Circular No. 8585/BTV-TCT provides guidance on administrative penalties for violations in the field of taxation.

DOCUMENT

CIRCULAR NO. 8585/TC/TCT OF JULY 8, 2005 ISSUED BY THE MINISTRY OF FINANCE ON GUIDELINES FOR ADMINISTRATIVE PENALTIES IN THE FIELD OF TAXES

Respectfully submitted to: General Tax Departments under the Central Government

Recently, many localities and enterprises have reported difficulties regarding the determination of tax evasion behaviors and procedures for late payment penalties on taxes and fines as guided by Circular No. 41/2004/TT-BTC dated May 18, 2004 of the Ministry of Finance guiding the implementation of Decree No. 100/2004/NĐ-CP dated February 25, 2004 of the Government on administrative penalties in the field of taxes. Regarding these difficulties, the Ministry of Finance provides specific guidance as follows:

1. On the determination of tax evasion behavior:

At Point 1, Section IV, Part B of Circular No. 41/2004/TT-BTC of the Ministry of Finance has provided guidelines on how to determine tax evasion behavior for certain cases of administrative violations in the field of taxes. The following additional specific guidance is provided:

1.1. Organizations and individuals engaged in business activities during the process of tax declaration and settlement have actions declaring and determining the basis for calculating tax incorrectly according to the regulations of each type of tax (Point 1g) and other violation actions (Point 1i) reducing the amount of tax payable or increasing the amount of tax refund or exemption, but the figures related to economic transactions that affect the determination of tax obligations have been fully reflected in accounting books and financial statements submitted to the tax authority in accordance with the regulations, then it is not sufficient grounds to conclude that this is a tax evasion act. In this case, the tax authority will recover the remaining tax due according to the regulations and impose administrative penalties in the field of accounting as stipulated in Decree No. 185/2004/NĐ-CP dated November 4, 2004 of the Government or impose administrative penalties in the field of invoices and documents as stipulated in Decree No. 89/2002/NĐ-CP dated November 7, 2002 of the Government depending on the nature and degree of the violation.

For organizations and individuals with such violations, if within the period they have not yet completed the recovery of tax and the decision on penalties in the fields of accounting, invoices, and documents or have not exceeded one year from the date of completion of the recovery of tax and the decision on penalties in the fields of accounting, invoices, and documents, and if they reoffend similar violations, then the form and level of penalties for tax evasion must be applied according to the guidance at Point 1g and Point 1i, Section IV, Part B of Circular No. 41/2004/TT-BTC mentioned above.

Some of the following cases, if violated for the first time, are not considered acts of tax evasion:

- Accounting and declaring VAT input tax on goods and services purchased beyond the prescribed deadline for deduction; allocating VAT input tax on goods and services purchased that are not used for production of goods and services subject to VAT for deduction.

- Incorrectly accounting and declaring actual sales revenue from goods and services provided, leading to incorrect taxable revenue, which needs to be adjusted during tax settlement inspection.

- Accounting some production and business expenses in accordance with the accounting system but incorrectly including them as reasonable costs to determine taxable income as follows: Preparing reserves for repair costs of fixed assets; setting aside provisions; depreciating fixed assets; paying wages and salaries not in accordance with labor contracts; construction costs forming fixed assets that should be depreciated according to regulations; expenses unrelated to sales revenue and taxable income such as support for associations, charitable donations.

- Including expenses with valid invoices and documents exceeding the limit allowed when determining reasonable costs to calculate corporate income tax; paying interest on borrowed funds for production and business exceeding the prescribed limit; meal allowances and fixed meal allowances exceeding the prescribed limit; protective equipment or uniform expenses exceeding the prescribed limit; allocating expenses exceeding the prescribed limit; advertising, marketing, promotional, hospitality expenses exceeding the control limit.

1.2. Organizations and individuals engaged in business activities have actions of recording accounting books not in accordance with the accounting system regulations, reducing the amount of tax payable or increasing the amount of tax refund or tax exemption (Point 1a), but after being reminded by the tax authority, the organization or individual adjusts and determines the tax payable, tax deductible, tax refund, or tax exemption according to the legal regulations on taxes, then it is not considered a tax evasion act. In this case, depending on the nature and degree of the violation, penalties in the field of accounting will be imposed according to Decree No. 185/2004/NĐ-CP mentioned above.

1.3. Organizations and individuals engaged in business activities have the act of selling goods or providing services issuing invoices with values lower than 20% or more compared to the average market price of similar goods or services in the locality where the sale takes place (Point 1d) but the payment is consistent with the price stated on the invoice, then it is not considered a tax evasion act. In this case, the tax authority will base on domestic and international market prices at the time of sale or service provision to reassess the selling price to recover all types of taxes according to the regulations.

If the tax authority cannot determine the selling price as the basis for recovering taxes, they may request an appraisal organization established and operating according to the law to reassess the purchase and selling prices as the basis for recovering taxes.

2. On the procedure for imposing administrative penalties for the act of late payment of taxes and fines:

Organizations and individuals who fail to pay taxes and fines recorded in the tax payment notice or administrative penalty decision in the field of taxes will be penalized according to the regulations; the Ministry of Finance guides the procedure for imposing penalties for late payment of taxes and fines as stipulated at Point 1, Section II, Part B of Circular No. 41/2004/TT-BTC as follows:

- There is no need to establish an administrative record according to the guidance at Point 3, Section I, Part D of Circular No. 41/2004/TT-BTC.

- The tax authority will determine the amount of late-paid tax and fine and the late-payment rate to calculate the late-payment fine and notify the taxpayer to comply.

The Tax Department of the provinces and centrally governed cities is requested to promptly organize the implementation of the guidance contents set forth in this Circular to resolve difficulties and obstacles in the administrative violation handling in the tax sector at the local level./.