WHAT IS AUTHORIZATION?
Article 562 of the Civil Code 2015 stipulates:
“Authorization contract means an agreement between parties whereby an attorney has the obligation to perform an act in the name of a principal. The principal shall only be required to pay remuneration if so agreed or so provided by law”.
Authorization means an individual or organization (the principal) assigns another individual or organization to perform one or certain tasks on their behalf.
In fact, for real estate-related transactions, authorization is quite common: authorization to purchase, sell, transfer, convert, mortgage, inherit, give, contribute capital, lease, perform other related tasks such as measuring, extracting documents, paying taxes, etc.
FORMS OF AUTHORIZATION CONTRACT.
An authorization contract must be made in writing, notarized, or certified to be legally valid. Sub-authorization to a third party shall only be made when having the consent of the principal.
IS REAL ESTATE PURCHASE AND SALE SUBJECT TO PIT?
In fact, there are many cases of real estate purchase and sale through authorization contracts with the purpose of evading tax obligations to the State. For example:
– The person who owns real estate authorizes another person who has the right to transfer such real estate;
– The attorney is also the real estate buyer but does not want to carry out the procedures for transferring the title/ land use rights, therefore he/she makes an authorization contract and waits for the next buyer to sign real estate sale contract.
From the above practice, Circular 111/2013/TT-BTC stipulates:
“If a person authorized to manage real estate has the right to transfer real estate or similar rights as those of the real estate owner, the taxpayer is the authorizing person.”
In addition, in 2011, the General Department of Taxation issued Official Dispatch No.1133 and No.3373 to guide the calculation of PIT for real estate transfer through authorization contracts.
Most tax authorities consider the authorization contract (having the content of authorization to purchase and sell real estate, authorization to use, dispose of real estate) as real estate purchase and sale contract which is subject to PIT as regulated. When the attorney makes a contract to transfer real estate to the next person, this transaction will continue to be subject to PIT. The person who makes a tax declaration when registering and transferring property shall declare and pay PIT for both transactions: authorization, purchase and sale (if the authorization transaction has not yet been declared tax) unless otherwise exempted from PIT as prescribed by law for each transaction.
Thus, the person who is obliged to declare and pay PIT when authorizing the transfer of real estate is the principal if the nature of the authorization contract is the purchase and sale contract or the real estate transfer contract.
AUTHORIZATION TO TRANSFER REAL ESTATE IS NOT SUBJECT TO PIT PAYMENT
Cases of authorization related to real estate but not purchase, sale or transfer transactions are not subject to PIT payment as prescribed above. The essence of these authorization contracts is real authorization, even though the authorization relates to the sale or transfer of the real estate.
For example, because of going on a business trip and not being present in Vietnam as a result, etc., the owner cannot personally conduct the purchase, sale, and transfer of the real estate. He/she must authorize another person (usually a relative) to implement the transaction on his/her behalf. At that time, to prove that the authorization is authentic and not a purchase and sale transaction, the tax declaration submitted to the tax authority has to be enclosed with papers and documents proving the owner can not directly carry out the procedures (such as papers, documents proving that he/she is working, not present in Vietnam at the time of carrying out the procedures, etc.), documents proving the personal relationship between the principal and the attorney, remuneration payment documents (if any), receipts for real estate sales. The tax authority will base its decision on such documents. if there is a basis to determine that this is not a real estate purchase and sale transaction, PIT payment shall not be required.
If the person does not agree with the tax authority’s PIT collection for the authorization contract, he/she is entitled to initiate a lawsuit to request the court for settlement. In fact, in Ho Chi Minh City, there have been many lawsuits related to this issue, and many of them are against tax authorities because PIT was imposed on authorization contracts to purchase, sell, and transfer property when their nature is not property sales and transfer transactions.
RISKS WHEN PURCHASING AND SELLING REAL ESTATE BY AUTHORIZATION CONTRACT.
As analyzed above, many real estate transfer transactions “dodge” taxes by making authorization contracts, and these transactions are actually considered false transactions to hide the main purpose of purchasing and selling real estate. This will entail certain risks as follows, in addition to the common risks as other transactions:
– If the principal dies, the authorization is no longer valid. The authorization contract will automatically be terminated and the real estate will remain under the ownership of the principal.
– The attorney cannot be the owner of the real estate through the authorization contract;
– False transactions shall be invalid when a dispute arises.