Speaking at the seminar “Tax management through cash flow: peace of mind for business, transparency for taxes”, Nguyen Tien Trung, head of the Tax Inspection Division at the Tax Department, said that through management and inspections, tax authorities have identified several behaviors posing cash flow risks for tax administration.

First, internal loan arrangements. Parent companies transfer money to subsidiaries through loans with unusually high interest rates or loans with low or even zero interest rates. 

These loans may not genuinely serve production or business activities but instead facilitate fund transfers among units, thereby shifting profits, revenue and expenses to reduce taxable income.

For such cases, tax authorities may examine the nature of the cash flow to reassess lending interest rates, evaluate the legitimacy of interest expenses for corporate income tax purposes, or apply limits on deductible interest expenses under transfer pricing regulations and the EBITDA (earnings before interest, taxes, depreciation and amortization) formula to recover taxes and impose penalties.

Second, contracts for the purchase and sale of goods and services. Parent companies may sell goods to subsidiaries at abnormal prices, or subsidiaries may purchase management, consulting or supervision services from parent companies at unreasonable prices. Some services may not actually exist or may incur inflated costs to increase expenses, reduce taxable income and increase deductible input value-added tax (VAT).

According to Trung, tax authorities may review documents and invoices to adjust deductible expenses, reduce input VAT deductions or assess risks related to illegal invoices if the services are found to be fictitious.

Third, investment cooperation and profit-sharing agreements. Some businesses cooperate or contribute capital but distribute profits disproportionately to their capital contributions, while recording profits for entities enjoying tax incentives.

Tax authorities may assess the reasonableness of contract terms and the relationships among businesses to identify tax incentive abuse or profit shifting, thereby recalculating appropriate profit allocations and recovering corporate income tax.

Fourth, prolonged cash advances. Businesses transfer money between parent and subsidiary companies or to individuals in the form of long-term advances with unclear purposes or non-commercial sponsorships.

According to tax authorities, the nature of these items can be examined to determine if they constitute revenue or other income in order to claw back taxes and penalize violations regarding corporate income tax and personal income tax. If the financing comes with conditions regarding repairs, warranties, promotions, or advertising, it may be subject to VAT clawbacks and penalties.

Fifth, household businesses and individual businesses, especially in e-commerce. Many cases involve large revenues and cash flows without tax registration or declaration, or splitting revenue across multiple accounts to conceal cash flow and reduce tax obligations. Some cases also combine bank transactions with cash payments.

Trung said tax authorities can combine data from banks, e-commerce platforms and other sources to recover VAT and personal income tax, impose penalties on sales without invoices, or even prosecute tax evasion.

Information on bank accounts

Minh of the Tax Department said that tax authorities no longer manage taxes by “counting household businesses on the streets or entering shops to count revenue”, but are shifting toward data-driven management. 

Since 2021, electronic invoice data has formed a big data warehouse that records almost all transactions in the economy. This is complemented by taxpayers' historical tax compliance data and interconnected information systems with banks, e-commerce platforms, and intermediary payment units.

Electronic invoice data, bank account data, and interconnected data with other agencies will help shape a more open, transparent, and fair business environment.

“The tax sector currently has information on around 250 million bank accounts, including about 200 million personal accounts and 50 million corporate accounts. In cases where significant risks, abnormal transactions or suspected tax evasion or money laundering are detected, banks will cooperate in providing information upon request from tax authorities,” Minh said.

He added that the tax sector has already applied artificial intelligence to analyze data and only focus on genuinely high-risk cases. 

Nguyen Thi Cuc, chair of the Vietnam Tax Consultants' Association, said that with the large number of businesses, household businesses, and individual businesses and the rapid growth of e-commerce, it would be impossible to manage revenue, expenses and cash flow for proper tax collection without connecting the digital ecosystem among banks, tax authorities and technology platforms.

Nguyen Le