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Economic Sector

Last updated: Wednesday, May 23, 2018


Many Solutions to Prevent Tax Losses

Posted: Friday, May 12, 2017

On the sidelines of the APEC’s Finance and Central Bank Deputies’ Meeting 2017, the workshop on the implementation of the action plan on Base Erosion and Profit Shifting (BEPS) in APEC was hosted by Vietnam.

The fact that APEC economies sit back and look for anti-tax evasion is not a coincidence, but an internal need of many countries, including the APEC economies.
Dang Ngoc Minh, Deputy Director of the General Department of Taxation, said that the practice of eradicating tax collection and transferring profits overseas are often done by multinational companies. Tax avoidance schemes include exploiting gaps, inconsistencies in tax policies and regulations to reduce taxable returns, or transferring profits to countries or territories with little, or no substantial economic activity but low tax rates, or tax exemptions, in order to reduce the corporate income tax payable by the corporation.

According to the Organisation for Economic Cooperation and Development (OECD), the tax losses due to erosion of the tax base and the transfer of profits abroad annually are up to at least US$100-240 billion, equivalent to 4 - 10 percent of annual corporate income tax (CIT). For developing countries - those heavily dependent on CIT revenues, the impact of BEPS is huge," said Minh.

In the face of these negative impacts, the BEPS initiative under the APEC Finance Partnership was first put on the agenda in Peru 2016. APEC 2016 focused on encouraging member economies to apply Tax transparency standards and sign the Mutual Administrative Assistance in Tax Matters (MAAC) and the agreement between the competent authorities on the exchange of reports between States.

According to the General Department of Taxation, in the period from now to 2020, the tasks of State budget collection still face many difficulties and challenges. By 2018, most of the Free Trade Agreements (FTAs) signed by Vietnam will enter into a period of removing and reducing tariff, which has an impact on State budget revenue. Therefore, the research and development of specific solutions, in which to achieve a sustainable and effective revenue collection system is necessary.

Mr Bui Van Nam - General Director of Taxation said that the implementation of the BEPS programme contributes to enhancing the international integration of the tax sector, reforming the tax system in line with international practices and standards, elevate Vietnam's status in international fora; especially to prepare the institutional and regulatory conditions of the tax sector in the context of Vietnam's integration into the world economy.

“This also helped the taxation sector to respond promptly to the impacts of the integration process, on the basis of proposing a number of policy options and paying taxes through transferring prices, preventing the abusive use of the regulations on permanent establishment, preferential treatment, exemption and reduction of tax treaties for evasion, tax avoidance and transfer of profits abroad, prevent the used of internal borrowing cost to minimize taxable profit," Nam said.

Because of the importance of implementing the BEPS program, the General Department of Taxation has established a working team on the implementation of the BEPS Action Plan. According to representatives of the General Department of Taxation, the measures in the anti-tax evasion action plan are: Require multinational corporations to report by country, which is the first mechanism allowing the tax authorities of countries to get a global picture of the activities of multinational companies; followed by preventive measures; limiting the incentives that have a negative impact on the international investment environment and the dispute settlement procedures under the bilateral agreement in order to avoid double taxation, etc. The recommendation on coordination mechanisms or enhanced cooperation and technical assistance to implement the BEPS Action Agenda in APEC will be adopted in October 2017.

Hien Hung

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