Handling double taxation on income in the context of globalization in vietnam

In the context of globalization, cross-border transactions and international trade are increasingly growing, the level of dependence between countries is increasing, so the requirement t

MINISTRY OF EDUCATION AND TRAINING MINISTRY OF FINANCE

ACADEMY OF FINANCE

NGUYEN TIEN KIEN

HANDLING DOUBLE TAXATION ON INCOME IN THE CONTEXT OF GLOBALIZATION IN VIETNAM

SUMMARY OF ECONOMIC DOCTORATE THESIS

HA NOI - 2024

The thesis has been completed

at the Academy of Finance

2 Dr Nguyen Dinh Chien

Reviewer 1:

Reviewer 2:

Reviewer 3:

The thesis is defended in front of Thesis Judgment Committee

at Academic grade, meeting at Academy of Finance

At hour , date month year 2024

The thesis may be searched in National Library and

Library of Academy of Finance

INTRODUCTION

1 Urgency of the thesis topic

Tax has a very important position and role in the socio-economic life of each country On the international scale, under the impact of international economic integration, countries become interdependent at a deeper and broader level This gives rise to problems such as double taxation between countries or tax competition between countries to attract foreign direct investment (FDI) Double taxation affects the investing country as well as the receiving country, promotes tax fraud and causes many problems such as trade barriers (discouraging cross-border investment) In the context of globalization, cross-border transactions and international trade are increasingly growing, the level of dependence between countries is increasing, so the requirement to handle double taxation on income becomes more and more necessary

To handle the problem of double taxation on income arising from border transactions, in addition to unilateral measures stipulated in the internal laws of some countries, countries often sign international commitments (bilateral or multilateral) - expressed in Agreements (bilateral or multilateral) on avoidance of double taxation (often referred to as Double Taxation Agreements), Vienna Convention on Diplomatic/Consular Relations, etc

cross-In Vietnam, in addition to bilateral Double Taxation Agreements (and recently multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting - the MLI Convention), Vietnam has not joined any other international treaties on tax

In fact, although Vietnam’s Double Taxation Agreement network is relatively wide (as of December 31, 2023, Vietnam has signed double taxation agreements with 80 countries and territories around the world), but some provisions of the Agreement are not really suitable for the current economic situation, many Agreements were signed too long ago, some Agreements lack applicable provisions or some provisions are not consistent with international practice, does not cover all cases and situations that may arise that give rise to tax obligations between taxpayers in Vietnam and foreign partners in new integration conditions; The organization of implementation of double taxation Agreements at Province tax Offices after the Agreement takes effect is not really effective; etc

Besides, although there are many studies both domestically and internationally, theoretically they are all general, general studies related to double taxation Agreements, or the definition of the phenomenon of double taxation and some general issues of international tax, but there are no topics or research projects that systematically and completely evaluate double taxation and the treatment of double taxation on income in the context of globalization comprehensive and in-depth way In terms of practice, there are no topics or research projects that evaluate and analyze the practical handling of double

taxation on income in the context of globalization in Vietnam recently

This creates a theoretical and practical requirement to research and clearly understand the subjective and objective causes of the above situation and find solutions to handle double taxation on income of taxpayers with cross-border transactions, thereby helping to improve taxpayer compliance in the global economy in Vietnam

Based on the above reasons, the PhD student has chosen the topic

“Handling double taxation on income in the context of globalization in Vietnam” as the research topic of his doctoral thesis

2 Research objective

The thesis aims to:

- Develop and supplement theories on double taxation and handling double taxation on income

- Evaluate the current situation of handling double taxation on income in Vietnam in the context of globalization

- Propose solutions to enhance handling double taxation on income in the context of globalization in Vietnam, thereby contributing to improving tax administration efficiency and preventing revenue loss for the state budget

3 Research objects and scope

The research object of the thesis topic is the handling double taxation on income between countries in the context of globalization

Scope of time: The thesis focuses on researching and evaluating the current situation of double taxation on income in Vietnam in the context of globalization and proposing solutions until 2030

Scope of space: Handling double taxation on income between countries in the context of globalization in Vietnam; which focuses on some types of income

of organizations/businesses and individuals that can be double taxed such as: income from business activities, income from interest, income from royalties, income from capital gain and income from dependent personal services

- Method of collecting documents and research data: The thesis uses data and documents officially published by the Ministry of Finance, the General Department of Taxation and competent state agencies in public summary reports, annual reports, specialized reports and other records and documents related to double taxation on income

- Case study method: Through studying common cases of double taxation

on income in Vietnam (case boxes)

- Survey method: This method is used to survey the current status of double taxation on income in Vietnam and factors affecting double taxation on income

of Vietnam with 4 research hypotheses and a Likert 5-level scale

5 New contributions of the thesis

Firstly, the thesis has synthesized, presented and analyzed the main contents of a number of domestic and foreign research projects related to double taxation and handling double taxation on income From there, make comments and evaluate the research results of these projects, pointing out the contents that are research gaps related to the thesis topic

Secondly, the thesis has presented basic theoretical content on double taxation on income and handling double taxation on income, such as: the concept of double taxation and handling double taxation on income; causes and effects of double taxation on income; objectives, content of handling double taxation on income and factors affecting handling double taxation on income Thirdly, the thesis has researched, synthesized and presented the experience

of handling double taxation on income of a number of countries in the world, thereby drawing lessons that Vietnam can research and manipulate

Fourthly, the thesis analyzed and evaluated the current situation of double taxation on income in Vietnam From there, the thesis provides objective assessments of the achieved results, limitations, and causes of the limitations Fifthly, based on basic views on handling double taxation on income in Vietnam, the thesis proposes groups of solutions to strengthen the handling double taxation on income in Vietnam in the context of globalization The thesis’s solutions are clearly explained, feasible, and consistent with socio-economic reality as well as tax administration conditions in Vietnam in the coming time

6 Structure of the thesis

In addition to the Introduction and Conclusion, the list of tables, appendices and the list of references, the thesis consists of 4 Chapters as follows:

Chapter 1: Overview of research on double taxation on income and handling double taxation on income in the context of globalization

Chapter 2: Theoretical basis for double taxation on income and handling double taxation on income in the context of globalization

Chapter 3: Current situation of double taxation on income in Vietnam in the context of globalization

Chapter 4: Solutions to enhance handling double taxation on income in the context of globalization in Vietnam

Chapter 1 OVERVIEW OF RESEARCH ON DOUBLE TAXATION ON INCOME AND HANDLING DOUBLE TAXATION ON INCOME IN THE

CONTEXT OF GLOBALIZATION

1.1 Overview of foreign studies

The thesis has briefly introduced the research results of international scientific research projects on the issue of double taxation in many different scopes and aspects There are research works on a global scale, there are research works on the scope of regional institutions such as the United States, the EU or investment-receiving countries, and there are separate research works

on each dispute resolution mechanism in the process of handling double taxation and evaluating the advantages and disadvantages of each mechanism, etc These works have clearly shown the causes of double taxation and the inevitable nature

of conflicts between tax laws The problem is that countries first need to consider their motivations for signing double taxation agreements and their willingness to deal with double taxation

1.2 Overview of studies in Vietnam

In recent times in Vietnam, there have been a number of scientific works related to the research content of the thesis topic published The thesis presents a summary of the research results into 3 groups The first group is articles and research by authors published in domestic scientific journals on a number of international tax issues in Vietnam The second group is scientific research Projects at the Ministry of Finance level studying some issues of international tax and double taxation agreements The third group is tax textbooks in Vietnam that are partly related to the issue of double taxation on income

1.3 General assessment of the research situation related to the thesis Many research contents on double taxation have reached consensus among international organizations (OECD, UN), countries and authors, which has basically clarified the theoretical and practical foundation of double taxation and is still valid in today’s context That is: some basic content on double taxation such as: some basic international tax principles, concept of double taxation, content of double taxation, principles of handling double taxation, most

of the factors affecting double taxation

A number of issues related to double taxation have been researched, there has been consensus among authors and the research results, but are no longer relevant to today’s context: Position assessments, the role of bilateral double taxation agreements; Ways to handle problems that arise when implementing bilateral double taxation agreements; How to amend and supplement bilateral double taxation agreements to suit new conditions

Some very topical issues on double taxation have been mentioned by a number of authors and agreed on the necessity and general direction but have not yet agreed on the specific content, specific methods or are not yet timely that is: studying the possibility of Vietnam’s participation in the MLI Convention to implement measures to prevent abuse of the double taxation Agreement that have been proposed in the BEPS Project through regulations or adjustments on some main provisions of bilateral double taxation agreements such as: specific provisions on avoiding abuse of the Agreement; determine residents of the Contracting Party; determination of permanent establishment (PE); measures to avoid double taxation; mutual agreement procedure; especially supplementing regulations on dispute resolution mechanism through arbitration mechanism; Convention on Mutual Administrative Assistance in Tax Matters (the MAAC Convention) to expand the exchange of information (EOI) network (to at least 146 partners compared to 80 partners within the scope of application of the tax treaties for Vietnam), taxes covered by EOI (PIT, CIT and VAT), the persons subject to EOI (tax and non-tax residents, national or not of a Signatory) and the forms of EOI and assistance in tax debt recovery between participating Parties; and cooperative actions to prevent tax base erosion and profit shifting (BEPS) with the goal of preventing cross-border tax evasion and avoidance activities, thereby indirectly helping to avoid loss of revenue for the state budget and achieve the goal of avoiding double taxation on income of taxpayers with cross-border business activities; the multilateral Convention on the implementation of Pillar one on tax challenges arising from the digitalisation

of the economy (the MLC Convention)

* In terms of practice

Firstly, there is no in-depth and updated assessment of the current status of handling double taxation on income in Vietnam in the context of globalization Comprehensive and complete assessment of limitations and causes of limitations

in handling double taxation in Vietnam in the period 2016-2023 as a basis for proposing solutions to improve the efficiency of handling double taxation on income in the coming time

Secondly, it has not yet clarified the context affecting the handling double taxation, determining the correct direction and key contents in handling double taxation on income in Vietnam in the coming time The study clarifies the practical basis for choosing specific methods and content to participate in the MLI Convention and the MAAC Convention of Vietnam

Thirdly, no work has systematically proposed solutions to strengthen the handling of double taxation on income in Vietnam in the socio-economic context in the period from 2016 to 2023, vision to 2030

Therefore, in the content and scope of its research, the thesis will focus on researching and clarifying the above contents in order to contribute to systematizing and clarifying theoretical issues on double taxation and handling double taxation on income in the context of globalization in Vietnam in the period from 2016 to 2023; Propose solutions to strengthen the handling double taxation on income in Vietnam until 2030

Chapter 2 THEORETICAL BASIS FOR DOUBLE TAXATION ON INCOME AND HANDLING DOUBLE TAXATION ON INCOME IN THE CONTEXT OF

GLOBALIZATION

2.1 Theory of double taxation on income

2.1.1 The concept of double taxation on income

After stating a number of related concepts and opinions, the PhD candidate proposed the concept of double taxation as follows: “Double taxation is the phenomenon in which two or more States apply the same tax on the same income or the taxable assets of a taxable subject during a tax period cause that subject to bear a tax burden greater than the tax burden that they would otherwise have to bear by a State In addition, double taxation is also a phenomenon when two taxpayers from two States have to pay tax in each country for the same taxable income.” To put it more briefly and concisely, double taxation is the phenomenon in which an individual or economic organization’s income is taxed two or more times in a tax period

2.1.2 Effects of double taxation

Double taxation causes many problems such as trade barriers, hindering the liberalization of exchanges and economic cooperation (discouraging cross-border investment), and is a huge barrier to flows of capital, technology and labor across borders between countries - an inevitable development trend in today’s era, is the cause leading to violations of tax obligations, tax evasion of related subjects

In addition, because there are “gaps” in the principles of determining residence and determining the source of income in the tax laws of most countries, countries cannot fully collect taxes on cross-border transactions, this demonstrates the ineffectiveness and unfairness of the tax system on a global perspective Ineffective because it encourages taxpayers to deploy and participate in potentially tax-avoiding activities rather than fully taxable activities This trend has distorted the health of cross-border investment activities Unfair because not fully collecting taxes means there are people with the same income who pay taxes at different levels

2.1.3 Causes of double taxation on income

Firstly, globalization leads to easy movement of capital and labor between countries

Secondly, due to differences in determining residents, permanent establishments and sources of income between countries

Thirdly, it comes from the application of countries’ taxation principles

2.2 Theory on handling double taxation on income

2.2.1 Concept of handling double taxation on income

Handling double taxation on income means that a State: (1) unilaterally introduces measures to exempt, reduce or credit the amount of income tax that investors must pay in their country; or (2) participate in international commitments (bilateral or multilateral) to jointly waive or limit part of their tax rights on income and assets arising from foreign investment activities, technology transfer and international division of labor

2.2.2 The goal of handling double taxation on income

The most common goal: promoting cross-border trade, investment and labor relations by eliminating tax barriers to these activities

Detail goal:

- Avoid double taxation

- Prevent tax evasion

- No discrimination among taxpayers

- Create a dispute resolution mechanism

- Create mechanisms to improve the efficiency of international tax administration

2.2.3 Content of handling double taxation on income

The content or sequential steps necessary to eliminate or reduce double taxation include: (i) creating a legal basis; (ii) Organizing the apparatus (to implement the legal basis created in (i); and (iii) Professional process to implement the legal basis created in (i) on an organizing the apparatus basis created in (ii) 2.2.4 Method of handling double taxation on income

Eliminating or reducing double taxation on income can be done by different methods (unilaterally or through bilateral or multilateral agreements), specifically:

- Unilateral method: A method in which each country itself sets its own regulations or measures (in its internal laws) to eliminate or reduce double taxation According to this method, countries often apply the following measures to reduce the income tax burden for foreign investors:

Firstly, unilaterally exempt taxes, reduce taxes or collect taxes at low tax rates for certain types of income, or allow tax paid abroad to be deducted from tax payable in the country of residence in certain cases

Secondly, expansion and increase in business costs are deducted when determining taxable income to promote exports; reduce some types of income from export activities; or tax exemption on income from export activities

Thirdly, exempt or reduce tax withheld at source on dividends and interest

Fourthly, reduce personal income tax or increase family deductions for individual taxpayers

- Bilateral method: is a method of eliminating or reducing double taxation

on the basis of international tax commitments, mainly double taxation agreements signed between the two countries

- Multilateral method: this is a method of agreement between three or more countries with common interests in taxing rights, in order to divide taxing rights among countries with respect to the income of taxpayers with operations in many countries (multinational companies) or amend all bilateral agreements signed between countries without having to bilaterally renegotiate each signed agreement Multilateral agreements on/to address double taxation on income currently mainly include: Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), the MLC Convention, the MAAC Convention, Vienna Convention on Diplomatic/Consular Relations, etc

2.2.5 Indicator for evaluating the results of handling double taxation on income

2.2.5.1 Quantitative indicators

Firstly, the number of international tax commitments (including bilateral or multilateral tax agreements) signed compared to the number of countries with cross-border economic - trade - investment relations

Secondly, the number of dossiers requesting tax exemption, reduction and credit according to international tax commitments that the tax Authority has processed recently

Thirdly, the percentage of taxes processed compared to the total tax amount

is taxed double, combined with the results of back taxes in the process of handling double taxation on income

Fourthly, the number of EOI cases has been carried out to serve the task of handling double taxation on income

Fifthly, the back taxes are collected through EOI between competent authorities according to international tax commitments

Sixthly, the number and results of bilateral and multilateral mutual agreement procedure (MAP) and advance pricing agreements (APA) agreements

Seventhly, the number of tax officials participating in handling double taxation 2.2.5.2 Qualitative indicators

Firstly, the quality of bilateral or multilateral international tax commitments Secondly, the country’s reputation and position in handling double taxation Thirdly, taxpayers’ satisfaction when receiving the results of handling double taxation on income by the tax Authorities

2.3 The impact of globalization on double taxation and handling double taxation on income

2.3.1 Concept and characteristics of globalization

Globalization is the process of strongly increasing relationships that influence each other and depend on each other among all regions, countries, and peoples in the world Globalization is happening strongly and is an inevitable trend in the development of the world today

Some typical signs to recognize globalization:

- New technology

- Centralization of information allows for direct communication

- The increasing trend of standardization of economic and social products

- Increasing transnational integration

- Vulnerability to each other due to increased dependence on each other 2.3.2 The impact of globalization on double taxation and handling double taxation on income

During the transition from feudalism to capitalism (thousands of years ago), there were trade relations and economic exchanges between countries and a situation

of double taxation on income between countries, however, the level of exchange and economic relationships between countries is still small and not diverse, not intertwined and daily, and there are not many problems that need to be resolved Globalization leads to an increasingly strong increase in international exchange flows of goods, services and production factors such as capital, technology, labor and the interdependence of countries

In the context of globalization and cross-border e-commerce development, on a national scale, to participate effectively in the world economy, most countries must adjust their tax policies and tax laws aim to avoid tax loss, ensure revenue for the state budget as well as to comply with international regulations In addition, non-tariff measures that hinder trade are becoming more diverse and more widely used

On the international scale, when countries become more deeply and widely interdependent under the impact of international economic integration, problems such as double taxation between countries and tax competition between countries to attract FDI will arise, especially the issue of taxation on the cross-border supply of goods and services

2.3.3 Factors affecting the handle of double taxation on income in the context of globalization

2.3.3.1 Domestic factors

Firstly, factors related to the domestic legal basis regulating double taxation on income

Secondly, factors related to the capacity, qualifications and experience of tax officials assigned to handle double taxation on income according to international tax commitments

Thirdly, the organization, implementation, training and guidance of the Ministry

of Finance, the General Department of Taxation and the Province Tax Offices 2.3.3.2 International factors

Firstly, factors related to the regional and international political environment Secondly, the goodwill of the counterparties in the process of handling double taxation on income (including responding to EOI requests and goodwill

in negotiating MAP/APA under the double taxation Agreement)

Thirdly, differences in culture, politics and economic development level 2.4 Experience in handling double taxation on income in other countries in the context of globalization and lessons for Vietnam

The thesis introduces the experiences of Austria, the Netherlands, France, England, G20 and some ASEAN countries From there, lessons learned for Vietnam in handling double taxation on income are as follows:

Firstly, it is necessary to comply with basic principles in handling double taxation on income

Secondly, it is necessary to promote information sharing, training, and professional training on handling double taxation on income, especially the provisions of international tax commitments (mainly tax treaties) can potentially

be used to evade or avoid taxes for tax officials assigned to handle and resolve dossiers for handling double taxation on income

Thirdly, strengthening and expanding bilateral and multilateral tax cooperation is very important in international tax administration, especially the handling double taxation on taxpayers’ income in the context of globalization Fourthly, it is necessary to promote the application of transparency standards in global cooperation on tax EOI

Fifthly, the issues relating to interpretation of the Agreement arise mainly because the Agreement does not stipulate each specific case, accordingly, when applied in each specific case, the Agreement will not be able to cover all the problems that arise in practice, causing difficulties in the application and interpretation of the Agreement

Sixthly, it is necessary to promote reform of the national legal system and administrative system

Seventhly, it is necessary to carefully research and choose an appropriate plan to participate in signing the MLI Convention and the MAAC Convention