To: Department of Taxation of Hung Yen province

Below is the response of General Department of Taxation to Official Dispatch No. 270/CTHYE-TTHT dated 18/01/2023 of Department of Taxation of Hung Yen province regarding tax policies on broken/faulty products of Lee Hing Textile Vietnam Company Limited:

- Clause 1 Article 156 of the Civil Code No. 91/2015/QH13 dated 24/11/2015:

"An event of force majeure is an event which occurs in an objective manner which is not able to be foreseen and which is not able to be remedied by all possible necessary and admissible measures being taken".

- Clause 27 Article 3 of the Law on Tax Administration No. 38/2019/QH14:

“27. “Force majeure events” include:

a) Taxpayers suffering from physical damage caused by natural disasters, catastrophes, epidemics, fire, sudden accidents;

b) Other force majeure situations as prescribed by the Government".

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"1. “other force majeure events” mentioned in Point b Clause 27 Article 3 of the Law on Tax administration include: wars, riots, strikes and incidents for which the taxpayer is not responsible for and cause the taxpayer to be unable to pay tax".

- Article 4 of Circular No. 96/2015/TT-BTC dated 22/6/2015 of the Ministry of Finance on deductible and non-deductible expenses when calculating taxable income:

"Article 4. Article 6 of Circular No. 78/2014/TT-BTC (amended by Clause 2 Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC) is amended as follows:

"Article 6. Deductible and non-deductible expenses when calculating taxable income

1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, every expense is deductible if all of these following conditions are satisfied:

a) The actual expense incurred is related to the enterprise’s business operation.

b) There are sufficient and valid invoices and proof for the expense under the regulations of the law.

c) There is proof of cashless payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).
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2. The expenses below are not deductible when calculating taxable income:

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If the enterprise incurs expenses related to damage caused by natural disasters, epidemics, blazes, and other force majeure events (hereinafter referred to as "calamities") without compensation, such expenses will be deductible when calculating taxable income. To be specific:

The enterprise must determine the total loss caused by calamities in accordance with law.

Uncompensated loss equals (=) total loss minus (-) loss that must be compensated by insurers other entities as prescribed by law.

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2.30. Expenses that do not correspond with assessable revenues ...”.”

Pursuant to Clause 1 Article 3 of Decree No. 126/2020/ND-CP and Article 4 of Circular No. 96/2015/TT-BTC dated 22/6/2015 of on deductible and non-deductible expenses when calculating taxable income, on principle, when Lee Hing Vietnam has products that are broken/faulty during the manufacture process, cannot be recycled and have to be destroyed, the value of the destroyed products is not deductible when calculating corporate income tax if it is not the cases in which these expenses are deductible according to corporate income tax laws.

Department of Taxation of Hung Yen province shall, pursuant to legislative documents on tax and in consideration of reality, instruct Lee Hing Vietnam to comply with tax laws./.

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Công văn 796/TCT-CS năm 2023 về chính sách thuế đối với sản phẩm hỏng, lỗi trong quá trình sản xuất do Tổng cục Thuế ban hành