The Ministry of Finance has released a draft circular amending the existing Circular 133/2004 on the implementation of DTAs signed between Vietnam and other countries.

The draft circular introduces for the first time anti- treaty shopping rules based on which the Vietnamese tax authorities could in certain cases deny DTA benefits. We summarise below some key proposals in this draft.

1. Anti-treaty shopping rules

Under the draft, DTA benefits can be rejected in the following cases:

(i) The main purpose of an agreement / structure is to obtain treaty benefits; or

(ii) The applicant who claims the treaty benefits is not the beneficial owner of the income. The basic principle of “substance over form” is applied and beneficial ownership could be challenged in the following cases:

  • The applicant has the obligation to distribute more than 50% of the income to an entity of a third country within 12 months from the receipt of such income.
  • The applicant does not carry out business activities except for the ownership of the assets or the right to generate income.
  • The amount of assets, business scale or number of employees of the applicant is not commensurate with the income received.
  • The applicant does not have control or power over the assets or has only low risks in relation to the assets or income.

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