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VIETNAM: Double taxation avoidance with US will bring more gains than losses

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Vietnam-US double taxation avoidance will bring more gains than losses

With the agreement with the US, Vietnam has now signed the double taxation avoidance agreements with 70 out of 170 countries and territories with which Vietnam has trade and investment relations.

Double taxation is considered a barrier to trade and investment. It discourages transnational investments while prompts individuals and businesses evade tax. 

Therefore, the newly signed agreement will help businesses reduce operation costs. It sets limits on tax rates levied on a number of taxpayers’ earning items. 

If the tax rates set by the countries are higher than the tax rates stipulated in the agreement, taxpayers will pay taxes in accordance with the tax rates in agreement. 

An information exchange system between Vietnam and the US will be established to prevent tax evasion. 

This, according to analysts, will have significance for Vietnam which now has to struggle with transfer pricing conducted by foreign-invested enterprises.

However, according to Ernst & Young (E&Y), the agreement will need ratification by the two countries’ legislation agencies to take effect.

EY warned that the agreement may see the approval delay at the Senate. The same thing happened with similar agreements the US has signed with Spain and Switzerland. 

Some US Senators said the information exchange scheme within the double taxation avoidance agreement may violate the US taxpayers’ privacy rights. 

The US Senate has not ratified any similar agreements since 2010, which means the US government will have to make every effort to convince the US Congress in the time to come. 

Meanwhile, Vietnam may meet some problems in implementing the agreements it signed with other partners due to the quality of the labor force and infrastructure.

Dr. Le Thi Thanh Huyen, a finance expert, when commenting about the efficiency of the double taxation avoidance agreements Vietnam signed before, noted that in Vietnam, the policies on taxation procedures change regularly, which makes it difficult for taxpayers to follow.

Huyen said that Vietnam needs to check double taxation avoidance agreements, especially  ones signed with the countries which have lower tax rates than Vietnam’s, such as British Virgin Islands and Cayman.

A research work by three professors of economics, Fabian Barthel, Matthias Busse and Eric Neumayer, pointed out that double taxation avoidance agreements bring higher foreign direct investments to countries. This would occur with Vietnam under the Trans Pacific Partnership (TPP) Agreement.