VAT or ownership of which has been transferred to the lender upon sale is subject to VAT, except in the case of goods not subject to value added tax as prescribed in Article 4 of this Circular.
However, since 2013, the documents guiding the implementation of the Law on Value Added Tax have changed the application of value added tax to the sale of secured assets to recover debts of credit institutions. Clause 2, Article 3 of Decree 209/2013/ND-CP guiding the implementation of the Law on Value Added Tax, the credit granting services stipulated in Clause 8, Article 5 of the Law on Value Added Tax and Clause 1, Article 1 of the Law amending and supplementing a number of articles of the Law on Value Added Tax include the following forms: Lending; Discounting, rediscounting of negotiable instruments and other valuable papers; Guarantee; Financial leasing; Issuing credit cards; Domestic factoring; International factoring; Selling assets securing loans; Providing credit information in accordance with the provisions of the Law on the State Bank; Other forms of credit granting in accordance with the provisions of law.
Clause 8, Article 4 of Circular 219/2013/TT-BTC provides detailed guidance on this content as follows: The sale of collateral shall be carried out by credit institutions or by enforcement agencies in accordance with the provisions of law on handling collateral. In case the debt repayment period expires and the collateral holder is unable to repay the debt and must hand over the property to the credit institution for the credit institution to handle the collateral in accordance with the provisions of law, the parties shall carry out the procedures for handing over the collateral as prescribed. In case the parties agree that the collateral holder shall sell the collateral himself/herself to repay the debt, if the collateral holder is a VAT payer and the property to be sold is subject to VAT, he/she must declare and pay VAT as prescribed. In case the credit institution receives the collateral to replace the performance of the debt repayment obligation, the credit institution shall account for the increase in the value of the asset serving production and business in accordance with the provisions. When a credit institution sells assets for business purposes, if the assets are subject to VAT, the credit institution must declare and pay VAT according to regulations.
Thus, according to the provisions of Decree 209/2013/ND-CP and Circular 219/2013/TT-BTC as above, the sale of secured assets is not subject to value added tax. These provisions are appropriate and partly meet the requirements of handling secured assets of credit institutions to recover debts.
However, the provisions of Decree 209/2013/ND-CP and Circular 209/2013/TT-BTC contradict the Law on Value Added Tax. According to the provisions of the Law on Value Added Tax, in addition to the credit services specifically listed as: lending; discounting, rediscounting of negotiable instruments and other valuable papers; guarantees; financial leasing; issuing credit cards; domestic factoring; international factoring; the law also has an open content which is "other forms of credit provision as prescribed by law". Decree 209/2013/ND-CP and Circular 219/2013/TT-BTC have applied this provision to include the content of "selling secured assets" in the subjects not required to pay value added tax.
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The determination of selling collateral as a form of credit granting is incorrect. According to Clause 14, Article 4 of the Law on Credit Institutions 2010, Credit granting is an agreement for an organization or individual to use a sum of money or a commitment to allow the use of a sum of money on the principle of repayment through lending, discounting, financial leasing, factoring, credit guarantee and other credit granting operations. While as presented above, handling collateral is a measure used by the lender to recover debt in case the borrower fails to perform or improperly performs the obligation to repay the loan. Credit granting is an activity of a credit institution, while handling collateral is only a measure, a sanction that the law allows the credit institution as the violated party against the borrower as the violating party.
In the author's opinion, the fact that the Law on Value Added Tax does not include the sale of secured assets by credit institutions to recover debts as subjects not subject to value added tax is a shortcoming. Because value added tax is an indirect tax, levied on each stage of production and circulation of goods and products, from raw materials to finished products, and finally to the consumption stage. According to Article 2 of the Law on Value Added Tax, value added tax is a tax calculated on the added value of goods and services arising in the process from production, circulation to consumption. Meanwhile, Decree 163/2006 clearly stipulates: The activity of handling secured assets to settle debts is not a business activity. Therefore, in all cases, value added tax should not be levied on cases of handling secured assets.
- For corporate income tax:
Regarding corporate income tax when handling real estate as collateral, currently there is only provision in Circular 78/2014/TT-BTC guiding the implementation of Decree 218/2013/ND-CP guiding the Law on Corporate Income Tax issued by the Minister of Finance. Clause 4, Article 16 of Circular 78/2014/TT-BTC stipulates: In case a credit institution receives the value of real estate as collateral for a loan to replace the performance of the secured obligation, the credit institution, when permitted to transfer the real estate according to the provisions of law, must declare and pay income tax from the transfer of real estate to the State Budget. In case of auctioning real estate as collateral for a loan, the proceeds shall be paid according to the Government's regulations on loan security of credit institutions and declared and paid tax according to regulations. After paying the above amounts, the remaining amount is paid to the business organizations that mortgaged the real estate to secure the loan.
The content of Circular 78/2014/TT-BTC quoted above is unclear. Accordingly, this content only guides the case where a credit institution receives the value of real estate as collateral to replace the performance of secured obligations and the case of handling assets through auction. In the case where a credit institution bases on the agreement in the Security Contract to sell assets to recover debt without auction, how to declare corporate income tax, whether the credit institution can declare and pay on behalf of the property owner or not, the circular does not provide guidance. If the property owner (the guarantor) is required to declare and pay taxes on his own, it is difficult for the credit institution because clearly in these cases, the guarantor will not cooperate to carry out these procedures. And if the tax obligation cannot be fulfilled, the credit institution cannot carry out the procedures for transferring the name and issuing the Certificate to the real estate buyer.
Regarding tax issues, there is still an issue related to the issuance of invoices for the sale of secured assets. Currently, there is no official guidance document on the issuance of invoices when the Bank sells secured assets to recover debts. Through research, it is known that most of the Tax Departments currently when providing guidance on this procedure often cite the content of Official Dispatch No. 1220/TCT-CS dated April 9, 2011 of the General Department of Taxation on the issuance of invoices for auctioned assets to enforce judgments to guide credit institutions. Specifically
The tax authority cited the content of Official Dispatch No. 1220/TCT-CS of the General Department of Taxation as follows: In case the ownership right before the auction has been transferred by the competent authority to another organization or individual, the organization or individual to whom the ownership right is transferred shall issue an invoice to the auction winner. Based on the above guidance, in case the Bank auctions the property securing the loan and issues an invoice to the auction winner [16].
However, according to the author, this solution is not reasonable. Because in Official Dispatch No. 1220/TCT-CS, the General Department of Taxation cited Articles 12 and 14 of Circular No. 153/2010/TT-BTC dated September 28, 2010 of the Ministry of Finance guiding the implementation of Decree No. 51/2010/ND-CP dated May 14, 2010 of the Government (the document in effect at that time) and instructed:
In case the property before auction is still owned by the enterprise, the enterprise whose property is seized must issue an invoice when auctioning that property. In case the ownership before auction has been transferred by the competent authority to another organization or individual, the organization or individual to whom the ownership is transferred shall issue an invoice to the auction winner.
In case an enterprise with seized assets must issue an invoice when auctioning the assets but does not issue an invoice to the buyer of the seized assets, the tax authority shall issue a record of penalty for the act of selling goods without issuing an invoice and, along with the penalty, the enterprise must issue an invoice to the buyer.
In case the enterprise with seized assets continues to refuse to issue invoices after 10 days from the date of penalty or the auctioned assets are assets of organizations or individuals without invoices, the enforcement agency shall issue invoices for the auctioned assets to enforce the judgment. The tax authority shall issue individual invoices to the enforcement agency upon request to issue invoices to the buyer in accordance with the provisions of Article 12 of Circular No. 153/2010/TT-BTC dated September 28, 2010 of the Ministry of Finance. In case the winning auction price is the selling price including value added tax clearly announced in the auction dossier approved by the competent authority, a value added invoice shall be issued to the buyer. [44]
Thus, the guidance of the General Department of Taxation in Official Dispatch 1220/TCT-CS only applies to cases of auctioning of real estate assets carried out by the Enforcement Agency.
does not apply to cases where credit institutions handle the sale themselves (by auction or without auction). In addition, if the law is applied similarly to the content: In cases where the ownership rights before the auction have been transferred by the competent authority to another organization or individual, then the organization or individual to whom the transfer is made issues an invoice to the auction winner, it is unreasonable because in fact the ownership rights of the real estate have not been transferred to the credit institution, because for real estate to transfer ownership rights, it is necessary to carry out the name change procedure and issue a Certificate at the competent state agency. And if the name change procedure is carried out, it will be related to the credit institution's right to hold the real estate as presented in the above section.
Regarding the issuance of invoices when credit institutions sell secured assets, if the law allows banks to carry out the procedures for selling assets on the basis of agreements in the security contract, then credit institutions must of course have the right to issue sales invoices. However, current legal documents do not have specific guidance on this issue, causing difficulties for credit institutions when carrying out sales procedures when the guarantor does not cooperate. An easy-to-solve problem has not been resolved, putting credit institutions in a difficult position when handling secured assets. The Government and the Ministry of Finance need to promptly issue documents with detailed regulations and guidance on this content.
CHAPTER III - IMPROVING VIETNAMESE LAW ON MORTGAGES AND HANDLING OF MORTGAGED ASSETS
3.1 Requirements for improving Vietnamese law on mortgage and handling of mortgaged assets
Firstly, perfecting the law on mortgage and handling of mortgaged assets to overcome shortcomings and loopholes in the law when applied in practice.
In fact, the law on mortgage and mortgaged property handling is not an effective tool to protect the rights of subjects participating in mortgage relationships. In recent years, the bad debt ratio in the banking system has exceeded the allowable safety threshold and is a very worrying phenomenon in the economy. One of the reasons for this situation is that a number of intermediary subjects have taken advantage of loopholes in the law, combined with the lack of understanding of the people, the weakness in professional skills and the moral degradation of a number of credit officers to sign and execute fraudulent mortgage contracts, causing losses of thousands of billions of VND for banks. Thus, perfecting the law on mortgage and mortgaged property handling to overcome the shortcomings and weaknesses of the law compared to practical requirements is a very important task.
Second, perfecting the law on mortgage and handling of mortgaged assets must be associated with perfecting the mechanism to ensure law enforcement.
The ultimate goal of the process of perfecting the law is to bring the law into life, to promote the role of regulating social relations. The law cannot itself affect social relations, creating social order according to the will of the state, but must have a suitable application mechanism. From the analysis of the current state of the law in chapter 2, it can be seen that one reason why the provisions of the law have not been effective is because a good mechanism has not been established to implement the law. Mechanisms on notarization, mortgage registration, auction of land use rights or regulations on civil proceedings and enforcement of judgments... are basic factors contributing to the effective implementation of regulations on mortgage and handling of mortgaged assets. Complicated regulations on property auction procedures or civil proceedings in resolving debt collection disputes with mortgaged assets become lengthy as well as the enforcement of these judgments is very complicated, especially for assets.
Mortgages are land use rights that have undermined people's confidence in an effective secured transaction system. Thus, perfecting the mechanism for applying the law and ensuring the implementation of the law on mortgages and handling of mortgaged assets.
Third, perfect the law on mortgage and handling of mortgaged assets to ensure the development needs of the economy and the common interests of society.
The function of law can only be performed when it is built in accordance with the specific conditions of society in each certain historical period. The provisions of law must meet the actual needs and development of the market economy. The continuous changes of the market economy require the law on secured transactions to introduce new products suitable to those changes. Transparency in information related to mortgaged assets is an urgent requirement of the market when credit transactions are developed in large numbers and go through a period of economic recession, the banking system is struggling with bad debt. In particular, in Vietnam, the situation of land occupation is very complicated and it is difficult to resolve all lawsuits. The most correct solution in this context is to have a public registration mechanism to establish rights to real estate in general and land use rights in particular. We all know that this is not a simple task but it cannot be avoided.
Legal provisions need to ensure a balance between economic development and ensuring social benefits. The important goal of mortgage law is to ensure the rights of the mortgagee (lender) against risks that may occur to the borrower. However, the law needs to have provisions to balance the interests of the mortgagee with other vulnerable subjects such as: the mortgagor, the person holding the mortgaged property (lessee), children, the elderly whose only place of residence is the mortgaged property... In short, the law is formed due to the need to regulate social relations. The completion of the law on mortgage and handling of mortgaged property must ensure adaptability to the economic and social conditions of Vietnam in the current period.
Fourth, perfecting the law on mortgage and handling of mortgaged assets must be placed in a comprehensive solution to perfect the regime on secured transactions in the country.
BLDS and related legal documents.
The consistency of the legal system is considered a basic and important criterion to create efficiency in the process of applying and implementing them. In the current Vietnamese legal system, mortgage relations are simultaneously regulated by many different types of legal documents such as: Civil Code, Land Law, Housing Law, Notary Law, Marriage and Family Law, Enterprise Law, Civil Procedure Law, Civil Judgment Enforcement Law... guided by many Decrees, Circulars, Joint Circulars of the Government and Ministries. This leads to a situation: There are too many different legal documents regulating mortgage relations but lacking consistency, causing confusion for law-applying entities and wasting time to research and apply them correctly. To overcome the contradictions and overlaps in the legal system on mortgages and handling of mortgaged assets, which are land use rights, it is essential to review all relevant legal documents to remove and amend inappropriate regulations. When developing laws under the authority and functions of many different agencies, there must be coordination and joint responsibility of these agencies. There must be consistency between general law and specialized law. The Civil Code must be the original document for regulations on secured transactions. Regulations of specialized laws on land, housing, notarization, and execution of judgments must originate from the provisions of the Civil Code on property rights, claims, and the principle of equal agreement in civil relations, etc.
Fifth, perfecting the law on mortgage and handling of mortgaged assets needs to create compatibility with the laws of other countries in the context of integration.
To meet the requirements of international economic integration and attract foreign investment, Vietnam needs to approach international law, including the law on mortgage and handling of mortgaged assets. The improvement of the law on mortgage and handling of mortgaged assets, which is land use rights, needs to refer to the law on secured transactions of other countries, creating compatibility between Vietnamese law and the law of other countries. On the other hand, it is necessary to study the practical situation of Vietnam to apply it appropriately. In particular, the doctrines that have been formed and developed are relatively popular in other countries but have not been recognized in the provisions of Vietnamese law, such as the theory of