Prevent the base erosion and profit shifting

	Circular outlines tax incentives
	Guidance on the management of value-added tax refund
	Close tax loopholes to prevent tax evasion

Vietnamese tax system has been gradually reformed and modernized. (Photo: Thu Hang).

General challenges

Currently, in many countries, the revenue budget mainly depends on corporate income tax or company tax. However, there are few companies (mostly multinational companies) taking advantage of the gaps and regulatory inconsistencies in policies, tax regulations to deliberately reduce taxable profits or carry out profit shifting to countries and territories with little or no economic activities. In fact these countries are the places with the low tax or duty-free leading to reducing the corporate income tax.

Mr. Nguyen Van Phung, Director of Tax Management Department for large enterprises, the General Department of Taxation said, many FDI enterprises have chosen Vietnam as their destination to take advantage of tax incentives. After a time of profitable business, they transfered money back to areas of low income tax or tax of 0%. In the context of tax procedures simplification as today, if the Government has not closely monitored, the risk of BEPS in FDI enterprises in Vietnam will be higher.

According to Mr. Dang Ngoc Minh, Deputy Director General of the General Department of Taxation, the General Department of Taxation has been in collaboration with international experts to review the contents of the preliminary action plan against BEPS since 2015. Initial results identified four high-risk issues of BEPS and Vietnam, including: Policy keeping business accounts of high loan interests of multinational companies operating in Vietnam; Abusing of profit shifting; Regulation of transferring records; Permanent basis and taking advantage of agreements on tax.

However, Mr. Nguyen Van Phung noted: “We should distinguish tax evasion from tax avoidance. Because they are two different concepts, different behaviours, different natures, we should have clear attitude and clear sanctions for tax evasion and tax avoidance. In fact, tax avoidance is the abuse of law loopholes to reduce the taxable payment. While, tax evasion is the activity of violation of the law, then it should be punished aggressively.

Actively exchanging information, preventing contraband

According to the OECD, the loss of tax revenues due to BEPS is at least USD 100-240 billion per year, equivalent to 4-10% corporate income tax of the world every year. For the developing countries which depend heavily on this source of revenue, the impact of BEPS is really heavy.

In Vietnam, the behaviour or activity of tax erosion and profit shifting is often carried out by multinational companies. In order to deal with this situation, Vietnam has made important progress in finalizing the policy to ensure tax laws to attract foreign investment in the context of integration as well as sustainable revenues to develop the country for many years.

According to statistics from the General Department of Taxation, since the first agreement on tax in 1992, Vietnam has signed 74 agreements to avoid double taxation with other countries, of which 66 agreements already in force. In order to actively prevent BEPS, Vietnam has put strong measures in Circular 205/2013 / TT-BTC on the avoidance of double taxation and handling the abuse of tax agreements between Vietnam and other countries.

Regarding the incident "Panama Papers", Mr. Nguyen Van Phung said that this incident has urged Vietnam to review tax incentives and consider appropriate policies, whether to remove or not; strengthen risk management to share information with the tax agencies of the countries. "However, the main problem is to improve the capacity for tax officers to manage the domestic and foreign enterprises, while these procedures are increasingly being simplified. We must take advantage of the benefits of the Agreement on the avoidance of double taxation and prevention of tax evasion between Vietnam and the countries in the world to exchange information and data on investment", Mr. Nguyen Van Phung emphasized.

The Taxation Office collected over 4,3 billion vnd of internal tax arrears VCN- General Department of Taxation, the Ministry of Finance, in the first 6 months of 2016, the ...

In order to gradually prevent BEPS as well as implement the objectives of the socio-economic development plan in the period 2016 - 2020, Deputy Minister of Finance, Mr. Do Hoang Anh Tuan said: "To receive new investments from foreign supports in industrialization and modernization of the country, Vietnam should amend legislation and management mechanisms, particularly in policies of tax, to assert and maintain Vietnam as the ideal place for investment of multinational companies".