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.
Following the Action Plan on Transfer Pricing Management (the Action Plan) announced by the Ministry of Finance under Decision 1250/QD-BTC dated and effective 21 May 2012, the General Department of Taxation (GDT) has rolled out transfer pricing audits across a number of provinces in the context of challenging 2013 tax revenue collection.
Key observations include the preference of transfer pricing methods, secret comparables, irrelevance of commercial/economic factors and arbitrary transfer pricing adjustments.
Audits in Vietnam and similar markets should be monitored closely, noting appeal and arbitration opportunities that may mitigate double taxation. Refer to my prior post of 2 December 2013 summarizing Vietnam’s proposed anti-treaty shopping rules to deny tax treaty benefits.