To prevent the prevalent acts of price transfer and tax evasion, the Law on Tax Administration 2019 has explicitly defined the prohibited acts in tax administration activities. Notably, it strictly tightens the management of tax transfer pricing and tax evasion activities.
Article table of contents
Law on Tax Administration 2019: Management of price transfer and/or tax evasion to be enhanced in Vietnam (Illustrative Image)
According to the provisions in Article 6 of the 2019 Law on Tax Administration, eight acts are strictly prohibited in tax administration activities, including:
- Collusion, connivance, cover-up between taxpayers and tax management officials, tax management authorities to transfer pricing, evade taxes;
- Harassment, annoyance towards taxpayers;- Exploiting to seize or improperly use tax money;
- Deliberately failing to declare or declaring taxes incompletely, inaccurately, or not promptly the tax amount payable;
- Obstructing tax management officials from performing their duties;
- Using another taxpayer's tax code to carry out unlawful acts or allowing others to use one's own tax code in non-compliance with the law;- Selling goods, providing services without issuing invoices as prescribed by law, using illegal invoices, and using invoices illegally;
- Distorting, misusing, unauthorized access, and destroying the taxpayer information system.
Thus, it can be seen that to prevent the increasingly common act of tax evasion (especially by enterprises, organizations), the 2019 Law on Tax Administration has clearly stated eight violations strictly prohibited by law in tax administration activities. Notably, it prohibits collusion, connivance, cover-up between taxpayers and tax management officials, tax management authorities to transfer pricing, evade taxes, to strictly manage tax evasion through transfer pricing.
To tighten the management of transfer pricing activities, Clause 5 of Article 42 of the 2019 Law on Tax Administration also stipulates principles for declaring and determining taxable prices for related-party transactions as follows:
- Declaration and determination of related-party transaction prices based on the principle of analysis, comparison with independent transactions, and the principle that the nature of activities and transactions determine tax obligations to ascertain the tax obligations as in conditions of independent party transactions;
- Prices for related-party transactions are adjusted according to independent transactions to declare and determine the tax amount payable based on the principle of not reducing taxable income;
- At the same time, small-scale taxpayers with low tax risk are exempted from implementing the above 2 regulations and are entitled to simplified mechanisms in declaring and determining related-party transaction prices.
Therefore, according to the above provisions, the law has tightened controls over tax transfer pricing and tax evasion activities that are currently prevalent. For effective management of tax transfer pricing and tax evasion activities, the 2019 Law on Tax Administration requires that taxpayers and tax management officials, tax management authorities must declare and determine related-party transaction prices based on the principle of analyzing and comparing with independent transactions and the essence of activities and transactions determining tax obligations to ascertain the tax obligations as in independent transaction conditions. Additionally, taxpayers involved in related-party transactions must prepare, store, declare, and provide documentation of information about themselves and their related parties, including information about related parties residing in countries or territories outside Vietnam as prescribed.
Currently, numerous cases involve many enterprises transferring capital at high values or declaring high input values leading to losses and avoiding tax payments. Particularly, the transfer pricing and tax evasion activities of enterprises are very common nowadays. Therefore, tightening the management of tax transfer pricing for related-party transactions is entirely reasonable and necessary to prevent the tax evasion behavior of enterprises and organizations.
Ty Na
- Key word:
- price transfer
- tax evasion
