Official Letter No. 3185/TCT-HTQT of 2020 regarding the deduction of taxes paid abroad from taxes payable in Vietnam.

To: Binh Duong Provincial Tax Department.

The General Department of Taxation received công văn (official letter) No. 10300/CT-TTHT dated June 25, 2019, from the Binh Duong Provincial Tax Department requesting guidance on deducting taxes paid abroad from taxes payable in Vietnam by Seiwa Kaiun Vietnam Co., Ltd. (Seiwa Vietnam Company) applying the Double Taxation Avoidance Agreement (Tax Agreement) between Vietnam and Indonesia, and has the following opinion:

1. Regarding the determination of income type:

Based on the provisions of the three contracts signed between Seiwa Vietnam Company and PT Seiwa Logistics Indonesia Company (Seiwa Indonesia Company), the income received by Seiwa Vietnam Company from providing services such as adding new functions to inventory management software, maintaining inventory management system data, and maintaining inventory management software is considered business income. Therefore, Seiwa Vietnam Company's income in Indonesia falls within the scope of Article 7 (Corporate Profits) of the Tax Agreement between Vietnam and Indonesia.

2. Regarding the deduction of taxes paid abroad:

Clause 1 of Article 7 of the Vietnam-Indonesia Tax Agreement stipulates:

“The profits of an enterprise of a Contracting State shall be taxable only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment located therein. If the enterprise carries on business in that manner, its profits may be taxed in that other State, but only on that which is attributable to the permanent establishment…”

The determination of the permanent establishment (PE) of Seiwa Vietnam Company in Indonesia is carried out in accordance with the provisions of Clause 3b, Article 5 of the Tax Agreement between Vietnam and Indonesia, specifically:

3. The term “permanent establishment” also includes:

(b) the provision of services, including advisory services, by an enterprise through employees or other persons commissioned by the enterprise to perform such activities, but only activities of such nature lasting (in the same project or related project) in a State for a period or periods totaling more than three months within a 12-month period.”

In the case where Seiwa Vietnam Company provides services via email, telephone, and directly at the warehouse or factory of Seiwa Indonesia Company, the determination of the fixed tax base must be based on the actual time that Seiwa Vietnam Company's employees perform the service in Indonesia. If Seiwa Vietnam Company's employees perform the service in Indonesia for one or more periods totaling no more than three months within a 12-month period, Seiwa Vietnam Company does not establish a fixed tax base in Indonesia. Therefore, Seiwa Vietnam Company is not required to pay taxes in Indonesia, and any taxes already paid in Indonesia (if any) will not be deductible from corporate income tax payable in Vietnam.

The General Department of Taxation is responding for the Tax Department's information and implementation./.