Vietnam attempts to levy taxes on Facebook, Google: Gains and losses

Just based on users’ likes, comments on a set of clothes, dishes or a travel destination on Facebook, this application will immediately select, display numerous products, and suggest a similar purchase to the users for selection.

Because of the prompt and responsive capture of consumers’ behaviours, many users tell a joke that Facebook, Google even "understand" them more than their spouses or relatives.

To do this "magic", Facebook has "tracked" the users, read the users’ activities in the groups, fan pages, thereby shaping their preferences, needs and giving them to business units to bring the products to the right audience and achieve the highest efficiency.

In Vietnam, there are about 70 million Facebook accounts and nearly 40 million Google accounts.

It is worth mentioning that the Internet market in Vietnam is almost entirely dominated by foreign companies. Covering all the above areas is the "huge" revenue earned from advertising. 

According to preliminary statistics, the revenue foreign companies, typically Facebook and YouTube, earn from advertising accounts for 80 per cent of internet market share. Facebook and YouTube in 2017 earned $320 million from advertising.

However, the taxes on the advertising revenue mentioned above have not been collected. Minister of Information and Communications Nguyen Manh Hung affirmed that foreign social networks have enjoyed many benefits in Vietnam but fail to comply with the law and have not paid enough taxes. This problem has lasted for a long time and needs to be resolved.

Explaining this problem, Dr. Vu Sy Cuong from Academy of Finance said that amid the booming cross-border trade, the reality is that technology firms generate revenue in the territory of a country but do not pay taxes in that country.

"This is a huge change in society because we used to think of imposing taxes on things that existed, but there are things that do not exist but are very valuable. For example, the information or value are created by the users," Cuong said.

Facebook itself is using the information declared by the users to exploit and make profits by selling such information to adverting firms.

At the seminar "How to impose taxes on cross-border trading and services," Cuong stated that: "The story here is that Facebook is headquartered in the US but gains profits from Vietnamese people through an agent in Vietnam. Meanwhile, taxes are imposed on only tangible and useful goods, as regulated. In case goods are delivered to other countries, import and export taxes will be imposed on goods."

The problem is that the goods Facebook distributes across countries is information and how to impose taxes on information distributed via the internet under no control of customs authority.

In addition, taxes are imposed on representative offices and useful goods while Facebook and Google do not have a representative office in Vietnam. Therefore, how to impose taxes on useful goods?

Vietnam and other countries are facing two major challenges from the cross-border trading, according to Cuong.

The first challenge is to determine the taxable value of cross-border trade activities. It is easy to determine the taxable value of tangible products because they have the cost of production, but intangible goods such as information are completely different. The calculation of the specific taxable value is still in question.

The second challenge is to determine the taxable objects. According to Cuong, it is clearly impossible to impose taxes either on the users because it will obstruct the users or Facebook, Google because these companies are not based in Vietnam.

Another way is to impose taxes on representatives of these companies in Vietnam. However, this is controversial as these representatives claim that they only collect archives for their foreign companies.

Moreover, based on taxation of common goods, VAT on export goods is equal to zero. Meanwhile, the information of users in Vietnam is exported abroad for foreign companies’ exploitation, but the domestic dealers use advertising services provided by these foreign companies. Therefore, it is difficult to determine the taxable objects and the tax rate.

Cross-border trade activities pose lots of challenges for tax authorities. It is a fundamental change in the way of valuation, taxable objects and taxpayers. Levying taxes on such businesses needs to be carefully determined.

Moreover, it is difficult to introduce a legal corridor to impose taxes on giants like Facebook and Google because if Vietnam is determined to levy taxes on Facebook and Google, these companies would withdraw from Vietnamese market when they find the costs are higher than profits. Then, Vietnam will lose more.