. 4154/VPCP-KTTH June 17, 2010 of the Government Office regarding VAT and Corporate Income Tax for Vietnam Electricity Corporation,
The Ministry of Finance provides guidance on VAT for electricity production and business activities as follows:

Chapter 1.

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular guides certain regulations on tax declaration, tax calculation, tax payment, and VAT refund for electricity production and business activities.

Article 2. Applicability

This Circular applies to enterprises under the Vietnam National Power Corporation including Vietnam Electricity Corporation, units directly under Vietnam Electricity Corporation (excluding hydropower companies), National Power Transmission Corporation, units directly under National Power Transmission Corporation, Provincial Power Corporations, and units directly under Provincial Power Corporations.

Article 3. Explanation of Terms

In this Circular, the following terms are understood as follows:

1. "Vietnam Electricity Corporation" abbreviated as EVN is a legal entity established by the State as the owner according to Decision No. 975/QĐ-TTg dated June 25, 2010 of the Prime Minister.

2. "Provincial Power Corporations" are member units of EVN, including: Northern Power Corporation, Central Power Corporation, Southern Power Corporation, Hanoi Capital Power Corporation, Ho Chi Minh City Capital Power Corporation.

3. "Units directly under Vietnam Electricity Corporation" (hereinafter referred to as units directly under EVN) are dependent accounting units of EVN including: National Power System Dispatch Center, Electricity Trading Company, project management boards directly under EVN, and other direct units.

4. "Units directly under National Power Transmission Corporation" are dependent accounting units of National Power Transmission Corporation including: Power Transmission Companies 1, 2, 3, 4; project management boards directly under the Corporation, and other direct units.

5. "Units directly under Provincial Power Corporations" are dependent accounting units of these Provincial Power Corporations including: provincial power companies (for Northern, Central, and Southern Power Corporations), district and county power companies (for Hanoi Capital Power Corporation and Ho Chi Minh City Capital Power Corporation), auxiliary units (if any), project management boards directly under Provincial Power Corporations, and other direct units.

6. Electricity selling price includes retail electricity price and internal electricity selling price.

"Retail electricity price" is the electricity selling price to end-users as prescribed by the Prime Minister and competent state agencies.

"Internal electricity selling price" is the electricity selling price from EVN to Provincial Power Corporations according to EVN's financial regulations and the electricity selling price from Provincial Power Corporations to their member companies according to Provincial Power Corporations' financial regulations.

Chapter 2.

TAX DECLARATION, TAX CALCULATION, TAX PAYMENT, TAX REFUND

Article 4. Tax Declaration, Calculation, and Payment for Vietnam Electricity Group

Vietnam Electricity Group (EVN) shall be responsible for declaring and paying VAT on electricity products sold by EVN at the local tax office where EVN's main headquarters is located. EVN shall declare and pay VAT as follows:

VAT payable = VAT output - VAT input deductible

Where:

Clause 1. The VAT output of electricity products shall be determined as follows:

Each month, based on the quantity of electricity sold determined by the Power Trading Corporation and the selling price of electricity stipulated for each customer category, EVN shall issue invoices to direct electricity customers and issue upstream electricity sale invoices to Power Corporations. Based on these invoices, EVN shall prepare a Sales List of Goods and Services according to the model prescribed by the Ministry of Finance.

Clause 2. VAT input deductible:

The total VAT input deductible for electricity products is the sum of VAT recorded on purchase invoices for goods and services and import VAT payment certificates or foreign VAT payment certificates substituted for foreign parties, as guided by the Ministry of Finance applicable to foreign organizations and individuals operating or earning income in Vietnam, used for Vietnam Electricity Group's and its subsidiaries' electricity production and business activities.

Each month, EVN subsidiaries (except project management boards that declare and refund VAT at the local tax office as stipulated in Clause 1, Article 7 of this Circular) shall base on purchase invoices for goods and services, import VAT payment certificates, or foreign VAT payment certificates substituted for foreign parties, as guided by the Ministry of Finance applicable to foreign organizations and individuals operating or earning income in Vietnam, used for electricity production and business activities, to prepare a Purchase Invoice and Certificate List of Goods and Services according to the model prescribed by the Ministry of Finance. The list shall be prepared in two copies: one copy sent to EVN as the basis for determining the VAT input deductible at EVN, and one copy retained by the unit.

EVN subsidiaries must separately account for the VAT input deductible used for electricity production and business activities and other production and business activities. In cases where separate accounting is not possible, the VAT input deductible used for electricity production and business activities shall be calculated as a percentage of the cost of electricity production and business activities compared to the total costs incurred by the unit.

Enterprises shall determine the cost ratio based on the final tax settlement data of corporate income tax of the previous year before the tax period to determine the VAT input deductible for electricity production and business activities and to declare and pay VAT for the periods within the year. If the tax period has not yet determined the final tax settlement data of corporate income tax of the previous year, the enterprise shall use the cost ratio based on the final tax settlement data of corporate income tax of the nearest previous year.

Example 1:

Company X, an EVN subsidiary, has the following ratio between the cost of electricity production and business activities and the total costs incurred by the unit:

+ In 2009, it was 80%

+ In 2010, it was 85%.

The VAT input deductible for electricity production and business activities in 2011 of Company X shall be determined based on the ratio between the cost of electricity production and business activities and the total costs incurred by the unit in 2010, which is 85%. In case the ratio between the cost of electricity production and business activities and the total costs incurred by the unit in 2010 cannot be determined in January and February 2011, the ratio between the cost of electricity production and business activities and the total costs incurred by the unit in 2009, which is 80%, shall be used to determine the VAT input deductible ratio for January and February 2011 for electricity production and business activities.

Based on the VAT output and input determined according to the above principles and the VAT paid by hydroelectric companies at localities, EVN shall declare and pay or refund VAT at the Hanoi Tax Office. For EVN subsidiaries that do not need to declare and pay VAT on electricity products at the local tax office.

In cases where EVN subsidiaries have other production and business activities subject to VAT, they must declare and pay VAT on the revenue generated from these activities at the local tax office in accordance with the Law on Tax Administration, the Law on Value Added Tax, and guiding legal documents.

Article 5. Tax Declaration, Tax Calculation, and Tax Payment for Electricity Joint Stock Corporations

1. For the Northern Electricity Joint Stock Corporation, Central Electricity Joint Stock Corporation, and Southern Electricity Joint Stock Corporation:

- The Northern Electricity Joint Stock Corporation, Central Electricity Joint Stock Corporation, and Southern Electricity Joint Stock Corporation shall be responsible for declaring and paying VAT on electricity products sold by their agencies at the local tax office where the main headquarters of each joint stock corporation is located.

- Provincial and centrally-administered city electricity companies shall declare and pay VAT on electricity products sold at the local tax office where their headquarters are located.

The amount of VAT is determined as follows:

VAT payable = VAT output - VAT input deductible

Where:

a) Output VAT:

Output VAT on electricity products is determined as follows:

The taxable price for electricity sales is the selling price excluding VAT. In cases where electricity is sold based on progressive pricing according to consumption volume, the taxable price is calculated based on the progressive selling price.

Output VAT at the agency of the Electricity Joint Stock Corporation is the total output VAT recorded on VAT invoices issued by the agency when selling electricity products to independent accounting electricity companies and customers according to the regulations of the joint stock corporation.

Output VAT at provincial and centrally-administered city electricity companies is the total output VAT recorded on invoices issued by these companies when selling electricity products to customers.

Based on invoices for electricity sales to customers or detailed invoices replacing invoice number 1, the joint stock corporation and provincial and centrally-administered city electricity companies shall prepare a Sales Goods and Services Statement according to the model prescribed by the Ministry of Finance.

b) Input VAT deductible:

Input VAT deductible for electricity products at the agency of the Electricity Joint Stock Corporation and provincial and centrally-administered city electricity companies is determined as follows:

At the agency of the Electricity Joint Stock Corporation: It is the input VAT of goods and services generated at the agency for exclusive use in the electricity production and business activities of the agency and the deductible input VAT allocated to the agency by the joint stock corporation based on the electricity sales revenue.

At provincial and centrally-administered city electricity companies: It is the deductible input VAT used for electricity business activities generated at these companies and the deductible input VAT allocated to the company by the joint stock corporation based on the electricity sales revenue.

The deductible input VAT allocated by the joint stock corporation to the agency of the Electricity Joint Stock Corporation and provincial and centrally-administered city electricity companies is calculated using the following formula:

Where:

- Electricity sales revenue generated at the agency of the Electricity Joint Stock Corporation or provincial and centrally-administered city electricity companies is the revenue without VAT of the month immediately preceding the month of input VAT allocation.

- Total electricity sales revenue of the entire joint stock corporation is the total revenue without VAT generated at the agency of the Electricity Joint Stock Corporation and provincial and centrally-administered city electricity companies of the month immediately preceding the month of input VAT allocation.

- Total input VAT to be allocated includes the deductible input VAT as stipulated, including: input VAT of electricity products purchased from EVN and other units outside EVN (if any), input VAT of goods and services generated at the agency of the Electricity Joint Stock Corporation for common use in the electricity production and business activities of the entire joint stock corporation, project management boards (excluding project management boards located in provinces or cities different from the province or city where the main headquarters of the joint stock corporation is located, which implement tax refund declaration at the local tax authority according to regulations) and auxiliary units (if any) used in electricity business activities.

Monthly, project management boards and auxiliary units base on VAT invoices for purchasing goods and services and tax payment certificates for imported goods or tax payment certificates on behalf of foreign parties according to the guidance of the Ministry of Finance applicable to foreign organizations and individuals conducting business or earning income in Vietnam for use in electricity business activities shall prepare a Purchase Goods and Services Invoice and Certificate Statement according to the model prescribed by the Ministry of Finance. The statement is prepared in two copies: one copy sent back to the joint stock corporation for consolidation of the joint stock corporation's input VAT allocated to the agency and provincial and centrally-administered city electricity companies; one copy retained by the unit.

Project management boards and auxiliary units must separately account for the deductible input VAT used for electricity production and business activities and for other production and business activities. If separate accounting is not possible, the deductible input VAT used for electricity production and business activities is calculated as a percentage of the cost of electricity production and business activities compared to the total costs incurred by the unit.

The cost ratio is determined according to the guidance provided in Clause 2, Article 4 of this Circular.

Example 2: In February 2011, Electricity Joint Stock Corporation A had a total deductible input VAT of 100 billion VND, including:

- Input VAT of electricity products purchased from EVN: 98 billion VND.

- Input VAT collected from invoices and certificates for goods and services used for electricity business activities generated at the agency of the Electricity Joint Stock Corporation and auxiliary units: 2 billion VND.

The total electricity sales revenue of the entire Electricity Joint Stock Corporation (including revenue from the agency of the Electricity Joint Stock Corporation and provincial and centrally-administered city electricity companies) in January 2011 was 25,000 billion VND. The electricity sales revenue of Electricity Company X in January 2011 was 3,000 billion VND.

The input VAT allocated by the Electricity Joint Stock Corporation to Electricity Company X in February 2011 is:

2. For the Electricity Joint Stock Corporation of Hanoi City and the Electricity Joint Stock Corporation of Ho Chi Minh City:

The State-owned Corporation of Electricity of Hanoi City and the State-owned Corporation of Electricity of Ho Chi Minh City are responsible for declaring and paying Value Added Tax (VAT) centrally to the local tax authority where their headquarters are located for electricity products sold by the Corporation and its affiliated units.

Output VAT: is the total amount of output VAT recorded on VAT invoices issued by the Corporation when selling electricity products to customers and the output VAT of its affiliated units.

Input VAT: input VAT of electricity products purchased from EVN and other units outside EVN (if any), input VAT of goods and services generated at the Corporation and its affiliated units used for electricity business operations.

In cases where district and county power companies have seals, bank accounts, directly sell goods and services, fully declare input VAT and output VAT, and have the need to declare and pay taxes separately, they must register to pay taxes separately and use separate invoices. In this case, the State-owned Corporation of Electricity of Hanoi City and the State-owned Corporation of Electricity of Ho Chi Minh City will allocate input VAT to the district and county power companies under their jurisdiction based on the electricity sales revenue. The Corporation and the district and county power companies will determine the amount of tax payable according to the principles guided as for the State-owned Corporations of Electricity as stipulated in Clause 1, Article 5 of this Circular.

3. The State-owned Corporations of Electricity are responsible for the legality of VAT invoices for goods and services purchased, tax payment certificates for imported goods, or tax payment certificates on behalf of foreign parties, following the guidance of the Ministry of Finance applicable to foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam, serving as the basis for allocating input VAT to the Corporation and the power companies under its jurisdiction.

If, upon inspection, it is found that the amount of input VAT to be allocated to the Corporation and the power companies under its jurisdiction for deduction differs from the amount of input VAT already allocated, the adjusted input VAT will be declared at the Corporation based on the inspection results.

Article 6. Declaration, Calculation, and Payment of Taxes for the National Power Transmission Corporation

The National Power Transmission Corporation shall declare and pay VAT centrally at its headquarters for its power transmission activities as follows:

VAT payable = VAT output - VAT input deductible

Where:

1. Output VAT:

The National Power Transmission Corporation determines output VAT based on revenue (excluding VAT) from power transmission services. Monthly, the Corporation bases on VAT invoices for power transmission services provided to customers to prepare a Sales Invoice List according to the prescribed form of the Ministry of Finance.

Clause 2. VAT input deductible:

Input VAT deductible for the Corporation's power transmission activities is the total amount of VAT recorded on purchase invoices for goods and services and tax payment certificates for imported goods or tax payment certificates on behalf of foreign parties, following the guidance of the Ministry of Finance applicable to foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam, used for the Corporation's and its affiliated units' power transmission activities.

Monthly, the affiliated units of the Corporation base on VAT invoices for purchases of goods and services and tax payment certificates for imported goods or tax payment certificates on behalf of foreign parties, following the guidance of the Ministry of Finance applicable to foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam, used for power transmission activities, to prepare a Purchase Invoice and Certificate List according to the prescribed form of the Ministry of Finance. The list is prepared in two copies: one copy sent back to the Corporation as the basis for determining deductible input VAT at the Corporation, and one copy retained by the unit.

The affiliated units of the Corporation must account separately for input VAT deductible used for power transmission activities and for other production and business activities. If separate accounting is not possible, the input VAT deductible used for power transmission activities is calculated as a percentage of the cost of power transmission activities compared to the total costs incurred by the unit.

The cost ratio is determined according to the guidance provided in Clause 2, Article 4 of this Circular.

Based on the output VAT and input VAT determined according to the above principles, the National Power Transmission Corporation shall declare and pay VAT or claim VAT refunds at the Hanoi City Tax Department, while the affiliated units of the Corporation do not need to declare and pay VAT for power transmission activities at local tax authorities.

In cases where the affiliated units of the Corporation engage in other production and business activities subject to VAT, they must declare and pay VAT at the local tax authority where their headquarters are located in accordance with the Law on Tax Administration, the Law on Value Added Tax, and other guiding legal documents.

Article 7. Refund of Value Added Tax (VAT) for Vietnam Electricity Group Corporation (EVN)

1. Regarding the refund of VAT for investment projects.

In cases where EVN has new production facility investment projects located in provinces or centrally governed cities different from the location of its main office, during the investment phase before commencing operations without registering for business, with decisions to establish Project Management Boards to represent EVN in managing the investment projects, these Boards having seals as prescribed by law, maintaining accounting books and records as required by law, having bank accounts, having registered for tax and been issued dependent taxpayer codes, if there is VAT on goods and services purchased for the investment project amounting to VND 200 million or more, then they are eligible for a VAT refund.

The Project Management Board shall declare and prepare separate VAT refund files with the local tax authority where it has registered for tax (except for Project Management Boards in the same province or city as EVN's main office, which will be declared and have their VAT refund files prepared by EVN).

EVN shall not declare the VAT that the Project Management Board in another province or city has already declared and prepared a VAT refund file with the local tax authority where it has registered for tax.

EVN is responsible for informing the Project Management Boards to carry out declarations and VAT refunds on behalf of EVN and is liable for the actions of these Boards in this regard.

2. Regarding the refund of VAT for production and business activities.

If EVN has unutilized VAT input tax in a month, it may temporarily receive a refund of 90% of the unutilized VAT input tax for that month, the remaining 10% of the unutilized VAT input tax will be declared for offset or refunded in the next VAT declaration period. If EVN has unutilized VAT input tax for three consecutive months or more, the remaining 10% of the unutilized VAT input tax will be refunded according to current regulations.

The procedures for VAT refunds shall be carried out in accordance with current regulations.

Chapter 3.

IMPLEMENTATION

Article 8. Effective Date

This Circular takes effect from June 1, 2011.

Article 9. Guidance on Implementation

EVN is responsible for declaring, calculating, paying, and refunding VAT; and at the same time guiding member units and subordinate units to declare, calculate, and pay VAT for electricity production and business activities in accordance with the guidance provided in this Circular.

Matters not covered in this Circular shall be implemented in accordance with the current provisions of the Law on Value Added Tax, the Law on Tax Administration, and other guiding legal documents.

During implementation, if difficulties or obstacles arise, units and businesses are advised to promptly report them to the Ministry of Finance for resolution.