Transfer-pricing cases worse than expected, inspectors find
VietNamNet Bridge –Inspectors looking for transfer-pricing cases examined 2,866 enterprises in 2014, discovering that the actual losses incurred by businesses was VND5.8 trillion lower than reported. The inspectors also attempted to collect VND1.7 trillion worth of tax arrears.
The deputy general director of the General Department of Taxation (GDT), Tran Van Phu, said that inspections at 30 foreign-invested enterprises (FIEs) with suspected signs of conducting transfer pricing found their losses totalled VND1.6 trillion lower than reported.
The taxation body then released a decision to impose a fine of VND600 billion on violations of tax declarations.
The Deputy Chair of Lam Dong province’s People’s Committee, Nguyen Van Yen, noted that the FIEs conducted transfer pricing in many ways.
“They post high amortizations for machines and equipment, which leads to high production costs and continued losses,” Yen noted.
The current investment incentive policies have been exploited by many FIEs to minimize the tax sums they have to pay.
After the preferential treatment period for the company ends, they establish subsidiaries where the holdings companies hold 100 percent of capital to be able to continue enjoying investment incentives.
Deputy Prime Minister Vu Van Ninh said the anti-transfer pricing inspection gave him a start because the fraudulent amount of money was many times higher than the revenue of a medium-size province in 2014.
A report on the 2013 provincial competitiveness index (PCI) made by the Vietnam Chamber of Commerce and Industry (VCCI) with the support of USAID showed that 20 percent of FIEs in Vietnam admitted they conducted transfer pricing.
However, to date, Vietnamese agencies have only been able to show what they suspect companies of doing.
Metro Cash & Carry Vietnam, a German retailer, for example, reported losses for 11 out of the 12 years of operation in Vietnam. Metro made a profit of VND116 billion in 2010, while it repeatedly took losses in the other 11 years.
The retailer’s finance report showed that by 2012, its gross loss had reached approximately VND600 billion. The continued loss helped Metro Vietnam avoid corporate income tax.
While Metro Vietnam repeatedly took losses, it expanded its network. By the time the Thai BJC Group signed the contract on taking over Metro Vietnam, the retailer had 19 distribution centers throughout the country which employed 3,600 workers.
Coca-Cola Vietnam was also blacklisted by the taxation body as a transfer pricing suspect.
In 2010 alone, the drink manufacturer reportedly incurred a loss of VND188 billion, or nearly $9 million, while its gross loss over the last decade reached $180 million.
Nestle, a well-known beverage brand, also reported that it took losses over 14 out of 18 years of operation in Vietnam, with a loss reaching $30.8 million.
