Tax risk management

Today, when the digital economy is on the rise, it has brought great opportunities to Vietnam’s socio-economy. However, managing tax compliance within this digital economy presents numerous challenges due to the complexity and globality of economic activities, leading to such unforeseen tax risks. Therefore, the General Department of Taxation is consolidating as well as perfecting the implementation of tax risk management.

Tax risk

Pursuant to Clause 14, Article 3 of the Law on Tax Administration 2019, it is stipulated as follows:

“Tax risk is the risk of taxpayers not complying with the law, leading to loss of state budget revenue.”

Accordingly, tax risk is the risk of taxpayers not complying with the law, leading to loss of state budget revenue.

Tax authorities will base on the criteria issued to assess and classify the level of risk and assess compliance with tax laws.

Tax risk management

Pursuant to Clause 15 Article 3 of the Law on Tax Administration 2019, tax risk management has been clearly explained:

“15. Risk management in tax administration is the systematic application of legal provisions and professional processes to identify, assess and classify risks that may negatively impact the efficiency and effectiveness of tax administration as a basis for tax authorities to allocate resources appropriately and implement effective management measures.”

Risk management is applied at almost all stages of tax administration: tax registration; tax declaration and payment of taxes; tax refunds; identify and select taxpayers for inclusion in tax inspection and inspection plans; tax debt management and enforcement of tax administrative decisions; classification of taxpayers to apply regulatory measures in creating, printing, publishing, managing and using tax publications; collect and analyze information, identify focus of supervision for taxpayers showing signs of tax law violations; provide information, data, support other professional activities in tax administration.

Apply risk management

Pursuant to Clause 1 Article 13 of Circular 31/2021/TT-BTC stipulating the application of risk management in tax administration,  tax  authorities base on the results of tax law compliance assessment in Article 10, the results of classification of taxpayer risk levels in Articles 11 and 12  of Circular 31/2021/TT-BTC and professional information at the time of making decisions to determine the list of taxpayers classified by risk levels in each period and do the following:

1. a) Manage compliance with tax laws;
2. b) Manage risks of tax registration;
3. c) Manage risks in examining tax dossiers at tax authorities’ headquarters;
4. d) Risk management in tax refund management;

đ) Manage risks in inspection and inspection at taxpayers’ headquarters;

1. e) Manage risks in tax debt management and enforcement of tax administrative decisions;
2. g) Manage risks in the management of invoices and documents;
3. h) Manage risks to taxpayers in key control and supervision cases;
4. i) Risk management for individual taxpayers;
5. k) Application of risk management in other professional activities in tax administration.

Principles of risk management

Pursuant to Article 4 of Circular 31/2021/TT-BTC stipulating the application of risk management in tax administration, tax risk management should be conducted according to the following principles:

• Apply tax risk management to ensure efficiency, create favorable conditions for taxpayers to voluntarily comply, and at the same time prevent and handle violations of tax laws and tax administration.
• Risk management information is centrally managed at the General Department of Taxation through an information technology application system and provided to tax authorities at all levels and other state management agencies to serve their purposes. tax administration purposes according to the provisions of law.
• Assessment and classification of tax law compliance and tax risk levels using the methods specified in Circular 31/2021/TT-BTC.
• Based on the results of assessing the level of compliance with tax laws to classify the risk level of taxpayers:

+ Decide to inspect, inspect, supervise and apply appropriate professional measures.

+ Develop an overall compliance improvement plan appropriate to the tax authority’s resources based on the results of the risk level.

• In case of proper implementation of the provisions of law, provisions of Circular 31/2021/TT-BTC and regulations and instructions on risk management, tax officials will be exempt from personal liability according to provisions of law.
• In case the risk management application has problems or does not meet the requirements for applying risk management according to the content specified in Circular 31/2021/TT-BTC, the application of risk management is carried out. manually by approving the proposed document or signing the issuance document of the person competent to apply tax management measures according to the provisions of the Law on Tax Administration 2019 and its guiding documents.
• In case there is a change in information leading to a change in the assessment result of tax law compliance and classification of the taxpayer’s risk level, updating the change in assessment results is done manually by civil servants. after approval from competent person.
• Results of applying professional measures corresponding to risk ratings, fully updating the tax authority’s tax management support applications or risk management applications, performing compliance assessments comply with tax laws, classify taxpayers’ risks in the next period.

The order of application of risk management

Pursuant to Article 6 of Circular 31/2021/TT-BTC stipulating the application of risk management in tax administration, the order of application of tax risk management is specifically conducted as follows:

Step 1: Assess the situation, determine goals and risk management requirements

Step 2: Organize the collection and processing of risk management information

Risk management information is collected and processed according to the provisions of Chapter II Circular 31/2021/TT-BTC. If incorrect or missing risk management information is discovered during the risk analysis process, the taxpayer is responsible for providing, explaining, and supplementing information and documents as requested. The tax authority’s notification deadline to ensure tax law compliance assessment and accurate classification of taxpayers’ risk levels.

Step 3: Based on the results obtained, the tax authority will establish and update indicators to analyze and evaluate compliance with tax laws and classify the level of risk of taxpayers.

Step 4: Analyze and evaluate the level of compliance with tax laws using the methods specified in Article 5 of Circular 31/2021/TT-BTC.

Step 5: Based on the results, determine the level of risk; Evaluate taxpayers’ compliance with the law to apply tax management measures and develop plans to improve overall compliance for taxpayers.

Step 6: Monitor, update, and evaluate feedback on the results of implementing tax management measures.

Step 7: Collect, process, use, store, and information; Direct and guide adjustments and supplements in the application of appropriate risk management to ensure effective tax management.

Tax Risk Management Guide

Pursuant to Article 13 and Article 15 of Circular 31/2021/TT-BTC stipulating the application of risk management in tax administration as follows:

• For business households and individuals

Tax risk management measures:

• High risk:

+ Reviewing, examining and verifying relevant information as a basis for redetermining revenue and tax rates of business households and individuals;

+ Make checklists and surveys to redetermine revenue and tax rates of business households and individuals and the fulfillment of tax obligations of relevant organizations.

• Medium risk: Randomly selected to be included in the survey list of business households and individuals; continue to carry out risk classification for the next assessment period.
• Low risk: Keep records, perform risk level classification for the next assessment period.
• For individuals with taxable income, personal income (excluding business households, business individuals)

– High risk: Select the checklist, verify the fact and organize the inspection and verification according to current regulations.

– Medium and low risk: Keep records, perform risk level classification for the next assessment period.

In case an individual has income subject to personal income tax through an income-paying organization, it is controlled through the analysis of risk signs of the income-paying organization.

• For individuals with revenues related to land, property attached to land.

– High risk: Analyze dossiers, make a list to submit to the head of the tax authority the inspection plan at the tax office, check tax returns at the tax office according to current regulations for relevant individuals and organizations;

– Medium and low risk: Keep records, perform risk level classification for the next assessment period.

• For Businesses

– High risk: analyze risks, develop risk management plans, optimize organizational structure, implement internal control, deduct interest and tax deductions;

– Medium risk: risk assessment, risk management plan development, internal control, use of tax management technology software for business entries and exits.

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