Up to now, there have been 15,100 FDI projects in Vietnam, with a total registered capital of 220 billion USD, of which 50 percent (107 billion USD) has been disbursed. This success is significantly attributed to tax incentives. The Vietnam Business Forum reports.

Many new features from the tax incentives

At the annual meeting of the Asia-Oceania Tax Consultants' Association taking place on October 17-18, 2013 in Hanoi, the speakers agreed with the view that the tax policies for attracting more investment has become one of the priorities of the policy makers.

"The favourable tax regime applied in recent years has turned Vietnam into an attractive investment destination. In the context of the declining world economic growth from 2008, Vietnam remains its position as an attractive investment destination, promoting the economic growth.

"In recent years, Japan, Republic of Korea, and Singapore are the top countries with largest investment in Vietnam," said Nguyen Van Nam, Representative from the Vietnam Tax Consultants’ Association (VTCA) said.

Specifically, Vietnam's National Assembly has passed a law amending and supplementing a number of articles of the Law on Corporate Tax (in effect from January 1, 2014), of which more regulations are proposed to attract and encourage investment.

Accordingly, the corporate tax will be reduced; the ordinary tax rate will be 22 percent from January 1, 2014 and 20 percent from January 1, 2016.

Besides, there is extension of tax incentives and adjustment of the level of tax reduction and tax incentives, especially for agriculture, farming, rural development, socialisation, non-profit purposes, the areas with tough socio-economy and the areas with priorities for investment. The new regulations also provide tax incentives for investment expansion and industrial zones. The amendment of the tax policies will target different groups to meet the actual demands and be consistent with the Investment Law.

Besides, the Government approved a strategy to reform the tax system in the 2011-2020 with the aims of simplifying the tax administrative procedures, facilitating the taxpayer, standardising the tax administration on the basis of the application of information technology to ensure the consistency, making punishment against the acts of transfer pricing, tax fraud and encouraging the use of the tax services through tax agents.

Improving consensus among nations

One of the conference topics raising a lot of concerns is the transfer pricing and the mechanism for the advance pricing agreement (APA).

According to Nguyen Thi Minh, Deputy Minister of Finance, the application of the APA is beneficial for businesses, tax authorities and the country. Vietnam always encourages and creates favorable conditions for foreign investors to negotiate and sign an agreement based on the principles of determining APA. Currently, Vietnam has signed agreements with 65 countries and territories, of which 58 agreements are in effect to avoid the double taxation and prevent the tax evasion.

In regards to the application of the APA, at the meeting, international and domestic speakers also shared that because of the differences on the conditions of each country and territory, investment policies, different tax policies, the application of the APA needs the consensus.

According to Marcellus Wong, Senior Adviser of PricewaterhouseCoopers in Hong Kong, China, the application of the APA is very complicated and controversial, which requires a large team of consultants and takes 1-3 years or even 5 years to help the countries to reach the agreement of implementing the APA. Some basic forms of the APA agreements have been undertaken among the taxpayers, the local tax collection offices (the unilateral APA) and the tax authorities in other countries (bilateral agreements and multilateral APA). To apply the APA, each country should build their own system based on its legal system, geography, politics and economics. However, the system should comply with the principles of Organization for Economic Co-operation and Development (OECD) and the recommendations of other countries.

Mie Seyama, on behalf of the Japan International Cooperation Agency (JICA), shared that Japan has adopted the APA since as early as 1986 based on the handbook of the market valuation for the multinational companies and tax authorities (1985). However, the application of the APA always faces challenges in determining the market price. The number of cases relating to examination of the taxation on market pricing and implementation of the APA in Japan remain very high. It is estimated there are over 100 cases per year. The forming of the APA and the agreements of the APA among the countries should focus onthe general rules of the Treaty on the tax of the OECD, issued in 2007.

According to Huong Vu, representative from the Vietnam Tax Consultants’ Association, Vietnam is strengthening the legal ability and learning the international experiences in forming the APA consistent with the characteristics of the economy and the current business operations of Vietnamese businesses.

The APA is expectedly applied on 3 levels. The simplified APA includes least procedures, which is least time consuming and expensive to the taxpayers. Second, the standard APA is aimed at the entities with least complicated transactions. Third, the APA is offered for more complex transactions, linking to the international transactions.-VNA