The Vietnamese government has recently proposed amendments to the Tax Administration Law to strengthen tax management of foreign suppliers. The proposal primarily targets foreign companies that claim to have no permanent establishment in Vietnam while requesting substantial tax refunds, aiming to clarify relevant regulations.

Article 42, Clause 4 of the current Tax Administration Law stipulates that foreign suppliers conducting e-commerce, digital operations, and other services “without permanent establishments in Vietnam” must directly register or authorize tax registration, declaration, and payment. The government proposes to remove the phrase “without permanent establishments in Vietnam,” a modification that will significantly impact Vietnam’s taxation approach towards foreign suppliers.

Currently, several foreign suppliers, including Meta, Google, and Netflix, are requesting tax refunds from Vietnamese tax authorities, claiming they have no permanent establishment in Vietnam. The requested refund amounts reach hundreds of billions of Vietnamese dong.

Lawyer Nguyen Viet Nguyen, General Manager of Hoang Giao Law Firm, points out that the current Clause 4 of Article 42 establishes principles for tax declaration and calculation for foreign suppliers conducting e-commerce without permanent establishments in Vietnam. This means foreign suppliers with permanent establishments in Vietnam need not directly register or pay taxes; they only need to pay corporate income tax on profits allocated to permanent establishments as per the Corporate Income Tax Law and double taxation agreements.

However, according to the Value Added Tax Law and Corporate Income Tax Law, foreign suppliers conducting e-commerce activities in Vietnam should pay both corporate income tax and value-added tax. This makes it challenging to tax foreign e-commerce service providers like Booking and Agoda.

The General Department of Taxation believes that maintaining the “no permanent establishment” phrase may no longer suit current e-commerce business models. Online transactions require no physical presence such as offices, factories, or personnel in Vietnam, making it more complex to determine permanent establishments. The department notes that while double taxation agreements were signed years ago, they mainly apply to traditional business activities with physical presence, whereas e-commerce operates primarily in cyberspace without physical presence, leading to insufficient applicability of current tax regulations.

Dr. Dinh Trong Tang, an economist, states that applying double taxation agreements creates difficulties in determining tax obligations. Many foreign suppliers use these agreements to avoid tax obligations. This situation is concerning, especially considering that corporate income tax from e-commerce transactions could become a significant source of national budget revenue in the future.

Removing the “no permanent establishment” phrase will provide tax authorities with legal grounds to require foreign suppliers operating in Vietnam to fulfill tax obligations, regardless of whether they have permanent establishments in Vietnam. This modification is viewed as a necessary step in Vietnam’s tax system reform.

Key Points:

• Vietnamese government proposes tax regulation amendments to strengthen tax management of foreign suppliers.
• Plans to remove “no permanent establishment” clause to address multinational companies exploiting legal loopholes for tax refunds.
• Current double taxation agreements struggle to meet e-commerce development needs.
• Law amendment aims to ensure national tax interests and create fair competition environment.
• New regulations will provide clearer legal framework for e-commerce taxation.