On 10 November 2017, the first draft submission ("Draft Submission") for the amendment of the Law on Tax Administration ("Amended Law") was released for public consultation on the official website of the Ministry of Finance ("MOF").
The Draft Submission includes six chapters:
- Chapter I: Necessity of promulgating the Amended Law;
- Chapter II: Purposes and viewpoints in constructing the Amended Law;
- Chapter III: Subjects and scope of the Amended Law;
- Chapter IV: Purposes and content of policy in the Draft Submission;
- Chapter V: Proposed resources and conditions for the implementation of the Amended Law after being promulgated by the National Assembly; and
- Chapter VI: Estimated schedule for the National Assembly to review and promulgate the Amended Law.
We have highlighted the key points of the Draft Submission below, which may significantly impact the operation of cross-border IT service providers who have users in Vietnam.
1.1 Tax Administration for E-commerce
Issues concerning cross-border IT service providers are addressed under Section 28.1 (i.e., Tax Administration for E-commerce) of Chapter IV of the Draft Submission.
Under Section 28, the MOF stated that e-commerce activities and transactions are growing rapidly in Vietnam. However, the current tax administration regime is unable to manage this type of business adequately and accurately due to the following reasons:
- E-commerce transactions have virtual characteristics which are hard to verify and are easily altered, making it difficult for tax administration authorities to determine the amount of revenue, who the taxpayers are, etc.
- Offshore service providers provide their services through the Internet on a cross-border basis, and those service providers do not have any representative offices or register their business with Vietnam authorities. Thus, it is difficult for tax administration authorities to manage tax obligations applicable to those offshore service providers.
For example, the Draft Submission identifies two models of online advertising services in Vietnam:
- In the first model, services are offered through agencies in Vietnam. Those agencies must fulfill their tax obligations in accordance with Vietnamese law.
- In the second model, transactions are conducted online and Vietnamese buyers will make payments via international credit cards or e-wallets. It is difficult to verify the real value of these transactions since there are no invoices issued by the service providers and/or the buyers may use invoices of other services to mislead tax authorities. In addition, tax agencies may find it hard to determine advertising revenues (which are calculated based on clicks) as this requires checks of payment transactions at banks of both buyers and service providers, but banks of the offshore service providers are mostly abroad.
1.2 MOF's proposals under the Draft Submission
To effectively manage the collection of taxes on e-commerce, the MOF proposed the following solutions:
- The Ministry of Industry and Trade ("MOIT") and the Ministry of Information and Communications ("MIC") to cooperate with the MOF and share information on enterprises operating in the field of ecommerce which have reporting obligations in accordance with Decree No. 52/2013/ND-CP and Decree No. 72/2013/ND-CP.
- The State Bank of Vietnam to coordinate with the MOF to implement payment solutions and to request that payments for cross-border services must be made through domestic payment gateways (i.e., NAPAS Portal).
- To require cross-border service providers to set up representative offices in Vietnam in order to work more closely with Vietnamese authorities.
- The MIC to coordinate with the MOF to request cross-border IT service providers to declare and pay foreign contractor tax for revenues from services they are providing to Vietnamese organizations and individuals. The tax authorities will inform the cross-border service providers and tax authorities of the countries where the cross-border service providers established accordingly.
- To coordinate and exchange information with the tax authorities of other countries and with Internet service providers (e.g., VDC, FPT, Mobifone, Vinaphone, Viettel, etc.) to capture the volume and value of cross-border transactions, the value of payment made through banks in e-commerce transactions, etc.
- Coordinate with newspapers and radio agencies to provide information of organizations and individuals operating in e-commerce business activities and involved in tax evasion on the mass media
- Coordinate with related agencies to review and amend regulations dealing with violations in the field of e-commerce and tax evasion (i.e., to increase penalties).
- To promulgate new provisions to collect taxes from individuals selling goods online.
1. 3 Schedule for the National Assembly to review and promulgate the Amended Law
Pursuant to the Draft Submission, the MOF plans to submit the draft Amended Law to the National Assembly for review and consultation during the 6 th session of the 14th National Assembly (late 2018).
The MOF plans to submit the draft Amended Law to the National Assembly for review and promulgation during the 7 th session of the 14th National Assembly (early 2019).
Accordingly, in order to have time for the issuance of legal documents guiding the Amended Law, the MOF proposed that the Amended Law would take effect from 01 January 2020 or from 01 July 2020.