Anti-transfer pricing: Need to be consistent with the provisions of Decree 20 and Tax Administration Law (amended)

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By this time, the Draft Law on Tax Administration (amendment) has been nearly completed and will be submitted to the National Assembly by the Government in May 2019. How do you comment on this draft Law?

First of all, I must say that the Tax Administration Law (revised) was given in time because the Vietnamese economy is continuing to change and integrate into the world economy. Vietnam has many multinational companies operating with complex cross-border activities. This is also the period of the digital economy that changed the way of handling transactions. These things affect the tax system. And of course Vietnam has a high economic growth rate, requiring the tax legal environment to continue to be changed, more attractive to attract more investment capital.

In this context, I think that the Tax Administration Law (revised) is very important because it forms the basis for the tax system to operate effectively, ensuring that the economy's requirements are met with new developments at international level and in line with the requirements of the digital economy. At the same time, the tax system also needs to work more effectively for the Government, which means it doesn't cost too much to run the system, and more importantly, to taxpayers so that they don't find it too expensive to comply with tax regulations.

Considering the content of the draft Law on Tax Administration (amendment), it can be seen that there are some progressive points linking Vietnam's legal system to international practices, which is a problem related to transfer pricing. How do you assess these regulations?

One of the highlights of the draft Law on Tax Administration (amendment) is to strengthen regulations on transfer pricing mechanism. Specifically, the draft reflects international practices and good principles associated with reality in Vietnam. Examples are independent trading principles and the "essence of formality" principle. The financial reporting requirements for multinational companies for tax authorities have been consistent with international practice, especially the requirement of reporting inter-national profits. This fits with best practice in the world.

In addition, the draft Law has created a legal framework for sharing data with other tax authorities in other countries. This is important because multinational companies operate not only in Vietnam but also in many other countries. Better sharing of tax information will ensure that companies do not transfer profits from one country to another. Thus, these new points are useful, and they are developed based on the achievements that Vietnam has obtained in Decree No. 20.

In particular, the draft Law on Tax Administration (amendment) also stipulates that Vietnam can review and update 70 bilateral tax agreements in the direction of applying it to a multilateral tax agreement. All of this will help Vietnam to have a standard tax agreement that will help solve the gaps that make it impossible for businesses to transfer profits to countries with lower tax rates.

Need strong penalties for transfer pricing VCN - Although there has been great effort in anti-transfer pricing , but look back in the past ...

In order for the Draft Law on Tax Administration (amendment) to be further refined and approved at the next National Assembly meeting, what will you recommend to the drafting agency?

Currently, the provisions of Decree 20 are quite good and specific. However, it is still necessary to ensure the consistency of the words between the draft Law on Tax Administration (amendment) and Decree 20. Although the actual draft Law reflects the spirit of Decree 20, sometimes the words are still not unified. It should be more consistent to have a regulatory and legal framework to avoid misleading. In particular, it is necessary to upgrade the provisions of Decree 20 to include in the provisions of the Law on Tax Administration (amendment).

Thank you Sir!