Effective as of 4 February 2016, Vietnam’s circular outlines how it determines levels of tax risk for a taxpayer, thereby having a direct impact upon the likelihood of an audit.
- Tax risk methodologies will apply for all levels of tax administration activities.
- Internal and external sources of risk will be evaluated.
- Six different levels of risk will be used to rate taxpayers.
- A low compliance rating can result from accumulated losses exceeding 50% of equity, or its VAT amounts are above the average of similar sector based companies.
A detailed summary of the new rules commences on page 15 of the referenced Deloitte’s World Tax Advisor.
A tax risk framework policy is essential for every MNE, as additional countries employ a risk-based approach to compliance and audits. The country-by-country reports to be provided via the OECD’s BEPS Action 13 guidelines will also become a risk tool used by many countries around the world.
Accordingly, all tax departments should be thinking of the post-BEPS world with risk-focused lenses that will yield insights previously not envisioned.
The Australian Tax Office (ATO) has provided a concise summary of its framework by which four broad risk categories are categorized for each type of tax (income tax, GST, excise). This classification framework will be used to provide their service focus.
The framework distinguishes key taxpayers and taxpayers with high, low and medium risk classifications. Higher risk taxpayers will merit a continuous tax review, key taxpayer relationships will be developed focused on the MNE’s risk management and governance framework, medium risk taxpayers will fact reviews/audits, and lower risk taxpayers will be monitored to confirm its ongoing risk characterization.
A link to the ATO Fact sheet is provided for reference:
This initiative is valuable in providing insight into a taxpayer’s risk characterization, although the review frequency and transparency details leading up to a relevant classification are not provided. All taxpayers with Australian operations should be knowledgeable about the risk classification assigned to them for purposes of efficiently engaging with the ATO in a collaborative relationship.
This exercise is also helpful in identifying potential trends in other countries as the OECD’s country-by-country template guidelines are finalized and legislative actions are taken to formally assess risk using relevant data.