The Fine Line Between Compliance and Evasion: Tax Obligations for Business

How Companies Operate and the Role of Taxes

Businesses are engines of value creation, producing goods or services to meet consumer needs. Whether local enterprises or foreign corporations setting up operations in new markets, businesses operate within a framework of public infrastructure, legal systems, and economic stability – all funded by government revenue. These resources provide companies with the necessary environment to thrive, offering stable economic conditions, legal protection, and access to essential infrastructure.

One may say that their business survives by receiving investments from overseas or private sources, but they still rely heavily on public systems for their operations. Roads, communication networks, and government-backed trade agreements are just some examples of how public funding indirectly supports business success. In fact, taxes ensure the upkeep and improvement of these systems, enabling businesses of all sizes and funding sources to function effectively.

For companies, paying taxes is not merely a legal requirement; it is an investment in the stability and progress of the environment in which they operate.

What is Tax Evasion?

Imagine you and a group of friends are splitting the cost of a meal. Everyone agrees to contribute their share, but one friend quietly “forgets” to chip in their portion. While the meal gets paid for by others, it’s unfair and leaves a bad taste for everyone. Tax evasion works in a similar way: it occurs when individuals or businesses avoid paying their fair share of taxes, leaving others to bear the financial burden.

Tax evasion is understood as an act of violating tax laws with the purpose of minimizing or evading the payment of taxes that individuals or organizations are obligated to pay under the law. Defined under Article 143 of Tax Administration Law 2019, tax evasion encompasses the following 10 actions:

1.???? Failure to submit tax registration documents; failure to submit or late submission of tax declaration documents.

2.???? Failure to record in accounting books the revenues related to determining the amount of tax payable.

3.???? Failure to issue invoices when selling goods and services as prescribed by law or recording the value on the sales invoice lower than the actual payment value of the goods and services sold.

4.???? Using illegal invoices and documents, illegally using invoices to account for goods,

5.???? Using documents that do not accurately reflect the nature of the transaction or the actual transaction value to incorrectly determine the tax amount.

6.???? Falsely declaring exported and imported goods without making additional declarations.

7.???? Intentionally failing to declare or falsely declaring taxes on exported and imported goods.

8.???? Colluding with the consignor to import goods for the purpose of tax evasion.

9.???? Using goods that are not subject to tax, are exempt from tax, or are considered for tax exemption for purposes other than those prescribed.

10.? Taxpayers conducting business activities during the period of suspension or temporary suspension of business activities but not notifying the tax authority.

Pursuant to Decree 125/2020/ND-CP, tax evasion will be subject to a fine that will be based on the amount of tax evasion. However, depending on the severity, the fine can be from 1-3 times the amount of tax evasion.

It is very important to be careful that even minor violations – such as evading taxes amounting to 100 million VND or more – can lead to severe criminal consequences, including imprisonment and hefty fines. According to Article 200 of the 2025 Penal Code, amended in 2017, the penalty can be up to VND 4,500,000,000 or imprisonment from 02 years to 07 years (for individuals); fine up to VND 10,000,000,000 or suspension of operations (for commercial organizations).

How Easily Tax Evasion Can Happen – Even Subconsciously

Tax evasion doesn’t always stem from deliberate fraud. Often, businesses can unknowingly fall into non-compliance due to:

·?????? Mismanagement of Invoices: Using incorrect or invalid invoices without verifying their validity.

·?????? Negligent Accounting Practices: Failing to accurately record revenue or overestimating deductible expenses.

·?????? Complex Regulations: Misinterpreting tax codes or failing to update processes to align with new laws.

·?????? Pressure to Minimize Costs: In a bid to remain competitive, companies might cut corners that unintentionally lead to non-compliance.

·?????? Late or do not submit the tax declaration

·?????? Failure to determine the taxes applied during the proceed importing of goods

Understanding these common pitfalls helps illuminate the various ways tax evasion can manifest, whether intentional or accidental. To better grasp the issue, let’s examine the specific forms tax evasion can take and how they are addressed under the law.

Common forms of tax evasion

1.???? Concealing Revenue

Failing to record income or issuing invoices with undervalued amounts result in lower taxes income and a reduced tax liability are common methods of revenue concealment. Businesses may do this to appear less profitable, reducing their tax obligations.

1.???? Falsely Declaring Expenses

Inflating expenses by submitting falsified documents or overestimating deductions reduces taxable income. Common examples include creating fake invoices or exaggerating depreciation costs.

2.???? Unlawful Transfer Pricing

This involves manipulating the prices of transactions between related entities to shift profits to jurisdictions with lower tax rates. It’s a sophisticated yet illegal method to minimize overall tax liability. Multinational corporations often come under scrutiny for this practice.

3.???? Misdeclaration in Import-Export Activities

Understating the value or quantity of goods during customs declarations or omitting import/export activities entirely can result in significant tax losses for the government. Companies engaging in international trade are particularly susceptible to this form of evasion.

4.???? Destroying or Manipulating Accounting Records

Altering or destroying financial records to hide taxable income or inflate deductions is a clear violation of tax laws. This often involves tampering with financial software or failing to maintain proper records.

Key Amendments to the Penal Code

The amendments to the Penal Code 2015, introduced in 2017, tightened regulations around tax evasion. Key updates include:

·?????? Enhanced penalties for using unlawful invoices and misdeclaring import/ export activities.

·?????? Broader definitions of fraudulent activities to close loopholes previously exploited by businesses.

·?????? Increased scrutiny on intentional acts of misrepresentation, ensuring greater accountability for tax compliance.

These amendments emphasize the Vietnamese government’s commitment to combating tax evasion and protecting national revenue.

Why Tax Compliance Matters

Non-compliance with tax-laws has far-reaching consequences:

·?????? For individuals: Financial penalties, facing criminal prosecution

·?????? For Businesses: Financial penalties, facing criminal prosecution, reputational damages and suspension of operations

·?????? For Society: Loss of government revenue impacts public services and infrastructure development.

Penalties for tax evasion in Vietnam include criminal charges for evasion exceeding 100 million VND, alongside fines and back taxes with interest along with remedial measures such as forced declaration and re-addition. These repercussions highlight the importance of adhering to tax regulations

Building a Culture of Compliance

To prevent tax evasion – intentional or otherwise – businesses can adopt these practices:

1.???? Mindful and Strict Business Management and Operations: Establish clear, enforceable guidelines to ensure that all business practices align with tax laws. Correct violations or address consequences immediately upon self-discovery or an authority’s declaration without procrastination.

2.???? Invest in Technology: Use accounting software to maintain accurate records.

3.???? Engage Professionals: Seek advice from tax consultants to navigate complex regulations.

4.???? Establish Internal Audits: Periodic reviews to identify and address potential non-compliance issues.

5.???? Raise awareness of compliance: Understand local laws and regulations and strictly comply with them, establish risk control mechanisms to avoid negative consequences.

Conclusion

Taxes are more than an obligation – they are a cornerstone of societal progress and economic stability. While the temptation to minimize costs can sometimes blur ethical lines, businesses must remember that tax compliance is essential for long-term sustainability.

By fostering a culture of transparency and compliance, companies can not only avoid severe penalties but also contribute to a fairer, more equitable society. In doing so, they build a foundation of trust and integrity that benefits all stakeholders.