In the last post, we have discussed the history of using SPVs in Vietnam. This post will therefore take a close look at possible legal consequences that may arise out of the employment of such SPVs. 

The Awakening of Tax Power

The good old days seem to be gone, at least, from a tax’s perspective.

In the past, though Vietnamese law was not crystal clear on whether capital gains from an offshore transfer of shares would be taxed, the overwhelming view of Vietnamese tax authorities is that such gains must be generally treated as ‘other incomes’ for tax purposes.  Tax authorities has another powerful weapon, that is, the ‘substance over form’ principle where substance is the actual assets and business in Vietnam and form being the ‘staged’ offshore acquisition.  This is very similar to the ‘piercing the corporate veil” doctrine in corporate law.

These incidents prompt the Government of Vietnam to issue a new rule to broaden the ‘taxable income’ concept.  For the first time, ‘incomes from the transfer of capital’ originated in Vietnam, regardless of business operation locations (inside or outside Vietnam)’, are taxable.  In other words, capital gains (i.e. – difference between (i) transfer price and (ii) initial capital contribution minus transaction costs) from transfer of shares in SPVs, albeit made entirely outside Vietnam, will be taxed at the rate of 20%. 

Back to the above two cases, Big C finally agreed to pay an amount of US$87 million capital gains tax to Vietnamese tax authority under constant pressures on their business here. TMG, though no longer be required to burden tax amount that Madagascar SA should have paid, is held responsible to ‘contact’ with the latter to facilitate its tax payment.

Conclusions and Recommendations

While an SPV stills offers many inevitable advantages and is strongly recommended, it is no panaceas per se.  That is, side effects of using SPVs for tax purposes should be well taken into considerations, namely:

  • SPVs established in pure tax heavens (e.g. – BVI, Cayman Islands, etc.) may not be entitled to special treatment Vietnam offers under specific bilateral and multilateral treaties;
  • A remote penal liability of individuals involved in the tax arrangement (e.g. tax evasion crime); etc.;
  • Possible difficulties when dealing with Vietnamese authorities after the acquisition (e.g. application for change of names or managers, legal representatives of the Vietnamese business) if no capital gains tax are declared;
  • A possible well-coordinated ‘retaliation’ by Vietnamese authorities on the investor’s business if the latter fails to pay tax;[2] and
  • Bad reputation of the investor in the eyes of Vietnamese State bodies resulting in difficulties in expanding the former’s business in future.


[2] In a particular case of Da Nang Province, the licensing authority there refused to register the change of a legal representative of a company that runs Big C supermarket in the province. The GDT also implied an inspection of the entire Big C system to check whether it has sought to circumvent the hard-to-meet notorious economic needs test (ENT) criteria when setting up a unified supermarket chain in Vietnam.


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