There will be private policies on anti-price shifting in e-commerce

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An enterprise is doing procedures at the Ho Chi Minh City Department of Taxation. Photo: Nguyen Hue

According to Mrs. Nguyen Thi Hanh, Deputy Director of Reform and Modernization Board, the General Department of Taxation, Vietnam is now 17th rank in the world and 8th rank in the Asia Pacific with about 42 million people (account for 45% of the total population) using internet. Moreover, the country has 130 million mobile phone subscribers of which the majority uses smart phones.

Together with the internet development, e- commerce is also growing rapidly with the involvement of many businesses and individuals with many diverse types such as online games, online sales, online advertisings and digital contents. Online shopping is becoming popular with people and more frequent for businesses.

Common e-commerce activities are: online advertising, sales of digital products; e-books, movies, apps, online games and music; online sales; online service supply and online data supply. From 2013, some Vietnam’s companies held the Word Startup Report that was valued and ranked with value of hundreds of millions of dollars, even billions of dollars. Some businesses have revenues up to thousands of billions per year and have made export of e-commerce products to foreign countries.

For tax law on price shifting, Mrs. Hanh stated that since October, 2015, the Taxation has established a management branch of transfer pricing in the General Department of Taxation and in some tax departments which manage large companies, most tax officers and public officials were trained on basic knowledge of transfer pricing management.

For e-commerce, besides management on tax declarations and tax payments, Taxation also inspected the compliance of tax law of organizations and individuals, however, due to the complicated nature of e-commerce, many digitalized products are hard to determine their real value and selling price and the difference between e-commercial transactions with traditional commercial transactions causes many challenges for tax management on e-commerce in management of subjects, cost and revenue declarations.

Additionally, identifying the nature of values and transactions, the selling prices of intangible products and services, and digitalized products as well as seeking independent transactions and independent parties for comparison during determination of taxable price also face difficulties. Therefore, until now, Taxation has not implemented any inspections on transfer pricing in this field.

To improve the efficiency of transfer pricing management in e-commerce, according to Mrs. Hanh, in addition to perfecting the law system (a private policy on transfer pricing management in e-commerce will be released), management coordination mechanism, product classification and details of permanent locations, Taxation will enhance the training for public officers in charge of transfer pricing management and other relevant public officers, concurrently identify and focus on inspection for tax payers with high risk of tax evasion or tax avoidance through transfer pricing, and build a management database and strengthen the coordination between the Ministry of Finance, the General Department of Taxation and other relevant ministries and departments and increase the exchange of information with foreign tax authorities

Considering the situation of price shifting in Vietnam, the Director of Institute of Financial Training Hoang Tran Hau acknowledged that recently, price shifting has been performing relatively complicatedly. Along with complexity of the economy, the delay and inconsistency of the law system and the loose control of the functional authorities created loopholes for enterprises to dodge the law and cheat on tax and Customs declarations. Not only multinational companies and corporations but also domestic companies also have expressions of fraud in domestic price shifting.

According to information from a representative of the General Department of Taxation, since 2010, Taxation has implemented inspections on transfer pricing for many cases in which there were cases that adjustment on increase of revenue or decrease of costs hit to hundreds of billion vnd per record.

Mr. Hoang Thuy Duong, Deputy Director of KPMG Audit Company said that Vietnam is one of nearly 100 countries issuing provisions on market price determination and is assessed as a country which quickly responds to amendments on tax policies and laws in transfer pricing to match with the reality and international laws.

"The transfer pricing matter is a concern of not only for functional authorities but also enterprises and multinational corporations. As result of KPMG’s survey, more than 50% of enterprises have step by step prepared a draft report on the anti-decline of taxable income and profit shifting (BEPS) of which 80% of enterprises prefer determining transfer pricing, "Mr Duong noted.

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"The transfer pricing matter is a concern of not only for functional authorities but also enterprises and multinational corporations. As result of KPMG’s survey, more than 50% of enterprises have step by step prepared a draft report on the anti-decline of taxable income and profit shifting (BEPS) of which 80% of enterprises prefer determining transfer pricing" Mr Duong noted.