Amendment of the Law on Tax Administration: Promptly supplement regulations on related-party transaction

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Mr. Nguyen Van Toan, Vice Chairman of the Vietnam's Association of Foreign Invested Enterprises (VAFIE) has some comments around this issue.

Recently, the National Assembly has discussed and commented on the Law on Tax Administration (amended). Through the presentation of the Ministry of Finance as well as discussion at the conference, how do you assess the content of this draft law?

Through the contents of Law on tax administration is submitted to the National Assembly by the Government I can say that this draft is detailed, richful and transparent. The draft Law on Tax Administration (amended) has been edited a lot comparing with the old one. According to experts’ assessments, 90% of the old law on tax administration has been modified from the word and the meaning of the subtitles by referenced suitable international practices.

In the draft Law on Tax Administration (amended) regulated specified privileges and the tasks of all the partners, including tax payers and the tax administrative agency and other administrative mechanism agencies. This is a very new and good thing, because at the previous time, lawmakers usually focus on the responsibilities of taxpayers while the related regulatory authorities have less responsibilities .

In addition, with the development of the Industrial Revolution 4.0 and the boomed development of e-commerce, there were many types and new business items that the Law on Tax Administration did not cover previously led to tax losses. The draft law is broader, with some very positive improvements in tax collection modernization with e-commerce.

It’s remarkable that, at the draft, problem of price fraud (the related-party transaction) - is the challenge of the tax sector, in the past times, the legal regulations are relatively clear and transparent. In the context of Vietnam's deepening integration into the global economy, cross-border and related-party transaction will become more and more widespread. The inadequate recognition of these transactions will create challenges and barriers for transnational investors when they decide to invest in Vietnam. Therefore, the provisions on this issue in the Draft Tax Administration Law (Amendment) are quite timely.

It’s clear that price fraud is a "hot" problem in current time. Could you explain more detailed about the rules in the the draft Law on Tax Administration (Amendment) related to the price fraud?

In the draft Law on Tax Administration (amended), it‘s supplemented a number of rules, of which the essence rules the format. It is applied in tax management for taxpayers with the arising transaction. This analyzes business activities of taxpayers to define the essence of transaction by comparing similar transactions, ensuring transactions demonstrate the essence of trade, economy, arising finance. It agreed that management of price fraud is applied for both domestic and FDI enterprises in the draft Law on Tax Administration.

In my opinion, this is very important, because there is a related-party transaction, if its essence is wrong, it is actually applied the appropriate sanctions. If it is in the same form, but the essence is not wrong, it is not a violation of law. So how to distinguish between those transactions which is price fraud? All related-party transaction must be controlled, analyzed and post-controlled. Through their statistics, reports, if we find the price fraud, it must be punished. If we want to find out the results, we have enough capacity to get comparative data, comparative tools. The information technology, large data warehouses, and the level of executives must be ensured. These issues are mentioned in the draft tax law and I think that these are very necessary issues.

Thus, the legal provisions were quite adequate. So, when the revised Tax Administration Act comes into effect, what should the regulator do to make the policy effective?

Promoting effectiveness, the most important thing is the way to implement the law. Firstly, it is necessary to improve the capacity, qualifications and ethics of civil servants to implement, control tax collection as well as sanctions. Secondly, the legal documents must be transparent, easy for enterprises to implement. When decrees and implementing circulars are drafted, it is necessary to discuss carefully and collect opinions of business community and especially local tax authorities. At the same time, we should reduce the administrative procedures and strict regulations on the management, inspection and control of enterprises to avoid the unofficial costs.

The Tax sector: there are no cases related to bank information security VCN - When the draft Law on Tax Administration (revised) is submitted to the National Assembly for ...

Regarding to price fraud, tax officials must understand very well the nature of the price fraud and related-party transaction in order to take more realistic action. In addition, the price data system needs to be updated and updated continuously, as the prices of commodities in the market are constantly changing. So it should be clearly defined what price fraud is.

What do you recommend to your company?

For businesses involved in association activities need to understand their rights and responsibilities. The draft Law on Tax Administration (Amendment) is very clear, if there are related-party transaction, they must clearly declare the transaction and price of transactions. Enterprises must clarify their responsibility and comply with the provisions of law, contribute their opinions to state agencies, create favorable conditions, create transparency and minimize negative impacts on tax evasion, taxes, or unofficial fees ...

Thank you Sir!