Global Tax Alert | 18 November 2013

Vietnam releases new Decree on tax penalties

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Executive summary

On 16 October 2013, in conjunction with the new amended law on Tax Administration, Vietnam released the new Decree (Decree) on penalties pertaining to tax administrative procedures. This Decree becomes effective on 15 December 2013 and applies to any violations occurring on or after the effective date, including the violations of any periodic or estimated tax payment obligations.

The Decree amends penalty amounts and periods of statute of limitations (SOL) but otherwise retains the basic concepts and framework of the prior regulations.

Detailed discussion

Applicability of the Decree

The Decree applies to the administrative violations pertaining to various taxation regimes, including Value Added Tax except for those related to exported and imported goods.

Statute of limitations

The SOL for tax procedural violations still remains at two years and five years for underpayment of tax liabilities and excess tax refund claim. These SOL periods are counted from the date the violation is committed, and are defined either as a day following the tax filing due date or the date the tax refund is issued.

In terms of the collection of the outstanding tax liabilities, a ten-year SOL will apply, counting from the date the act of violation is detected; whereas the prior regulations provided no SOL. No guidance is provided in this Decree on how to determine the date that the violation is detected, leaving some uncertainties. For taxpayers not applying for a tax registration, the SOL to collect outstanding tax liabilities is open.

Penalties

The maximum penalty for tax procedural violations is doubled to VND200 million (equivalent to US$9,500) and VND100 million (equivalent to US$4,750) for business entities and individuals, respectively.

If the tax authorities discover an underpayment of tax or an over-claim of tax refund, a taxpayer will be subject to a penalty of 20% of the total adjusted tax liabilities, applicable to both business entity and individual taxpayers, a 100% increase in the penalty rate.

With respect to tax evasion, similar to the prior regulation, a penalty of one to three times of the evaded tax will be applied.

Other changes

This Decree removes the late payment penalty, which has been converted into a so-called late tax payment interest1 stipulated in the amended law on Tax Administration. The late payment interest is charged at the rate of 0.05% per day for the first 90 days and is increased to 0.07% per day thereafter. It is not clear whether the late payment interest is tax deductible when paid, pending further guidance and confirmation. A 10-year SOL applies to the collection of this late payment interest.

The Decree may also allow imposition of multiple penalties on the same violation if such violation is repeated, which was not the case under the prior regulations.

Implications

This Decree reflects the Vietnamese Tax Authority’s focus on tax compliance enforcement.

Due to substantial increases in tax penalties and enforcement efforts, taxpayers are recommended to review their current tax compliance procedures and positions to manage and mitigate any potential penalty exposures.

Endnote

1. Late payment interest applies on the under payment of tax liabilities after the tax payment due date. The under payments can be due to the re-assessment made by the taxpayers or the adjustments made by the tax authorities.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Vietnam Limited, Ho Chi Minh City
  • Nhung Tran
    +84 4 3824 5252
    nhung.tran@vn.ey.com
Ernst & Young LLP, Vietnamese Tax Desk, New York
  • Anh Phung
    +1 212 773 1897
    anh.phung@ey.com
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
    chris.finnerty@ey.com
  • Jeff Hongo
    +1 212 773 6143
    jeff.hongo@ey.com
  • Kaz Parsch
    +1 212 773 7201
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    +1 212 773 1816
    bee-khun.yap@ey.com

EYG no. CM3974