Overseas tech titans facing hurdles in digital taxation

October 20, 2022 | 14:27
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Businesses are still hoping for further specifications on the regulations on digital and cross-border commerce by Vietnam’s tax authorities to prevent tax losses.

According to the latest statistics from the General Department of Taxation (GDT), more than six months since the portal for foreign providers was launched, 36 overseas companies have registered, declared, and paid taxes.

This includes six of the largest technological multinationals: Meta, Google, Microsoft, TikTok, Netflix, and Apple, accounting for 90 per cent of the e-commerce market share in revenue. These 36 companies have paid $50 million in tax.

Overseas tech titans facing hurdles in digital taxation
Large foreign tech groups are now being asked to contribute part of their profits in Vietnam Photo: Le Toan

On October 1, Prime Minister Pham Minh Chinh issued an official dispatch directing the various ministries and localities to improve the efficiency of tax collection for digital commerce.

The dispatch emphasised that ministries need to share data with each other to serve the development of e-commerce and prevent tax losses.

According to Nguyen Thi Minh Huyen, deputy director of the Vietnam E-commerce and Digital Economy Agency under the Ministry of Industry and Trade (MoIT), state management of e-commerce is one of the priorities within the framework of the agreement of coordination between the MoIT and the Ministry of Finance.

“Regarding database sharing, we are also coordinating regularly to ensure 2-way data connection to facilitate e-commerce tax management,” Huyen said.

Nevertheless, there are industry-specific issues that businesses are facing while the compliance process is being refined.

Le Thi Kieu Nga, partner and head of corporate tax at KPMG in Vietnam, noted that similar to the global situation, Vietnam’s tax laws on new digital forms of commerce still require clarification from tax authorities.

“While the laws specify that foreign providers must pay taxes through the portal, it is still unclear whether direct registration is mandatory or optional.

In terms of taxable turnover, it’s also quite complex to determine taxable revenue for various e-commerce models and payment flows, including marketplace operator, developer, sellers, and logistics,” Nga said.

“In addition, there are issues concerning taxing time, tax relief under double tax treaties, VAT credit, and accrued liabilities prior to the tax portal launch.”

Nga noted that a common action plan for fair and effective tax collection was a challenge everywhere, not only for Vietnam.

“Recognising the rapid growth of this industry, some European countries have introduced a digital service tax (DST) scheme, which is different from any traditional form of taxes,” Nga said.

“On the other hand, countries like the US or Germany are against a DST, as most tech companies are located in these countries. Since each country is trying out its own tax law, there can be cases where a service provider is taxed many times rather than once.”

A representative from one of Vietnam’s big four e-commerce platforms, who did not want to be named, told VIR that the company has been in talks with the GDT on the various obstacles in declaring taxes for sellers, but so far there have been no specific solutions.

“Some obstacles include determining the sellers’ revenue, whether it is possible to deduct all kinds of costs that the sellers have to bear when selling goods, such as shipping fees, discounts and promotions, how to identify and manage items with different tax rates, and how to handle cases where individuals and household businesses register for different tax calculation methods,” the representative said.

“Moreover, declaring and paying tax on behalf of others is a type of tax agency service and is a conditional business line. How can e-commerce floors meet this requirement?”

The e-commerce representative added that the testing timeline for the e-commerce portal - which was set to be October 11-21 - was not feasible, as the company needed time to discuss internally and arrange personnel before submitting feedback to the GDT, making it difficult to comply with all current regulations.

Hoang Van Cuong-Member National Assembly Finance and Budget Committee

Overseas tech titans facing hurdles in digital taxation

I think more universality is needed. For example, we currently collect taxes through cash, but many people pay for things through digital currencies, which we do not recognise. These objects need to be somehow included in the regulatory mechanism because they are still a part of income-generating activities.

Another point to watch out for when creating tax legal frameworks is that we, as a nation, encourage startups, most of which are on digital platforms. If we are not careful, tax collection will be effective, but the startup environment will be affected.

Therefore, our legal mechanism needs to be designed in a way that encourages taxpayers to comply. The goal should be to alter behaviours sustainably so that individuals and businesses have more incentive to pay taxes than not. On the other hand, tax authorities must avoid the scenario where the compliance cost is more than the amount of tax collected.

This is a challenge not only for Vietnam but also for developed countries. Management of tax collection with the e-commerce system is currently very confusing, especially regarding cross-border business. Vietnam is one of the four leading countries in Southeast Asia in terms of online cross-border tax management. Nevertheless, digital transformation must be in harmony with a synchronous legal framework for tax management to be most effective.

Nguyen Thi Lan Anh-Director Tax Administration for Small- and Medium-Sized Enterprises

Overseas tech titans facing hurdles in digital taxation

Tax Magazine last month launched an initiative on e-commerce tax and received several great recommendations from experts and businesses, the most notable of which was VAT deduction at source.

The General Department of Taxation assessed that this was a sound solution because it would allow for an inflow of VAT directly into the state budget, without much time and effort from taxpayers and tax authorities, whenever an e-commerce transaction occurs.

VAT deduction at source for e-commerce is also recommended and has been implemented in several countries, including Argentina, Ecuador, and Paraguay.

However, to implement this solution, we must strengthen our legal basis and make amendments to the VAT law, personal income tax law, and tax administration law, along with relevant guiding legal documents.

We will continue to study this. However, in the short term, while the relevant laws have not been revised, we still need to strengthen tax administration for e-commerce activities.

Our current priorities are to strengthen the responsibilities of taxpayers and middle parties like e-commerce floors and create smooth coordination while minimising administrative procedures. This requires a lot of improvement in terms of information technology to build large databases.

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