Multinational conglomerates escape transfer-pricing charge

VietNamNet Bridge – The agreements on double taxation avoidance that Vietnam has signed with other countries is one of the reasons that have made it impossible for state agencies to clarify the suspected cases of multinational conglomerates conducting transfer pricing.

A lot of multinational conglomerates such as Coca-Cola, Metro Cash & Carry, and Keangnam Vina have been named by taxation agencies as suspects in transfer pricing cases. The big sharks have been suspected of declaring inaccurate revenue and input costs to avoid tax.

Taxation bodies have every reason to think that conglomerates violate tax laws when operating in Vietnam: the businesses repeatedly declare loss and do not pay corporate income tax, while they have been scaling up their business in Vietnam.

People have called on taxation bodies to take drastic measures to clarify the cases.

However, taxation agencies seem to be powerless to find out the truth.

Most recently, the inspectors from the Ministry of Finance (MOF) discovered a lot of ‘violations of tax laws’ conducted by Metro Cash & Carry and forced the German distributors to pay tax arrears of VND507 billion.

However, MOF itself admitted it was a hard struggle to uncover the behavior of transfer pricing.

MOF itself admitted it was a hard struggle to uncover the behavior of transfer pricing.

Nguyen Quang Tien from the General Department of Taxation noted that the agreements on double taxation avoidance that Vietnam signed with many countries not only made it difficult for taxation bodies to collect tax arrears, but also placed big difficulties on the agencies to gain rights to control taxation on foreign enterprises.

According to Tien, the problem is that Vietnam signed a lot of double taxation avoidance agreements with many countries at the time when it still had not developed the market-based economy. Since it did not have deep knowledge about the market economy and relevant matters, Vietnam has disadvantages in the agreements’ implementation.

Tien said that it was a difficult task to manage tax payments and declarations in the digital technology era.

An analyst commented that the development of technology was much faster than the compilation process of new tax laws.

This explains why Google and Facebook, which can earn hundreds of millions of dollars every year from their business in Vietnam, never have to pay tax, and why Vietnamese who can earn money via the internet from other countries also don’t pay tax.

“If we don’t redesign the taxation policies, we will miss the right to collect tax,” Tien said, adding that it is necessary for relevant ministries to join forces to reconsider the Vietnam’s rights to tax.