To Tax or Not to Tax Trademark Use? Vietnam Decides Yes

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By Lien Hoang

Nov. 29 — Vietnam’s announcement that it will tax the use of trademarks is likely to encounter pushback from companies, tax specialists told Bloomberg BNA, raising questions about how the developing country is taking in foreign technology.

Taxpayers in Vietnam who buy the rights to foreign trademarks do owe value-added tax, the finance ministry said in an official letter earlier this month. This negated the belief that trademark transactions qualify for tax breaks that encourage technology transfers, which Vietnam sees as a key tool to push its $200 billion economy past the middle-income trap. The news comes as Vietnam revamps its intellectual property regime, as promised under trade deals with Europe and the Trans Pacific Partnership nations.

Previously, official “guidance on VAT policies with respect to trademark licensing was not clear and consistent, and in many cases, no VAT was imposed on trademark licensing,” Tran Manh Hung, director of Baker & McKenzie member BMVN in Hanoi, told Bloomberg BNA.

The finance ministry’s letter is meant to make such tax policies clear.

But companies have been “contesting” the legality of trademark taxation, according to Nguyen Ngoc Quynh, an associate at YKVN law firm in Hanoi.

The discrepancy comes down to legal structuring. If a foreign owner fully transfers a trademark to a Vietnamese party, the deal is tax-exempt. If the foreigner merely grants the right to use the brand, then Vietnam will collect VAT of 5 percent or 10 percent, depending on the declaration method. Authorities don’t seem to view the latter case as a transfer of technology or scientific services, says Nguyen Huu Hoai, a partner at law firm Russin & Vecchi in Ho Chi Minh City.

Nguyen Hung Du, a tax partner at consultancy Grant Thornton, said this update from the finance ministry is meeting resistance from businesses.

“It may have a controversial petition by relevant parties to this new approach in the future,” Hung Du, who is based in Ho Chi Minh City, told Bloomberg BNA.

Advice for Companies

In a November tax alert, Deloitte Vietnam advised companies to review their contracts because the finance ministry’s letter is partly retroactive. Businesses that declared and paid VAT and corporate taxes on trademark transfers by Nov. 7 aren’t affected, even if they diverged from the letter’s instructions.

Those that didn’t file taxes by the deadline must do so using the updated guidance.

Quynh told Bloomberg BNA this means responsibility ultimately rests with domestic taxpayers.

“Vietnamese parties might end up paying the above tax for foreign contractors if they are not able to negotiate their contracts properly,” she said, “because Vietnamese parties are responsible for deducting, declaring and paying relevant taxes for and on behalf of foreign contractors.”

Hung noted that the ministry letter came as a result of a meeting with the Vietnam Business Forum in March, when companies asked the government to set the record straight on trademark taxes.

To contact the reporter on this story: Lien Hoang Ho Chi Minh City at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

Text of the Vietnam Business Forum’s agenda at its March meeting with the finance ministry is at http://auschamvn.org/wp-content/uploads/2016/03/1.-Talking-points-Dialogue-with-MOF-ENG.pdf

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