(July 9, 2015)
On the website of the U.S. Department of the Treasury the Agreement between the Government of the United States of America and the Government of the Socialist Republic of Vietnam for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which was signed on July 7, 2015, was published (hereafter: the DTA).
Although signed, the Agreement has not yet entered into force. For the DTA to enter into force, the respective ratification procedures have to been finalized in both countries.
Below we will highlight some of the paragraphs included in the DTA.
Based on paragraph 3 of Article 2 of the DTA (“TAXES COVERED”) the existing taxes to which the DTA shall apply are:
(a) in the case of Viet Nam:
(i) the personal income tax; and
(ii) the business income tax;
(b) in case of the United States: the Federal income taxes imposed by the Internal Revenue Code (but excluding social security and unemployment taxes), and the Federal taxes imposed on the investment income of foreign private foundations.
Paragraph 4 of Article 2 of the DTA (“TAXES COVERED”) subsequently states that the Agreement shall also apply to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.
Paragraph 3 of Article 5 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that the term ‘permanent establishment’ likewise encompasses:
(a) a building site, construction, exploration, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months; and
(b) the furnishing of services, including consultancy services, in a Contracting State by an enterprise of the other Contracting State through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within the first-mentioned Contracting State for a period or periods aggregating more than six months within any twelve-month period.
Paragraph 5 of Article 5 of the DTA (“PERMANENT ESTABLISHMENT”) determines that nothwithstanding the provisions of paragraphs 1 and 2 of Article 5, where a person other than an agent of an independent status to whom paragraph 6 of Article 5 applies is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person has and habitually exercises in that Contracting State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 of Article 5 that, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
Paragraph 6 of Article 5 of the DTA (“PERMANENT ESTABLISHMENT”) states that an enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other Contracting State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business as independent agents. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, and conditions are made or imposed between that enterprise and the agent in their commercial and financial relations which differ from those which would have been made between independent enterprises, he shall not be considered an agent of an independent status within the meaning of this paragraph.
With respect to withholding taxes on dividends Paragraph 2 of Article 10 of the DTA (“DIVIDENDS”) determines the following:
“However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that Contracting State, but if the beneficial owner of the dividends is a resident of the other Contracting State, except as otherwise provided, the tax so charged shall not exceed:
(a) 5 percent of the gross amount of the dividends if the beneficial owner is a company that owns:
(i) directly at least 25 percent of the voting stock of the company paying the dividends, if such company is a resident of the United States; or
(ii) directly at least 25 percent of the capital of the company paying the dividends, if such company is a resident of Viet Nam;
(b) 15 percent of the gross amount of the dividends in all other cases.”
Paragraph 3 of Article 10 of the DTA (“DIVIDENDS”) contains regulations regarding dividends paid by a U.S. Regulated Investment Company (RIC) or a U.S. Real Estate Investment Trust (REIT) or a Vietnamese Real Estate Investment Fund (VREIF).
Paragraph 2 of Article 11 of DTA (“INTEREST”) limits the interest withholding taxes to be withheld by the Source State to a maximum of 10% of the gross amount of the interest.
Paragraph 4 of Article 11 of DTA (“INTEREST”) states the following:
“Nothwithstanding the provisions of paragraph 2:
(a) Interest arising in a Contracting State that is determined with reference to receipts, sales, income, profits or other cash flow of the debtor or a related person, to any change in the value of any property of the debtor or a related person or to any dividend, partnership distribution or similar payment made by the debtor or a related person may be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but if the beneficial owner is a resident of the other Contracting State, the interest may be taxed at a rate not exceeding 15 percent of the gross amount of the interest; and
(b) Interest that is an excess inclusion with respect to a residual interest in a real estate mortgage investment conduit may be taxed by each Contracting State in accordance with its domestic law.”
With respect to royalties Paragraph 2 of Article 12 of the DTA (“ROYALTIES”) states the following:
“However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed:
(a) 5 percent of the gross amount of the royalties described in subparagraph (a) of paragraph 3;
(b) 10 percent of the gross amount of the royalties described in subparagraph (b) of paragraph 3.”
Paragraph 3 of Article 12 of the DTA (“ROYALTIES”) subsequently states the following:
“The term “royalties” as used in this Article means:
(a) payments of any kind received as a consideration for the use of, or the right to use, industrial, commercial or scientific equipment. Notwithstanding the preceding sentence, the term “royalties” shall not include the following payments to which the provisions of Article 7 (Business Profits) shall apply:
(i) payments for the rental on a bareboat basis of ships or aircraft if such ships or aircraft are operated in international traffic by the lessee; or
(ii) payments for the use, maintenance or rental of containers (including trailers, barges, and related equipment for the transport of containers), except to the extend that those containers are used for transport solely between places within the other Contracting State;
(b) payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic, scientific or other work (including cinematographic films, films or tapes used for radio or television broadcasting), any patent, trademark, design or model, plan, secret formula or process.”
Other interesting Articles are: Article 23 (“LIMITATION ON BENEFITS”), Article 26 (“MUTUAL AGREEMENT PROCEDURE”) and Article 27 (“EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE”).
Click here to be forwarded to the text of the DTA as published on the website of the U.S. Department of the Treasury, which will open in a new window.
Copyright – internationaltaxplaza.info
Stay informed: Subscribe to International Tax Plaza’s Newsletter!
and
Follow International Tax Plaza on Twitter (@IntTaxPlaza)
