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Dinh Vu

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Last updated: Friday, October 19, 2018


Agreement on Avoidance of Double Taxation and National Treasury

Posted: Monday, December 25, 2017

With the Agreement and the Protocol on “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income” adopted by the Government of Vietnam and the Government of the United States, Vietnam has signed agreements on double taxation avoidance with 77 countries and territories in the world, which play an important role in the globalisation process. However, it is time for Vietnam to consider benefits in exchange of sacrifices.

Boosting the economy
Agreements on avoidance of double taxation are very important in the globalisation era when overseas investment increases and worker mobility among countries is more popular. Double taxation usually happens when two countries reserve their rights to impose tax on an income of the same taxpayer. Double taxation causes many problems such as barriers to trade, obstacles to trade liberalisation and economic cooperation, roots to violation of tax obligations and evasion of tax by persons covered.

After 30 years of economic opening, to attract investment and boost trade, Vietnam negotiated and signed agreements on avoidance of double taxation with 77 countries and territories in the world as of July 2017.

As of November 20, 2017, Vietnam was home to 24,580 effective foreign direct investment (FDI) projects with a total capital of US$316.91 billion registered by investors from 126 countries and territories. Foreign investors invested in 19 out of 21 economic sectors of Vietnam in all 63 provinces and cities nationwide.

A recent report showed that FDI companies have played an important part in Vietnam’s economic development after 30 years the country has applied its foreign investment attraction policy. Foreign-invested companies account for 70 per cent of the country’s export value and over 50 per cent of industrial production value. According to data from the General Department of Vietnam Customs, FDI firms fetched US$123.928 billion from exports in 2016, up 12.1 per cent over 2015 and equal to 70.16 per cent of the nation’s total export value.

Losing the tax
A recent study by the Central Institute for Economic Management (CIEM) found that the number of double taxation treaties (DTTs) that Vietnam has joined since 1992 is more than total DTTs signed by Laos, Myanmar, Cambodia and the Philippines. Another research report conducted by ActionAid Vietnam in 2016 also showed that 84 per cent of registered FDI capital in Vietnam came from countries that signed tax treaties with Vietnam. Research by ActionAid International found that while DTTs can bring certain benefits to international businesses and foreign investors, they also restrict developing countries from taxing multinational companies. They also lead multinational companies to take advantage of tax treaties to avoid taxes or transfer profits to lower-tariffed countries. Thus, it will reduce budget revenues, affect the balance of budget revenues and expenditures as well as the allocation of public service expenditures and even infrastructure investment for socioeconomic development. As a result, this will reduce the quality of public services.

According to CIEM and ActionAid, signing many DTTs with other countries can bring great benefits as a result of drawing FDI but can also cause inequity between domestic and foreign companies due to DTTs and tax incentives.

Although some DTTs that Vietnam has joined have higher protectionist than the rest out of 519 DTTs in ActionAid International's global tax agreement database, some others considerably restrict tax rights and reduce Vietnam’s tax revenues. Some of them were signed in the 1990s. Researchers cited the DTTs with Singapore signed in 1994 disallow Vietnam to levy dividends of Singaporean companies even they generate incomes or profits for Vietnam. Meanwhile, the DTTs with the United Kingdom provide that a UK businesses operating in Vietnam only pays tax if it has a permanent establishment in Vietnam and vice versa.

“It is time to seriously reconsider policies on taxation avoidance, investment protection and tax preferences and weigh up benefits and sacrifices. Whether Vietnam should sign more of such agreements or not is a big question needed to be considered carefully. In order to limit consequences, the research recommended that Vietnam be cautious before signing or renewing DTTs with foreign countries until it has a thorough assessment of impacts of existing DTTs,” said Mr Tran Anh Duong, Vice Director of Macroeconomic Policy Division, CIEM.

Nguyen Thanh

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