Preventing Tax Base Erosion from Tax Treaty Abuse For SDGS in Vietnam

Abstract

Objective: Tax treaties represent an important aspect of the international tax rules of many countries, especially in globalizing era. The taxing rights of the states is one of the biggest issues in cross border transactions because it decides the budget revenue deriving from tax. Tax base, tax base erosion and tax base erosion prevention are topics that have received a lot of attention recently in Vietnam in order to protect government’s revenue for sustainable development goals (SDGs).   Method: By analyzing the current status of Vietnam's double taxation agreements (DTAs), the authors assessed the current situation and identifying risks of tax base erosion from abusing Vietnam's DTAs. The study focuses on analyzing the indicators to assess the content of DTAs such as the Source Index (SI), Permanent Establishment Index (PEI) and Withholding Tax Index (WHT) of Vietnam’s DTAs with the ones of groups of countries.   Results: The authors found that there are loopholes in DTAs creating conditions for abuses of the terms of the agreements and causing tax base erosion in Vietnam. Comparing to the average level of developing countries, the DTA system of Vietnam is higher, however, the biggest limitation and the biggest risk from the system of DTAs are these agreements are agreements signed by Vietnam with the countries/territories that have the lowest scores and are in the group of countries/territories with the largest amount of investment capital in Vietnam.   Contribution: The study makes some recommendations for Vietnam to prevent tax base erosion from tax treaty abuse by reviewing and considering negotiating to update the content of the bilateral tax agreements, promoting participation in multilateral tax agreement and improving efficiency of tax audit.