Applying the highest tax rate on advertisers of Facebook and Google seems to be the Vietnamese government’s latest solution to collect taxes from the technology giants, who still do not have representative offices in Vietnam and currently pass through a policy blind spot.

Solution near for tech giant tax limbo

Data released by the Ministry of Information and Communications showed that in 2015 Facebook led the online advertising market in Vietnam with the annual revenue of $235 million, followed by Google with $97.4 million.

However, in the 2016-2017 period, Vietnamese authorities only managed to collect VND120 billion ($5.3 million) in the total corporate income tax from the local partners of the two giants, while according to Article 13 of the Law on Corporate Income Tax, Facebook and Google may be classified as high-tech companies and may therefore be eligible for a preferential tax rate of 10 per cent for the first 15 years.

No supervision on ­advertisers

Collecting taxes from online platforms such as Facebook, Google, and YouTube is a concern not only for Vietnamese authorities, but a major issue across the globe, with many claiming that the regulatory environment is not strict enough in the management of online business activities.

Discussing the tax issue with VIR, media expert Le Quoc Vinh affirmed that it is necessary to strengthen regulatory control over the business activities of the advertisers on these cross-border platforms.

“Firms paying advertising fees for foreign corporations have to be controlled via strict regulations. As a result, if we have a clear accounting system with clear-cut obligations, the issue can hopefully be resolved,” Vinh added.

In the latest move, Facebook’s purchasing of the rights to broadcast the Premier League in Vietnam, Laos, Cambodia, and Thailand may generate huge revenues from its advertising activities. Thus, tax collection is rising even higher on the agenda of the countries’ authorities.

The legal system in Vietnam does not provide for supervision measures over firms that have no representative offices in the country, which makes tax collection from Facebook and Google impossible.

“The current legal system only has hold on firms with legal representation in the country, thus, firms without legal presence are in a grey area, making enforcement very difficult,” Ho Thi To Uyen, deputy director of the Ministry of Industry and Trade’s Vietnam E-commerce and Digital Economy Agency, told VIR.

“This is a huge challenge for Vietnam because collecting tax arrears from these firms would require the collaboration of a lot of ministries and agencies. However, in Vietnam the issue currently rests in the hands of the Ministry of Industry and Trade, the Ministry of Finance, and the General Department of Vietnam Customs,” Uyen added.

According to Uyen, collecting higher taxes from the individuals and organisations who make money through the platforms may be the most suitable solution. In fact, many countries have taken this tack.

The US government collects taxes from individuals and organisations earning money through the Facebook and Amazon platforms via the Paypal online payment system at the rate of 6.25 per cent. The Singaporean government applies a 7 per cent tax rate on individuals and organisations earning money through online platforms. In Vietnam’s case, regulations stipulate that individuals doing business on Facebook, Google or YouTube have to pay 7 per cent tax if their income exceeds VND100 million ($4,400) per year, including 5 per cent value-added tax and 2 per cent income tax.

Indeed, plenty of individuals have been identified and had tax arrears collected. Specifically, an individual in the central province of Quang Nam, who earned more than $700,000 from Facebook and Google, had to pay around $66,000 to the local tax department. Earlier, a game writer in Ho Chi Minh City, who earned $1.8 million from the two platforms, had to pay $180,000 in taxes and fines. However, these are only two cases among the 14,000 accounts doing business on these platforms.

According to both Vinh and Uyen, to improve tax revenues, local authorities need to extend the coverage of supervision and to reach the payments Facebook and Google would need to pay, they should adjust tax rates on individuals and organisations to fall in line with those applicable to the firms themselves. Depending on their tax bracket classification, this would mean potential multi-fold increases.

Collaboration is key

At the October 11 APEC Workshop on Enhancing Regulatory Infrastructure for E-commerce in Hanoi, Toh See Kiat, chairman of Goodwins Law Corporation and CommerceNet Singapore Limited, told VIR that Singapore needed extensive international collaboration to deal with cross-border disputes. He highlighted international organisations like Alternative Dispute Resolution and Online Dispute Resolution in the process.

This fell in line with the views economist Nguyen Tri Hieu who previously expressed to VIR that it is necessary to have agreements on tax obligations between Vietnam and the countries where the corporations have representative offices. These are the only grounds to collect tax from Facebook, Google, and similar firms. As a result, Vietnam could follow in the footsteps of Singapore or even join agreements with countries where the firms have representative offices, such as Singapore, Hong Kong, and China. These are the two options for Vietnamese authorities to collect taxes on the giants: they can either take a domestic approach and charge individuals and organisations earning money from these platforms or they can work out an international co-operation. In either case, Vietnam’s work is cut out for it and it will be fascinating to see how the country goes about addressing the issue.

VIR