This article analyzes the current state of tax-related risks, the prevailing legal framework, and common situations faced by enterprises, such as errors in tax declaration, transfer pricing transactions, and conduct deemed to present high risk.

I. Current situation of tax-related risks

In practice, tax-related risks are a growing concern for many enterprises. The primary causes stem from the fact that the tax law system is frequently amended, its provisions are complex, and their application lacks consistency.

Many enterprises, particularly small and medium-sized ones, have yet to establish an effective internal control mechanism, thereby making errors in tax declaration, accounting, and payment more likely. Moreover, a lack of legal knowledge or deliberate violations aimed at reducing tax obligations also expose enterprises to the risk of retrospective tax collection, administrative penalties, and being categorized as high-risk taxpayers.

II. Legal provisions on tax-related risks

1. How are tax-related risks defined?

Pursuant to Article 3 of Circular No. 31/2021/TT-BTC, the law provides that:

  • Risk assessment refers to the classification and comparison of risk levels against specific criteria and indicators, along with consideration of previous handling results, to determine management priorities.
  • Risk indicators are informational elements reflecting the potential existence of unlawful conduct.
  • Indicators of tax violations are informational elements serving as the basis for identifying violations of tax law.

Accordingly, tax-related risks are understood as indications suggesting the likelihood of taxpayers engaging in conduct that violates tax law, based on available information, management data, and actual behavior. This serves as the foundation for tax authorities to categorize, supervise, and adopt appropriate management measures.

2. What are the most common tax-related risks enterprises may encounter?

In business operations, taxation is inherently sensitive and entails significant legal risks. Enterprises failing to manage their tax obligations properly may face the following common risks:

  • Errors in declaration, such as under-declaration, misstatement, or late submission, often resulting from misapplication of provisions, numerical errors, or missed deadlines.
  • Risks from recording ineligible expenses, such as those lacking proper documentation, exceeding statutory limits, or unrelated to business operations, which therefore cannot be deducted for Corporate Income Tax (CIT) purposes.
  • Personal Income Tax (PIT) risks arising from failure to withhold, declare, or remit PIT on behalf of employees in accordance with law.
  • Risks from transfer pricing transactions, including failure to comply with disclosure requirements or to determine arm’s length prices, thereby subjecting the enterprise to potential tax adjustments.
  • Risks due to frequent legislative changes, given that tax laws and implementing regulations are often amended; enterprises failing to stay updated are likely to commit violations.

In summary, tax-related risks not only affect financial costs but also impact an enterprise’s credibility and legal compliance standing. Hence, mastering the applicable regulations and establishing robust tax management mechanisms are imperative.

3. What types of conduct place enterprises in the high-risk category?

Enterprises are classified as high-risk taxpayers when they demonstrate a lack of transparency or violate tax regulations. Common instances include:

  • Filing incomplete or inaccurate returns, with frequent adjustments to revenue, expenses, and profit figures.
  • Late or non-payment of tax obligations, thereby causing revenue loss to the state budget.
  • Use of illegal invoices, including purchase, sale, or use of false invoices to inflate expenses or reduce revenues.
  • A history of tax violations with repeated penalties but no corrective measures.
  • Failure to maintain proper accounting books and financial statements supported by valid evidence.

To avoid being classified as high-risk, enterprises must ensure strict compliance with tax declaration, payment, and invoicing regulations, thereby reducing exposure to frequent inspections and audits.

4. How are taxpayers categorized according to risk levels?

In specific tax management activities (such as audits or refunds), enterprises may be grouped into three categories: high, medium, or low risk.

For individual taxpayers, risk levels are classified into three categories: high, medium, and low. Classification is based on compliance assessments under Article 10 of Circular 31/2021/TT-BTC and relevant annexed criteria.

III. Questions on Tax-Related Risks

1. Are risk levels determined by years of operation or by violations?

Risk levels are not determined by years of operation, but rather by taxpayer conduct, compliance with tax law, and specific evaluation criteria. Tax authorities employ methods such as scoring, machine learning, or classification by category to assess compliance. Enterprises are assigned risk levels from 1 (very low) to 5 (very high), with the evaluation focusing on frequency and severity of violations rather than the company’s age.

2. How is special supervision of high-risk taxpayers conducted?

Under Article 22 of Circular No. 31/2021/TT-BTC:

  • Subjects of supervision: Taxpayers suspected of tax violations, including those with suspicious bank transactions, those prosecuted for tax-related offenses, taxpayers identified as high-risk in key monitoring programs, or those ranked as very high/high risk and failing to provide requested information.
  • Measures: Tax authorities closely monitor, supervise, and apply appropriate management measures tailored to specific cases.
  • Guidelines: The General Department of Taxation provides detailed guidance on collecting, analyzing information, identifying priorities, and implementing supervision measures, in line with legal requirements and policy updates.

Accordingly, high-risk taxpayers are subject to closer scrutiny in declarations, payments, and invoice use.

3. If an enterprise is misclassified as high-risk, can it file complaints or initiate lawsuits?

Under Articles 147 and 148 of the Law on Tax Administration 2019, enterprises have the right to:

  • File a complaint with tax authorities or other competent bodies if they believe administrative decisions or actions are unlawful and infringe upon their rights.
  • Initiate administrative proceedings in court if dissatisfied with complaint resolution or if no resolution is provided.

4. Does voluntary supplementary filing reduce tax risk points?

Provided the correction is made voluntarily and before any inspection decision. Under Circular 31/2021/TT-BTC, self-initiated corrections reflect cooperation and may reduce risk assessment points. Conversely, corrections made only after tax authority intervention do not reduce risk levels and may be deemed violations.

5. Are risks in transfer pricing different from those in internal transactions?

  • Transfer pricing: Governed by Decree 132/2020/NĐ-CP, risks primarily arise from transfer pricing manipulations, which shift profits across borders to reduce tax obligations in Vietnam. Enterprises must maintain transfer pricing documentation; failure to do so exposes them to high-risk classification and in-depth audits.
  • Internal transactions: These are transactions among dependent units or branches within the same enterprise. Risks here typically involve misstatements of revenue, expenses, or improper accounting, which affect tax obligations. While not as tightly regulated as transfer pricing, they may still be subject to review if signs of tax evasion exist.

Risks in transfer pricing are more complex and scrutinized due to cross-border implications, whereas risks in internal transactions are primarily accounting-related.

IV. Legal advisory services on tax-related risks

At NPLaw, our tax risk advisory services assist enterprises in identifying, assessing, and effectively addressing tax-related issues. We provide legal analysis of tax policies, review tax filings, advise on risks in transfer pricing and internal transactions, and support enterprises throughout tax audits and inspections. With our experienced team of lawyers and experts, NPLaw is committed to delivering optimal, secure, and practical solutions to safeguard enterprises’ interests.