Tax duties closing in for digital services 

Tax duties closing in for digital services - illustration photo / Shutterstock

While tax on digital platforms is once again featured in discussions fuelled by the National Assembly last week, the Organisation for Economic Co-operation and Development (OECD) is preparing to launch a blueprint in the middle of next year.

According to information released in October, participating countries like Vietnam could be able to broaden the right to tax business profits of cross-border digital companies following the international law where users of automated digital services (ADS) are located. ADS is defined to include the provision of a digital service over the internet or other electronic network with minimal human involvement.

“The existing rules relating to physical presence will be changed in recognition of the fact that physical presence is not needed for the provision of ADS,” explained Dean Rolfe, tax partner at KPMG. “The physical presence requirement for taxation would be replaced with new rules based on the source of revenue like the internet protocol address of the end-user. This would allow Vietnam to tax revenues which are generated from sales to Vietnamese end-users.”

The advancement is expected to put the rules into operation from mid-2021, a delay against the initial timeline of the end of this year due to interruptions caused by COVID-19, according to the OECD. Meanwhile, the Ministry of Information and Communications (MIC) and the Ministry of Finance are jointly adjusting current tax regulations towards the specific responsibility of cross-border service providers.

According to Minister of Information and Communications Nguyen Manh Hung, the movement is necessary after implementation of the Law on Tax Administration, effective since July. Last November when the law was approved, it unveiled new legislation such as authorising commercial banks to automatically charge the platforms’ tax from the bank accounts of partners transferring money to them.

At a National Assembly meeting last week, Hung said that a handful of foreign over-the-top (OTT) platforms such as Netflix, Apple TV, and Buy TV have been operating without the Vietnamese government’s supervision, meaning that their tax obligation in the nation has yet to be fulfilled. Meanwhile, local OTT platforms have to obey full tax and other responsibilities.

The MIC estimates that overseas OTT sites are serving about one million subscribers in Vietnam with total revenue of nearly VND1 trillion ($43.5 million) annually. Their operations in the country have constantly improved over the years – for example, Netflix in the first quarter of this year saw a 60-per-cent increase in subscribers on-year.

Now, the General Department of Taxation (GDT) is partnering the Anti-Money Laundering Department under the State Bank of Vietnam to require Netflix to provide its earnings statistics in Vietnam over the past three years. Meanwhile, Netflix is working with the MoF and GDT to establish a representative office and servers in the country for its tax declaration.

In a response to VIR, Amy Kunrojpanya, vice chair of communications for Netflix across Asia-Pacific said, “In every country we operate, Netflix respects those rules. We have been honoured to meet regularly with the Vietnamese authorities on this topic and await further details on implementation from them.”

Other cross-border platforms such as Airbnb, Facebook, and Google are also in the crosshairs of Vietnamese tax authorities. Facebook and Google occupy nearly 70 per cent of local advertising market share, with annual revenues of hundreds of millions of US dollars. Along with Vietnam, policymakers across the world are attempting to tax them as much as possible.

The Indonesian government in October issued a new tax law outlining the duty of overseas companies without an official presence in the country. Accordingly, the companies have to pay 10 per cent VAT from July 7 when the government listed Netflix and Alphabet, the parent company of Google. The decision applies to all corporates including Facebook, Google, and Netflix.

US-based Microsoft and China’s Alibaba Cloud are the two latest names on the list of 36 companies which have been required to fulfil their tax duties, also including GitHub, UCWeb Singapore, To The New, Coda Payments, and Nexmo Inc, cited Reuters. Indonesia’s tax authority states that businesses named on the new list are subject to VAT since November 1.