Tax challenge to continue in New Year

Several days before the Law on Cybersecurity comes into effect on January 1, 2019, Facebook remained silent about its plan to open a representative office in Vietnam, but a Google representative told VIR, “There are a number of factors we need to look at before opening an office, and we have nothing to announce at this time.”

Discussing the issue with VIR, economist Vu Sy Cuong, who has long experience in financial analysis and research, said that the establishment of representative offices depends on the decree outlining the specifics of the Law on Cybersecurity, which is currently being drafted.

“Without the decree providing guidelines on implementation, the Law on Cybersecurity coming into effect will not be able to force firms to establish representative offices in Vietnam,” Cuong added.

The latest draft of the decree is currently collecting opinions for further fine-tuning, which is expected to be finished on January 2, 2019.

“The cost of establishing representative offices as well as investing in data storage is quite significant, and establishing a representative office in Vietnam while there is already one operating in Singapore would make operations more inefficient for firms,” Cuong told VIR.

Thus, significant resistance is expected for the opening of representative offices, which means that collecting taxes will remain a big challenge for the local government.

The value of information

Not only Vietnam, but also many countries around the world, including countries where Facebook and Google already have representative offices, are struggling to tax the two tech giants. In particular determining the value of their goods – information – for tax calculation remains a big issue and is forecast to stay well into next year and maybe the following years.

Cuong stated that this is a significant problem, and the European Union have held meetings to discuss determining the value of information over the past few months.

Issues like how to measure user data and how to determine the value of a 100,000-people social network or a one-million-people social network, are the problems causing heated arguments at each meeting.

“Determining the value of goods is the basis to calculate taxes on them. With tangible goods, the value determination is quite easy, due to the production costs. However, with invisible goods like information, it is increasingly difficult.” Cuong said.

Thanks to owning a huge amount of user data, which comes from people’s Facebook and Google accounts and from firms’ huge databases of information, the two giants can better understand their users and grow to dominate the global online advertising market over the past few years by selling user data to their advertisers.

According to the US-based Vice Media LLC, a company specialised in digital media and broadcasting, with an average of 68 likes per user, Facebook can easily tell users’ political orientations and hobbies, and 150 likes are apparently enough for Facebook to understand users’ personality better than their parents. Furthermore, with over 300 likes, Facebook knows users better than their partners.

Despite no bases to determine the value of user data, it is definitely not small. Specifically, according to the statistics of data analytics company Experian, personal information is offered in black markets with the price of $1 for a social security number, $20 for a driving licence, $100-400 for degrees and certificates, $1,000-2,000 for passports, and $1-1,000 for personal health information.

New Year, old challenges

Along with the value of information, determining the form of goods and tax payers are also big challenges for the local government in 2019.

To date, it remains a huge controversy about whether cross-border information flows and services should be subject to export or import tax. Accordingly, user data is exported to the headquarters of the two tech giants, which are located overseas, but they sell data to local firms. Therefore, due to the unidentified form of the service, it is impossible to tell what tax rates apply: the 0 per cent export tax, or 5 per cent import tax.

In addition, determining the identity of tax payers also contains significant risks. According to Cuong, slapping taxes on the two giants’ local advertisers works better than charging Facebook and Google directly because the advertisers are located in Vietnam and are under the local government’s supervision.

However, slapping taxes on the local companies is also subject to great controversy because the advertisers are made to pay for revenue they never received – in fact, they pay after revenue gained from services they paid for.

Cuong also added that taxes on cross-border online operations might hamper the operations of startups. At present, many startups operate by providing accountancy services for businesses located in another country. If taxes were applied on every company offering cross-border services, the problem of determining export or import tax applicable would arise again.

“Therefore, the EU is considering taxing moderately, because overly high tax rates would damage startups significantly.” Cuong added.

The appearance of many businesses providing cross-border services has set a lot of challenges for the local government in collecting the state’s due because they operate completely outside of the classical ‘box’ of goods and services, making not only value-calculation, but the identification of tax subjects difficult – a problem to which an answer might be a long time coming.