Crafting balanced treatment in cross-border advertising

Thai Gia Han, junior associate at Indochine Counsel

Advertising is one of the most effective ways for enterprises to approach their customers. The channel not only allows access to potential customers but also provides cross-marketing to previous and existing clients, enhancing the reach of an enterprise’s products or services. With the rising demand on introducing products and services across borders, several advertising models have earned themselves a good standing in the market, especially digital advertising.

Unfortunately, every story has two sides. While many enterprises have tried to use digital advertising for genuine purposes, others made use of it for earning illegal income. Therefore, regulators of many countries have recently taken actions to consolidate their legal frameworks regulating advertising in general, as well as digital advertising in particular. Vietnam is not an exception. With the government’s approval of Decree 70, certain new conditions are now applicable to digital advertising in Vietnam.

Major effects on cross-border advertising

Provisions on cross-border advertising activities are regulated in Decree No.181/2013/ND-CP from 2013. However, due to the digital sphere’s novelty and rapid growth, those regulations are not comprehensive to govern cross-border advertising activities.

Many inappropriate cross-border ads have found their way into Vietnam, and the authorities cannot handle them due to the lack of sufficient legal basis and sanctions. Furthermore, cross-border advertising brings huge profits to providers. At the same time, it remains difficult to impose taxation duties as provided by Vietnamese law. This has caused major losses to the national budget and distorted the advertising environment in Vietnam.

Regulators have gradually brought regulations on cross-border advertising activities into being, such as in Decree 70, which will come into effect on September 15.

With this decree, regulations on cross-border advertising activities which were previously provided for in Decree 181 have been amended, specifying obligations of each subject participating in cross-border advertising activities. Thereby, Decree 70 creates a common legal framework for the management of these activities.

Tight control and fair treatment

Decree 70 provides that all foreign and local advertising providers and publishers involved in cross-border advertising must comply with the laws and regulations on advertising, cyberspace security, and internet service management, and that they are subject to local tax duty.

This provision creates a balance between providers of cross-border and domestic advertising services. In addition, due to the difficulty of managing cross-border transactions, regulators have placed some additional obligations in respect of service providers.

l Notification obligation: cross-border advertising services are required to provide the Ministry of Information and Communications (MIC), in particular the Authority of Broadcasting and Electronic Information, with their information, including registered names, business names, addresses, contact email addresses and phone numbers, locations of main server systems for providing services.

Moreover, they need to provide contact details of a representative in Vietnam, if any. This notification obligation is to be conducted via direct delivery, post, or electronically 15 days prior to starting cross-border advertising services in Vietnam.

l Legality of advertising products and contents: Accompanying the obligation to examine documents related to advertising conditions of organisations, individuals, products, goods and/or services which need advertising, cross-border providers also need to make sure the advertising products do not violate other laws or infringe intellectual property rights of other entities.

l Timeline in handling violating information and content: The time for cross-border advertising service providers to remove violating information is limited to 24 hours upon issuance of the MIC’s request.

For ads publishers, the most remarkable provision is the request of advertising service providers to implement technical measures for the purpose of monitoring and removing violating contents. This regulation indirectly requires ads publishers and advertisers to be responsible for monitoring these contents.

Regulations in cross-border advertising will assist in setting up a common management framework. Photo: Le Toan

Bringing tax obligations into practice

While retaining the provision that foreign service providers of cross-border advertising services shall be subject to local taxation as provided in Decree 181, Decree 70 defines that cross-border advertising services in Vietnam are services hosted on systems located outside the territory of Vietnam by foreign entities for users in Vietnam with revenues generated from it.

Websites providing cross-border advertising services are defined as IT systems using one or more websites in the form of symbols, numbers, letters, images, sounds, and other forms of information with the intent to provide internet users with services of storing, providing, using, searching and exchanging information, among others.

In addition, Decree 70 requires local providers who cooperate in cross-border advertising activities with foreign ones to submit an annual report, including revenues generated from such cooperation. These requirements under Decree 70 will facilitate more effective management of the implementation of local tax collection from such foreign providers.

In combination with other amendments in the tax sector, this can be considered as an act to overcome old management loopholes. A draft circular by the Ministry of Finance guiding the Law on Tax Administration from 2019 and its guideline was published last February for collection of public opinion. The draft circular provides a definition of “digital platform-based businesses”, which means the provision of services using the internet or electronic networks of which the nature is automatic with minimal or no human interference and which cannot be conducted without the use of IT.

Accordingly, foreign providers involved in digital business with organisations and individuals in Vietnam are considered to have a permanent establishment in the country, and are therefore obliged to register, declare, and pay taxes in respect of such business.

Applying sanctions

These specific regulations help set up a common framework for the management of cross-border advertising service provisions. However, those new rules should come with appropriate and realistic sanctions. Regulators have expressed this intention through the promulgation of Decree No.38/2021/ND-CP from March. According to Decree 38, even foreign organisations and/or individuals can be sanctioned if committing administrative violations regarding advertising in the territory of Vietnam, with a maximum fine of around $4,300 for individuals and twice as much for organisations.

Decree 38 lists violations of general advertising regulations, for example advertising conditions, prohibited ads, among others, while also detailing violations in advertising on specific platforms, including electronic devices.

For instance, an act of failing to comply with the notification obligation by a foreign service provider may cause a fine of up to $430, in addition the forced removal of the violating ads from the respective platform. One remarkable point of Decree 38 is the sanction on the infringement on intellectual property rights, which may be subject to a fine of up to $3,500 for an organisation, double as much as for an individual infringer, and may also be accompanied with forced removal of the advertisement.

Regulators are building a more comprehensive legal framework for re-shaping the advertising environment, especially in respect of cross-border ads. They have begun to create a balanced position for both cross-border and domestic advertising activities. But with the rapid pace of technological advancement, especially in the digital market, it remains uncertain whether these amendments will be able to keep up.