Doing Business in Vietnam: 5 Major Risks Related to Tax

Domestic and foreign businesses operating in Vietnam are currently facing five major problems related to tax.

Transfer pricing may cause most tax risks

The requirement that related-party transactions must comply with the principle of market prices (without transfer pricing elements) is becoming an increasingly strict requirement of tax authorities in all countries, including Vietnam.

Because the content compliance guide is constantly being updated and changed, and requires comparing a business’s tax compliance position with similar companies in the market, the process of researching, understanding and operating proper use of these new concepts is creating challenges and huge tax risks for businesses.

New tax risks due to the impact of the Covid-19 pandemic

During the outbreak of the Covid-19 pandemic, the Government of Vietnam continuously had tax support policies such as tax payment extension, tax reduction and deduction for expenses related to the support and prevention of Covid-19.

However, because policies were issued very quickly to promptly deal with emergency situations during the pandemic, understanding and properly applying the spirit of the Government for each industry always creates questions about the appropriateness of application. This may create tax risks in the application that take time to identify and have a clear answer.

Impact of changes in international tax policy (BEPS)

Since the end of 2015, the Organization for Economic Cooperation and Development (OECD) has introduced 15 major actions to combat base erosion and profit shifting (BEPS) and request official member countries (G20+) and observer member countries, including Vietnam, to study the application roadmap.

The partial and progressive adoption of actions on BEPS will lead to changes in domestic tax policies, including updating anti-transfer pricing regulations and entering into treaties/ general agreement on commitments to implement the new principles.

Vietnam is reviewing the effects of these changes and has a roadmap to commit to applying the changes in line with global trends.

Tax reform and digitization of tax administration from tax authorities

One of the focus of tax reform that Vietnam and the world is urgently applying is the application of technology and the digitization of tax administration activities.

The mandatory application of electronic tax declaration and payment, the compulsory application of electronic invoices (from July 1, 2022) and the requirement to transmit data to the tax authorities are strong moves in digital transformation in the state management of the tax industry.

Tax authorities have identified many more fields that need to be digitized and need to connect to exchange information. The roadmap for the implementation of these works has also been

Besides the benefits that technology brings, large-scale transformation will also create challenges and risks in the process of changing mindsets and application platforms.

The issue of storing, organizing documents and providing business data to tax authorities

Along with the digital transformation and application of technology, the method of transmitting and receiving data, organizing the storage, security and retrieval of data creates many new challenges for both tax authorities and taxpayers.

Recent discussions about data storage format, responsibilities of parties (including taxpayers, electronic solution providers and tax authorities) for receipt, processing, storage, security and retrieval is not over yet.

The risks of hacker attack, virus intrusion, data theft or leak are becoming the top concern of many parties, especially from businesses who are obliged to provide information to tax authorities in future tax audits.

Bonny Le – VietnamCredit