5. ENG-Deloitte - MoF Digital Services (2).pdf

January 2019
PILLAR 1 SOLUTION – GLOBAL TAX REFORM
IMPACTS, OPPORTUNITIES AND CHALLENGES TO VIETNAM IN THE
DIGITAL ECONOMY
29/7/2022

Pillar 1 &
Digital Economy &
Pillar 1
Impacts, opportunities &
challenges to Vietnam,
Recommendations
01
02

3
© 2022 Deloitte Vietnam Tax Company Limited
and Digital Economy
1. Pillar 1

4
Content developed by: Vic Katyal, Cory Liepold, Satish Iyengar & Courtney Parry
Tax base – Old
Present (company, PE)
Overseas
Vietnam
Company G
Tax authority
Client
Payment
Services provision

5
Tax heaven
Tax base – before BEPS 1.0
Overseas
Vietnam
Company G
Tax authority
“Tax”?
Khách hàng
Payment
Services
provision

6
Digital
present
Tax heaven
Tax base - before BEPS 2.0
Overseas
Vietnam
Company G
Tax authority
Client
Payment
Services
provision

7
Two Pillars Solution (BEPS 2.0)
G7 G20
Inclusive Framework
G7 political agreement
5 June 2021
G20 endorsement
13October2021
OECD Inclusive Framework
statement
8 October 2021
Agreed by 136 / 140 countries
Vietnam:
• Joined Inclusive Framework
2017
• Signed MLI 02/2022
Pillar One
• Allocationto marketsfor largestandmost profitable
businesses− 25% profit above10%margin
• Removalof DigitalServicesTaxes,other
relevant similar measures
Pillar Two
• Globalminimumtax of 15%
• Countrybycountrybasis
To address tax challenges arising from the digitalization of
economy

8
Pillar 1 – “Amount A” example
COMPANY PROVIDING DIGITAL AD SERVICES
TOTAL REVENUE: USD 300 BILLION
10% * 300 BILLION = 30 BILLION
NORMAL PROFIT
15% - 10% = 5%
= 15 BILLION
RESIDUAL PROFIT
TOTAL PROFIT:
USD 45 BILLION
(NPM: 15%)

9
15% - 10% = 5%
= 15 BILLION
RESIDUAL PROFIT “AMOUNT A”
25% => (15 Billion *
25%) = 3.75 Billion

10
“KHOẢN A”
25% => (15tỷ * 25%) =
3.75 tỷ
Country Y (15%)
Country
S
(10%) Country X (10%)
Country
P (10%)
Country U (20%)
Country
T
(10%) Country M (15%)
Vietnam
(10%) =
375
million
Additional CIT to be
collected: 20% * 375 = 75
million

11
Pillar 1
TRỤ CỘT 1
• Global revenue more than €20 billion
• Profit margin above 10%
• Market determination (end-
consumption location) for Amount A
• Formular for Amount A distributed
profits
• Eliminating double taxes (impose
on A mount)
• Determination of reasonable minimum
profit for Marketing & Distribution Activities
“Nexus” Principle
• Elimination of Digital Services
Tax
“Nexus” Principle: only imposed tax if
• GDP > EUR40 billion: domestics
revenue from EUR 1tr and above
GDP <= EUR40 billion: domestics
revenue from EUR250k and above
“Scope” Principle
“Sourcing” Principle
“Tax base
determination”
Principle
“Elimination of double
tax” Principle
Amount B determination
(for Marketing &
Distribution activities)
Guaranteed enforcement
and Elimination of DST

12
G20/OECD The Digitalised Economy –
Update On Taxation Of Digital Economy (Pillar One) And Global Minimum Rate (Pillar Two)
Pillar One and Pillar Two – Original Roadmap
2021 Inclusive Framework meeting
G20 Leaders meeting
October 2021
Model Rules for domestic law - income inclusion rule/undertaxed
payment rule
Model Treaty - subject to tax rule
November2021
Multilateral Convention - Amount A
Model Domestic Legislation - Amount A
Early 2022
Multilateral Convention
signing ceremony - Amount A
Multilateral Instrument -
subject to tax rule
Mid 2022
Amount B deliverables
Implementation framework - income inclusion rule/
undertaxedpayment rule
End of 2022
Amount A, income inclusion rule and
subject to tax rule into effect
In 2023
2022
2023 Undertaxed payment
rule into effect
2024

13
G20/OECD The Digitalised Economy –
Update On Taxation Of Digital Economy (Pillar One) And Global Minimum Rate (Pillar Two)
Pillar One and Pillar Two – Revised Roadmap
2021 Inclusive Framework meeting
G20 Leaders meeting
October 2021
Seek for Comments
August 2022
Multilateral Convention
signing ceremony - Amount A
Multilateral Instrument -
subject to tax rule
All countries ratify
End of 2023 – early 2024?
Pillar 1, Amount A rule into
effect
In 2024
2022
2024
If all countries ratify
2024
2023
Mid 2023

14
• DST
• Circular 80: Opportunities,
Challenges,
Recommendations
2. Pillar 1

15
© 2022 Công ty TNHH Tư Vấn Thuế Deloitte Việt Nam
DST examples
Countries Scope Tax
rate
Conditions
France • Provision of a digital interface
• Advertising services based on users’
data
3% • Global Revenue over €750m
• Domestic revenue over
€25m
UK • Social media platforms
• Internet search engine
• Online marketplace
2% • Global Revenue over
GBP750m
GBP25m
Spain • Online advertising services
• Sale of online advertising
• Sale of user-data
• Domestic revenue over €3m
Italy • Advertising on a digital interface
• Multilateral digital interface that allows
users to buy/sell goods and services
• Transmission of user data generated
from using a digital interface
€5.5m
Source: https://taxfoundation.org/digital-tax-europe-2020/ (updated November 2021)

16
Circular 80 and Pillar 1
Issues of Circular 80
• In parallel with Circular 103?
• If foreign digital suppliers registers tax directly, would
Vietnamese parties be required to withhold tax?
• If foreign suppliers register tax directly, can
Vietnamese parties claim input VAT?
• If foreign suppliers declares B2C directly, can / must
they pay B2B directly?
CIT…
• Eliminated as DST?
• Impacts:
• DTA?
• Loss at least 2% (Oxfam report)
If tax as per Circular 80 is
deemed as DST?
• FCWT to be applied?
• Amendment of FCWT?
• New regulations?
• PE?
VAT
• Eliminated as DST?
• Impacts:
• Software: No VAT;
• Services: 5%

17
How much tax that Vietnam can collect from Company G if
applying current FCWT mechanism?
1. Appx. USD3 billion 2. Appx. USD1.5 billion
3. Appx. Less than USD1 billion 4. Do not get any tax amount!

18
Improvement of FCWT Circular,
preparation for “No DST”
• Further improvement to FCWT
Circular
• Facilitating for foreign contractors to
direct tax declaration?
Study on impacts and
prepare for Pillar 1
• Study on potential impacts
Establishment of right to impose
tax based on international base
• PE (as per definition of treaties /
MLI)
Suggestion

19
Thank you

20
Hoang Phan Vu
Tax Partner
Phone number: +84 28 7101 4345
Email: hoangphan@deloitte.com
Professional Profile
• Hoang has almost 24 years of experience in tax, finance, and business advisory services to
the needs of multinational businesses operating in Vietnam in a wide variety of industries
such as real estate, logistics, banking and financial services, manufacturing, telecom,
services, etc.
• Hoang has participated in various tax due diligence support projects for big M&A deals, as
well as comprehensive tax advisory for structuring projects in Vietnam.
• Hoang has comprehensive experiences in corporate tax compliance and tax planning
advisory works for MNCs’ operations in Vietnam.
• Hoang actively contributed to the contributions of comments/ recommendations to the
Ministry of Finance regarding draft tax regulations via Vietnam Business Forum, VTCA, etc.
Industry Specialization
• Manufacturing
• Consumer Business
• Logistics
• Financial Services
• Real Estate
• Technology
Professional Activities
• Member of Vietnam Tax
Consultants' Association (VTCA)
• Certificate of National Practicing
Tax Procedures
• Transfer Pricing Certificate issued
by the Chartered Institution of
Taxation (UK)
Tax Specialization
• Strategic tax advice to Vietnamese and International Corporations invested into
Vietnam
• Tax due diligence for various deals in Vietnam
• International tax advisory and application
• Corporate compliance
Qualifications
• Senior member of Association of Chartered Certified Accountants (ACCA), UK.
• Chartered Accountant, ACA, ICAEW (UK)
• ADIT – International Tax Certificate – CIOT (UK)
• MBA, University of Hawaii (BetaGammaSigma member)
• Master of Professional Accountancy, University of London
• CPA Australia, CPA Vietnam
Speaker
Professional profile

21
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© 2022 Deloitte Vietnam Tax Advisory Company Limited

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