Thousand billions in lost tax from foreign enterprises

The authorities are looking for ways to enhance tax collection from foreign enterprises

Massive revenue without having to pay taxes

The Ho Chi Minh City Department of Taxation has recently issued an ultimatum for Uber B.V Netherlands Co., Ltd. to pay VND66.68 billion ($2.90 million) in tax arrears within 10 days of December 13.

Previously, in September, the taxation department asked Uber B.V to pay the tax arrears which included personal and corporate income tax, withholding tax, and value-added tax (VAT), as well as late payment fines. However, Uber B.V refused to pay, arguing that the Double Taxation Avoidance Agreement between Vietnam and the Netherlands gives them exemption.

In another case, Le Thi Ai Lien, representative of Saigon Mui Ne, said that the company signed a co-operation contract with international booking site Booking.com. According to regulations, Booking.com will have to deduct a part of its benefits (including profit from business activities in Vietnam) for Saigon Mui Ne so that it can pay corporate income tax (CIT). However, Booking.com also claimed that it was exempt due to the Double Taxation Avoidance Agreement.

In addition, Facebook and Google currently pay a 5 per cent value-added tax and a 5 per cent corporate income tax on any revenue generated from their operations in Vietnam. These earnings normally come from payments Vietnamese companies make for ads on Google and Facebook. The two tech titans refuse to pay these taxes and force their Vietnamese partners to cover them.

These are all examples for foreign enterprises supplying cross-border services and making massive revenue while the tax authorities have yet to find a grip on them to enforce tax obligations.

How do enterprises evade taxes

According to Le Dac Lam, general director of Vntrip.vn, numerous foreign enterprises find ways to evade taxes, including Agoda. Notably, when Vietnamese customers pay money for Agoda to book rooms in hotels and resorts in Vietnam, Agoda takes 20 per cent of every booking on its website without being subject to tax. Agoda said that this revenue is considered as earnings outside of the territory of Vietnam, thus the company does not have an obligation to pay taxes for Vietnam.

Lam estimated that revenue from bookings in all hotels and resorts in Vietnam could reach $21 billion by 2020, 50 per cent of which would come from online bookings and the foreign online booking sites may enjoy an estimated benefit of $1.25 billion from playing the role of intermediaries between customers and hotels and resorts.

Thereby Vietnam will lose thousands of billions of dongs due to foreign online booking sites’ refusal to pay taxes.

Tax authorities refute foreign enterprises

In the case of Uber B.V, in late November, the Ministry of Finance (MoF) affirmed that the company does not enjoy exemption from tax payments because its drivers are Vietnamese people, meaning that it has a permanent establishment in Vietnam.

Regarding Booking.com, the Binh Thuan Department of Taxation, after reviewing the files, concluded that Booking.com is not exempt from tax because it has two permanent establishments in Hanoi and Ho Chi Minh City.

Cao Anh Tuan, deputy general director of the General Department of Taxation, agreed with the conclusion. Tuan stated that online booking sites, including Booking.com, Agoda, and Hotels.com, have been popping up left and right in recent years through co-operation with domestic tourism and hotel enterprises.

In case foreign enterprises remain persistent in asking for tax exemption based on the Double Taxation Avoidance Agreement, MoF will have to consider rewriting its policy on foreign contractor tax in a way that shifts the burden on the foreign companies responsible for the tax obligations, instead of simply charging the Vietnamese entities that use their services.

The new policy should also come with strict penalties for any foreign contractor that fails to comply with the law.

One possible solution is to freeze payments to Facebook or Google from individuals and organisations unless the former clear their foreign contractor tax payments.

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