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CIRCULAR

GUIDING IMPLEMENTATION OF DECREE 100-2009-ND-CP OF THE GOVERNMENT DATED 3 NOVEMBER 2009

ON COLLECTION OF A SURCHARGE FROM PETROLEUM CONTRACTORS ON THEIR SHARE OF PROFIT OIL WHEN CRUDE OIL PRICES INCREASE

THE MINISTRY OF FINANCE

Pursuant to the Law on Petroleum and its implementing guidelines;

Pursuant to the Law on Management of Taxation and its implementing guidelines

Pursuant to Decree 100-2009-ND-CP of the Government dated 3 November 2009 on collection of a surcharge from petroleum contractors on their share of profit oil when crude oil prices increase;

Pursuant to Decree 118-2008-ND-CP of the Government dated 27 November 2003 on functions, duties, powers and organizational structure of the Ministry of Finance.

The Ministry of Finance provides the following guidelines on Decree 100-2009-ND-CP of the Government dated 3 November 2009 on collection of a surcharge from petroleum contractors on their share of profit oil when crude oil prices increase

Article 1.  Applicable scope and applicable entities

1. This Circular guides collection of a surcharge from petroleum contractors on their share of profit oil when crude oil prices increase.
2. Petroleum contractors prescribed in this Circular means Vietnamese or foreign organizations and individuals conducting petroleum operations in Vietnam in accordance ..ith the Laiv on Petroleum (hereinafter referred to as contractors).

Article 2. Taxpayers1

1. In the case of a petroleum contract executed in the form of a production sharing contract, the taxpayer shall be the operator representing the contractors to such contract.
2. In the case of a petroleum contract executed in the form of a joint operating agreement the taxpaver shall De the joint operating company representing the contractors to such contract
3. In the case of a petroleum contract executed in the form of a joint venture contract, the taxpayer shall be the joint venture enterprise representing the contractors to such contract.
4. In the case of Vietnam Oil and Gas Group or a corporation or company under such Group which itself undertakes a petroleum operation, the taxpayer shall be Vietnam Oil and Gas Group or the corporation or company which is the subsidiary of such Group.

Article 3. Currency for payment of the surcharge

1. Where crude oil is sold for US dollars or a freely convertible foreign currency, the currency for payment of the surcharge shall be US dollars or the freely convertible foreign currency.
2. Where crude oil is sold for Vietnamese dong (VND), the currency for payment of the surcharge shal be VND.
3. Where crude oil is sold for both US dollars or a freely convertible foreign currency and VND. the currency for payment of the surcharge shall be VND.
4. US dollars or a freely convertible foreign currency shall be converted into VND for payment of the surcharge at the average interbank rate published by the State Bank of Vietnam as at the date of payment of the surcharge.

Article 4. Location for registration, declaration and payment of the surcharge

The location for registration, declaration and payment of the surcharge shall be the tax department of the locality in which the main operating office of the taxpayer is located, except for cases where registration declaration and payment of the surcharge is made at some other location pursuant to separate guidelines of the Ministry of Finance.

Article 5. Objects subject to the surcharge

The entire volume of the shared profit oil of a contractor for a quarter shall be the object subject to the surcharge, in which:

1. Profit oil means the remaining crude oil after deducting royalties [natural resources tax) and recoverable petroleum [operational] costs from the actual volume of oil in accordance with the Law on Petroleum. In a case where the petroleum contract does not stipulate a percentage of recoverable petroleum costs, such percentage for the purpose of determining the volume of profit oil shall be 35%, except in the case of a petroleum field which continues to be exploited after termination of the petroleum contract.
2. Shared profit oil of the contractor for a quarter means the profit oil as prescribed in clause 1 above which is distributed to the contractor pursuant to the signed petroleum contract.
3. In the case where Vietnam Oil and Gas Group or a corporation or company under such Group itself undertakes a petroleum operation, then the object subject to the surcharge is the entire volume of profit oil receivable for a quarter by Vietnam Oil and Gas Group or the corporation or company vhich is the subsidiary of such Group.

Article 6. Determining amount of surcharge payable

1. Applicable to encouraged petroleum investment projects, a surcharge rate of 30".. shall be payable quarterly on the volume of shared profit oil of a contractor for a quarter when the average crude oil

selling price of the quarter actually increases by more than 20% of the base price of the same year" as follows:

payable

quarterly

Average crude oil selling price of the quarter

Base price in the same year

Volume of shared profit oil of contractor for the quarter

In which:

(a) Average crude oil selling price of the quarter means the price .vhich the contractor itself calculates based on statistical data on actual daily selling prices of each quarter, in which

-                      First quarter is from 1 January to end of 31 March;

-                      Second quarter is from 1 April to end of 30 June:

-                      Third quarter is from 1 July to end of 30 September;

-                      Fourth quarter is from 1 October to end of 31 December

(b)          Base price in the same year means the price level forecast in the approved field development plan corresponding to the year of implementation. If such approved field development plan is amended or supplemented as compared to the initial plan, then the base price in the same year means the price level forecast in such amended or supplemented approved field development plan corresponding to the year of implementation. If a field continues to be exploited after termination of the petroleum contract, the base price in the final year of the contract shall apply.

(c)          Encouraged petroleum investment project means a project carrying out a petroleum operation in a deep-sea and remote offshore area or in a region with especially difficult geographical or geological conditions in accordance with the list of blocks decided by the Prime Minister of the Government.

Example of determining the amount of surcharge payable in the case of an encouraged petroleum investment project:

Suppose:

-    Base price in the year is:                                    50 US dollars/barrel.

-    Volume (produced) by the field'                          24 million barrels/year.

-    Recoverable petroleum [operational] costs'         35% of turnover

-    Natural resources tax:                                        8% of turnover,

-    Profit distributed to the investor country:            50%

-    Profit distributed to the contractor:                     50%

On the basis of the above figures, the average shared profit oil of a contractor for a quarter shall be determined as follows:

Crude oil prices forecast in the year shall be determined as follows:

Based on the above figures, the contractor must pay a surcharge for the third and fourth quarters specifically calculated as follows:

For the third quarter:

Surcharge payable for the third quarter

Average crude oil selling price of the quarter

Base price in the same year

Volume of shared profit oil of contractor for the quarter.

= 30% X (63-1.2 X 50) X 1.700,000

= 30% X (63 - 60) X 1.700,000

= 30% X 3 X 1.700,000

= 1,539,500 US

For the fourth quarter:

Average crude oil selling price of the quarter

Base price in the same year

Volume of shared profit oil of contractor for the quarter

= 30 % X (80 – 1.2 x 50 ) x 1.700,000

= 30% x (80 – 60 ) x 1,700,000

= 30% x 20 x 1,700,000

= 10,260,500 US

For the whole year = Third Quarter + Fourth Quarter = 1.539.500 + 10.260.500 = 11,800.000 US

2.      In the case of petroleum projects outside those prescribed in clause 1 above, the surcharge payable quarterly shall be calculated as a progressive surcharge rate as follows:

(a)    When the average crude oil selling price of the quarter actually increases by more than 20% and up to 50%, then the surcharge payable per quarter shall be as follows

Average crude oil selling price of the quarter means the price which the contractor itself calculates based on statistical data on actual daily selling prices of each quarter as prescribed in article 6.1(a), but at a maximum of 150% of the base price of the same year

Base price in the same year shall is defined as set out in article 6.1 lb i of this Circular

(b) If the average crude oil selling price of the quarter actually increases by more than 50% of the base price of the same year, the surcharge payable for the quarter shall be calculated as set out in sub­clause (a) above plus an additional surcharge calculated as follows:

In which:

Average crude oil selling price of the quarter means the price which the contractor itself calculates based on statistical data on actual daily selling prices of each quarter as prescribed in article 6.1(a) but applicable to a price higher than 150% of the base price of the same year

Base price in the same year shall is defined as set out in article 6.1(b) of this Circular.

Example of determining the amount of surcharge payable in the case of a project which is not an encouraged petroleum investment project, and taking the same figures supposed in the example in article 6 1(b) above, then the contractor must pay a surcharge for the third and fourth quarters as follows:

For the third quarter:

Average crude oil selling price of the quarter

Base price in the same year

Volume of shared profit oil of contractor for the quarter

Surcharge at 50% for the fourth quarter when crude oil prices of the quarter increased by more than 50%:

payable for the ~ 50% X fourth quarter

Average crude oil selling price of the quarter

Base price in the same year

i X

i

Volume of

shared prof'! oi of con!ractoi for the quarter

Surcharge at 60% for the fourth quarter when crude oil prices of the quarter increased by more than 50%,:

Volume of

Surcharge                                   Average crude                   Base price in the                 shared profit oil

payable for the = 60%    x               oil selling price   "   15  X    same year             x              Q, contractor

fourth quarter                              of the quarter                                                              for the quarter

Surcharge payable for fourth quarter = 12,825.000 + 5,130.000 = 17,955,000 US.

For the whole year, third quarter + fourth quarter = 2,565.000 + 17,955.000 = 20,520,500 US.

Article 7     Declaration and payment of the surcharge

1.     Declaration and provisional payment:

(a)    Determining amount of surcharge provisionally payable:

Applicable to encouraged petroleum investment projects, the amount of surcharge provisionally payable is as follows:

Average crude oil selling price of the quarter

Base price in the same year

Volume of shared profit oil of contractor for the quarter as provisionally calculated by the contractor

In which the volume of shared profit oil of the contractor for the quarter as provisionally calculated shall be determined in accordance with the law on petroleum as provisional at the time the oil is extracted, b, using the estimated volumes of the net oil production available to be extracted during that quarter in accordance with the exploitation schedule for such quarter. The other figures shall be determined as per the guidelines in article 6.1 of this Circular

In the case of a project ,vhich is not an encouraged petroleum investment project, the amount of surcharge provisionally payable quarterly shall be calculated as a progressive surcharge rate as follows:

+      When the average crude oil selling price of the quarter actually increases by more than 20% and up to 50%, then as follows:

Average crude oil selling price of the quarter

Base price in the same year

Volume of shared profit oil of contractor for the quarter as provisionally calculated by the contractor

+      When the average crude oil selling price of the quarter actually increases by more than 50%> then as follows:

In which the volume of shared profit oil of the contractor for the quarter as provisionally calculated shall be determined in accordance with the law on petroleum as provisional at the time the oil is extracted, by using the estimated volumes of the net oil production available to be extracted during that quarter in accordance with the exploitation schedule for such quarter. The other figures shall be determined as per the guidelines in article 6.1 of this Circular

(b)    Declaration and payment of provisional surcharge:

Based on the volume of crude oil forecast to be exploited within the year, the volume of shared profit oil of the contractor for the quarter as provisionally calculated the base price of the year and the average crude oil selling price of the previous quarter, the taxpayer shall itself calculate the amount of surcharge provisionally payable for the quarter on the standard declaration Form 01 issued ..ith this Circular and lodge the file with the local tax office where the taxpayer has registered to pa, ;a*. no later than the 301" day of the first month of the following quarter. Payment shall be made on the next following day if the 30!t1 falls on a weekend or a holiday (hereinafter all referred to as holidays).

If the time for calculating the surcharge for the initial or final quarter is less than or equal to one month, then it may be added to the next following surcharge quarter or be added to the final surcharge quarter in order to formulate a quarter for payment of the surcharge

The time-limit for payment of the provisionally surcharge shall be the same as the time-limit stipulated for lodging the file on provision of payment as set out in this clause.

2.     Accounting fmalisation of the surcharge.

(a)          The amount payable shall be calculated as guided in article 6 of this Circular.

(b)          Calculating the amount of any shortage or excess surcharge paid in the year:

Shortage or                  Surcharge               Amounts                   Excess paid in the

excess for the    -        - payable each   -     provisionally              previous year i if

year                             quarter of the          paid for the               anyi

year                        whole year

(c)    The surcharge finalisation file shall comprise:

Declaration of surcharge finalisation on the standard forms issued -with this Circular, either Form 02 in the case of encouraged petroleum projects, or Form 03 in the case of other projects:

List of volumes and crude oil selling prices.

List of provisional surcharge payments

Time-limit for lodging the surcharge finalisation file: No later than the 90m day after the end of the western calendar year. No later than the 45 n day after the end of a petroleum contract.

If either the 90lh or the 45th day falls on a holiday, then the time-limit for lodging such file is the day after such holiday.

Payment of surcharge in accordance with the finalisation file:

If provisional payments in a year are more than the amount of the [annual] surcharge payable then the excess payment shall be deducted from the amount provisionally payable in the next quarter, or a refund shall be permitted in accordance with the regulations on tax refund in the current la.-, on tax management.

If the amount of provisional payments during the year is less then the amount payable on finalisation. then the taxpayer must pay the surcharge into the State Treasury at the same time as the taxpayer lodges its surcharge finalisation file.

Article 8.  Surcharge exemption

In the case of petroleum projects which require higher investment incentives as stipulated in article 4.8 of Decree 100, the project investor or taxpayer shall provide a written request and explanation (explaining the necessity for a submission to the Prime Minister of the Government to issue a decision exempting surcharge for the project, with data on specific calculations and the impact the surcharge would have on the project in accordance with Decree 100 and the guidelines in this Circular) and submit same to the Ministry of Finance in order for the Ministry to in turn make a submission to the Prime Minister for his consideration and decision.

Article 9. Organization of implementation

1.             This Circular shall be of full force and effect 45 days after the date of its signing

2.             The surcharge paid by petroleum contractors on their share of profit oil -.hen crude oil prices increase shall be accounted for in a new item 3706 "Surcharge on share of profit oil of a contractor' within item 3700 "Difference between import and export prices, and surcharges".When the crude oil selling price of a quarter actually increases but not by more than 20% of the base price of the same year, the taxpayer must still declare [and lodge] a file on provisional surcharge and then conduct finalisation of the surcharge in accordance with the guidelines in this Circular.The surcharge stipulated in Decree 100 and this Circular shall not apply to petroleum contracts signed, or not signed but approved by the Prime Minister, before 1 January 2010. Such surcharge shall apply to petroleum contracts engaged in negotiation for signature or re-signing as from 1 January 2010.

3.             The surcharge actually paid by petroleum contractors on their share of profit oil .-.hen crude oil prices increase shall be deemed to be a deduction when determining taxable income if the taxpayer oavs VAT by the tax credit method [and] pays corporate income tax on the basis of its declaration of turnover and expenses for assessing income for CIT purposes. If the taxpayer pays VAT by the method of calculating tax directly on the basis of added value [and] pays corporate income tax as a [fixed] ratio of turnover, then turnover for assessing CIT shall be total turnover excluding VAT which is receivable by the contractor, but not deducting taxes payable (if any) and this surcharge.

4.             Any problems or difficulties during implementation should be reported promptly to the Ministry of Finance for its consideration and resolution.