Circular No. 86/2016/TT-BTC guiding certain contents regarding the Environmental Risk Reserve Fund and Environmental Damage Compensation Fund as stipulated in Decree No. 19/2015/NĐ-CP dated February 14, 2015 of the Government detailing the implementation of the Law on Environmental Protection.

CIRCULAR

Guidelines on certain aspects of the Environmental Risk Reserve Fund and Compensation for Environmental Damage as stipulated in Decree No. 19/2015/ND-CP dated February 14, 2015 of the Government detailing the implementation of the Law on Environmental Protection

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Pursuant to the Enterprise Law No. 64/2014/QH13;

Pursuant to the Law on Environmental Protection No. 55/2014/QH13;

Pursuant to the Law on Corporate Income Tax No. 14/2008/QH12;

Pursuant to the Law Amending and Supplementing Certain Provisions of the Law on Corporate Income Tax No. 32/2013/QH13;

Pursuant to Decree No. 218/2013/NĐ-CP dated December 26, 2013 of the Government detailing and guiding the implementation of certain provisions of the Law on Corporate Income Tax;

Pursuant to Decree No. 19/2015/ND-CP dated February 14, 2015 of the Government detailing the implementation of the Law on Environmental Protection;

Pursuant to Decree No. 215/2013/ND-CP dated December 23, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance.

At the proposal of the Director of the Enterprise Finance Department,

The Minister of Finance issues this Circular guiding certain aspects of the Environmental Risk Reserve Fund according to Decree No. 19/2015/ND-CP dated February 14, 2015 of the Government detailing the implementation of the Law on Environmental Protection.

PART I

                GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular stipulates the establishment, use, and accounting of the Environmental Risk Reserve Fund and Compensation for Environmental Damage (hereinafter referred to as the Fund) as provided for in Decree No. 19/2015/ND-CP dated February 14, 2015 of the Government detailing the implementation of the Law on Environmental Protection.

Article 2. Applicability

1. This Circular applies to organizations and individuals engaged in production and business activities under the Enterprise Law that are subject to the establishment of the Environmental Risk Reserve Fund and Compensation for Environmental Damage and have the following production, business, and service activities:

a) Petroleum activities including exploration, development, and exploitation of oil and gas fields, as well as activities directly serving these activities;

b) Production and trading of chemicals and petroleum products;

c) Use of specialized ships for transporting crude oil, petroleum products, or other dangerous goods when operating in Vietnamese seaports and territorial waters;

d) Storage, transportation, and treatment of hazardous waste, transportation of dangerous goods.

2. Organizations and individuals engaged in production and business activities that have purchased insurance for environmental damage compensation, and enterprises already specified separately regarding the Centralized Environmental Fund are not subject to this Circular.

          Article 3. Definitions

          1. Environmental risk: Is any incident or hazard that has caused or poses a risk of causing harm to the surrounding environment during the production and business operations of enterprises as stipulated in the Law on Environmental Protection.

2. Environmental incident: An event occurring during human activities or natural changes, causing serious pollution, degradation, or alteration of the environment.

3. Environmental Risk Reserve Fund and Compensation for Environmental Damage of enterprises: A fund used to compensate partially or fully for environmental risks caused by the production and business operations of enterprises.

PART II

ESTABLISHMENT AND USE OF THE ENVIRONMENTAL RISK RESERVE FUND AND COMPENSATION FOR ENVIRONMENTAL DAMAGE

Article 4. Principles for Establishing, Sources of Formation, Time of Establishment, and Management of the Fund

1. Principles for Establishing:

a) Ensuring the stability of business operations, production, and services of enterprises;

b) Ensuring compensation for part or all of the environmental damage caused by the enterprise's production activities.

2. Sources of Formation of the Fund: The fund is established from the annual operating costs of the enterprise's production, business, and service activities.

3. Time of Establishing the Fund: The end of the accounting period at the end of each year. For enterprises required to prepare financial reports outside the fiscal year according to the law, they may establish risk provisions and compensate for environmental damage at the time of preparing such non-fiscal year financial reports.

4. Management of the Fund:

a) Enterprises must develop and issue internal regulations on managing and using the fund in conjunction with environmental protection regulations and preventive measures. When environmental damage occurs, the objective and subjective causes must be identified; if the cause is subjective, the material liability for compensation of each department and individual responsible must be clearly determined;

b) Enterprises shall not include additional provisions without sufficient grounds for establishing provisions in order to reduce tax obligations.

Article 5. Rate of Establishment

1. Rate of Establishment: Enterprises shall establish a fund at a rate of 0.5% of the annual net revenue from sales and service provision for the activities specified in Clause 1, Article 2 of this Circular, and the amount established shall not exceed 5% of the pre-tax profit for the year. The annual net revenue from sales and service provision does not include internal sales revenue between the parent company and subsidiaries.

2. When the balance of the Fund equals 10% of the registered capital of the enterprise, the establishment of the Fund shall cease. If the registered capital of the enterprise is adjusted upward, the enterprise shall continue to establish the Fund until the balance of the Fund reaches 10% of the new registered capital (after adjustment). In cases where the balance of the Fund has not reached 10% of the registered capital before a reduction, the enterprise shall base its determination of the Fund balance on the new adjusted registered capital and continue to establish the Fund to ensure that the balance equals 10% of the new registered capital (after reduction).

In the case where the Fund balance has not reached 10% of the registered capital at the time prior to the reduction adjustment, the enterprise shall base its determination of the Fund balance on the newly adjusted registered capital amount and implement the allocation to ensure that the Fund balance equals 10% of the newly adjusted registered capital (after the reduction).

Article 6. Purpose of Using the Fund

1. The Fund is used to prevent, mitigate, and compensate for environmental incidents occurring during the enterprise's production and business activities, including the following cases:

a) Water environment (including surface water, groundwater, seawater) serving conservation, daily life, recreation, production, and other purposes, which have been polluted, severely polluted, or extremely severely polluted;

b) Soil environment serving conservation, production, and other purposes, which have been polluted, severely polluted, or extremely severely polluted;

c) Natural ecosystems within and outside nature reserves that have deteriorated;

d) Compensation for biodiversity in areas where production and business activities take place or are affected by such activities;

e) Air environment serving human health and living conditions and other objects, which have been polluted, severely polluted, or extremely severely polluted.

2. In cases where environmental incidents occurring during the enterprise's production and business activities are caused by intentional violations of environmental protection laws, the Fund shall not be used to pay for these incidents, and the expenses incurred for handling such incidents shall not be deductible when calculating corporate income tax.

The determination of whether the cause of the environmental incident is due to intentional violation of the law is based on the provisions of Chapter X and Chapter XI of the Environmental Protection Law No. 55/2014/QH13 and other guidelines issued by the Ministry of Natural Resources and Environment.

Article 7. Accounting Entries

1. Provisions for environmental risks and compensation for environmental damage shall be included in production costs and recorded as business expenses of enterprises, specifically as follows:

- When setting up provisions for environmental risks and compensation for environmental damage, record:

            Debit Account 627 (154) - General Production Costs (Production and Business Costs in Progress)

                     Credit Account 352 - Provision for Liabilities

- When incurring expenses related to remedying environmental damage, record:

            Debit Account 352 - Provision for Liabilities

            Debit Account 133 - VAT Deductible Tax (if applicable)

                     Credit Accounts 111, 112, 331, etc. - Cash, Bank Deposits, Amounts Payable to Suppliers, etc.

Must pay to the seller, ...

2. In cases where significant environmental risks occur and the Fund balance is insufficient to cover the losses, the enterprise may record such expenses as part of its production and business costs.

In cases where significant environmental consequences arise from risks, and the enterprise has exhausted the Fund and recorded it as production and business costs leading to a loss in production and business results, the enterprise may gradually allocate these costs into production and business costs over the next five years starting from the year the environmental risk occurred. The amount and rate of allocation shall be based on the enterprise's production and business results in that year, ensuring that the enterprise does not incur a loss in its production and business results for that year.

3. If an enterprise ceases operations in industries specified in Clause 1, Article 2 of this Circular, the remaining balance of the provision fund for environmental risks and compensation for environmental damage that has been set up but not yet utilized shall be recorded as other income. The enterprise's accounting shall be carried out as follows:

Debit Account 352 - Provision for Liabilities

                     Credit Account 711 - Other Income

Article 8. Final Settlement Report

1. At the end of the fiscal year, enterprises must report on the implementation and use of the Fund simultaneously with the preparation of financial statements at the end of the accounting period (in accordance with the attached form in the Appendix of this Circular). Financial settlement shall be conducted in accordance with current regulations. Enterprises must have all necessary supporting documents for the settlement of expenditures from the Fund.

2. Enterprises are responsible for providing detailed explanations about the establishment, management, and use of the Fund in the Notes to the Financial Statements of the enterprise. In the report on the use of the Fund, it is necessary to detail the situation of using the Fund to remedy environmental consequences caused by the enterprise's production and business activities.

In cases where there are multiple uses of the Fund in a year, enterprises shall prepare a separate report accompanying the Notes to the Financial Statements of the enterprise.

Article 9. Inspection of the establishment and use of the Fund

1. The General Director of the enterprise shall be responsible for promulgating and publicizing the regulations on the establishment, management, and use of the Fund of the enterprise; at the same time, he/she shall be responsible for monitoring, urging, and inspecting the implementation of the establishment, management, and use of the Fund in accordance with the provisions of this Circular.

2. Annually, enterprises (including state-owned enterprises, enterprises with state capital, enterprises with foreign investment, and enterprises belonging to various economic sectors) shall have the responsibility to prepare and submit reports on the implementation of the establishment and use of the Fund in accordance with the provisions of this Circular to the Department of Finance, Taxation Department, and Department of Natural Resources and Environment of the locality where the main office is located.

3. State-owned enterprises under Ministries and sectors must simultaneously send (in addition to the entities specified in Clause 2 of this Article) reports on the implementation of the establishment and use of the Fund in accordance with the provisions of this Circular to the owner, Ministry of Finance (General Department of Taxation, Department of Corporate Finance), and Ministry of Natural Resources and Environment.

Chapter III

IMPLEMENTATION

Article 10. Effectiveness and Implementation Organization

This Circular takes effect from August 5, 2016, and applies from the fiscal year 2016.

Organizations and individuals participating in business operations shall base their actions on the provisions of this Circular to organize its implementation.

In case the legal normative documents referred to in this Circular are amended, supplemented, or replaced, they shall be implemented according to those legal normative documents.

During the implementation process, if there are difficulties or obstacles, they should be promptly reflected to the Ministry of Finance for research and appropriate amendments and supplements./.