Recently, Vietnam issued Circular 205 providing rules on the applicability of tax treaty benefits and general anti-abuse provisions (GAAR) which will become effective 6 February 2014.
The main changes in Circular 205 from the previous circular are the introduction of GAAR and the assertion and expansion of the beneficial ownership provisions. In general, a tax treaty benefit will be denied if the main purpose of a transaction or arrangement is tax abusive and/or if a treaty benefit claimant is not a true beneficial owner.
To clarify applicability of the tax treaty benefit, Circular 205 also provides various examples, such as the determination of the permanent establishment (PE); the determination of profits attributable to the PE; and capital gains tax arising from a share transfer of a Vietnamese entity whose assets primarily consist of immovable property.
