The new Law on Tax Administration (“LTA”), effective from 1 July 2020, strengthens the tax enforcement in Vietnam. Regulations on Transfer Pricing (“TP”) and the basic principles on viewing related-party transactions for the first time are included in a law. Previously, TP regulations were to be found in guiding documents linked to the laws, namely Decree 20, Circular 41. Some essential innovations in the LTA include:
According to the draft of the new guiding decree following the LTA’s implementation, Vietnam tax authorities will enhance the exchange of information with foreign tax authorities regarding related-party transactions in accordance with international tax agreements. The taxpayers ́ obligation to provide information in that context will be reduced. Specifically, the tax authority will automatically exchange information in the event that the parent company of the taxpayer registered in a foreign country is required to submit a Country-by-Country Report (“CbCR”) in that country of residence.
On 24 June 2020, the Government has issued Decree No. 68/2020 amending and supplementing Article 8.3 of Decree 20 on the deductible loan interest cost. This took effect immediately and is applied retrospectively for the tax year 2019, in certain cases for the tax years 2017 and 2018 and onwards. The main amendments are:
The new LTA must be viewed in the context of the declared intention of the tax authorities to enforce tax compliance and increase tax revenue. Because not so few foreign invested companies are continuously declaring a loss but continue operations, they are in the focus of future tax audits. The tax audits in these cases will very likely focus on TP issues. It is highly recommended to conduct a TP health check within 2020.
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