The article titled: “Is circular 13 still effective?” from Lawyers Dinh Quang Thuan, is published on January 2011.
On 01 June 2010 the General Department of Taxation issued official letter No. 1866/TCT-CS replying the Taxation Department of Ho Chi Minh City on management fee in games with prizes. This letter requires the Taxation Department of Ho Chi Minh City, upon the determination of reasonable management expense of enterprises operating electronic games with prizes, to apply the maximum management fee prescribed in the appendix attached to the Inter-ministerial Circular No. 13/TTLB dated 8 October 1997 issued by the Ministry of Finance and the Ministry of Planning and Investment (“Circular 13”).
Some enterprises operating electronic games with prizes think that Official Letter 1866 prescribes the maximum management fee as the valid expense makes them facing difficulties in business operation. Specifically, they reckon that if they pay within the statutory maximum management fee, the management service will not meet the requirements of the business. On the other hand, if they pay higher than the statutory maximum management fee, the difference will not be deducted in determination of enterprise taxable income.
Noticeably, there are opinions that the Circular 13 is no longer valid, and that according to current regulations the management fee will be agreed by the parties in the contract of management and will be totally reckoned as reasonable expenses of the enterprise. On the contrary, enterprises get interpretation from taxation authorities that the Circular 13 is still valid because until now the Ministry of Finance and the Ministry of Planning and Investment have not issued any official letter to annul and replace the Circular 13.
So, is the Circular 13 still applied? Below we will study the process of issuing and applying of the Circular 13 and other relating documents for the reply.
In the Law on Investment 1987 and other relating guidance documents, the issue of management employment has not been prescribed. This issue has not been mentioned until the issuance of the Law on Investment 1996, and after that, the Decree 12/CP guiding through the implementation of the Law on Investment 1996. Accordingly, Article 25.1 of Decree 12/CP prescribes “… the signing and executing of contract of management shall be in accordance with regulations of the laws of Vietnam”.
On 8 October 1997, the Ministry of Finance and the Ministry of Planning and Investment issued the Circular 13 guiding the implementation of the Decree 12, in which there are the regulations on management employment. Namely, the maximum management fee applied to business operation of games with prizes prescribed in Circular 13 is as 2.5% of turnover and 7% of gross profit. In the initial period when gross profit has not been available, the maximum management fee will be 4% of turnover.
At the end July 2000, the Government issued Decree 24/CP to replace Decree 12 and take effect from 01 August 2000, prescribing that management fee will be agreed by the parties and not at all mentioning the maximum limit for reasonable and valid expense of the enterprise. After the issuance of the general Law on Investment (“Law on Investment 2005”), the Decree 108/2006/NĐ-CP also states “Management fee will be agreed by the parties in the contract and chargeable to the management expenses of the enterprise”.
Therefore, we can see that Official Letter 1866 and the interpretation of taxation authorities that Circular 13 still takes effect is not in accordance with regulations of the laws.
Lawyer Dinh Quang Thuan
Phuoc & Partners Law Co., Ltd