Transfer pricing remains an issue
HCM CITY — Viet Nam’s laws about transfer pricing remain inconsistent and have many loopholes, causing great loss of State revenue, speakers said on July 19 at a meeting held in Ha Noi.
Speaking at the “Transfer Pricing – Issues in Management” workshop, Dr. Ho Duc Phoc, auditor general of the State Audit of Viet Nam (SAV), said: “In today’s globalised world, transfer pricing among affiliates that fall under different countries’ jurisdictions has become common practice. It has become a serious issue in every country in the world.”
Transfer pricing was new in Viet Nam 10 years ago, but today it is a common practice of not only FDI (foreign direct investment) enterprises but also Vietnamese enterprises (domestic transfer pricing), he said.
Transfer pricing, which has created unfair competition among economic actors, is pricing transactions of goods, services and intangibles between related parties such as a parent company and its affiliates.
Transfer pricing aims to minimise the obligation of enterprises to pay taxes so they can maximise their profits.
Apart from tax avoidance, this practice has been used to charge high prices for certain goods in markets without intense competition.
Over the years, several big multinational firms operating in Viet Nam have shown losses on their books while doing well in the market.
The most common forms include the practice of transfer pricing to the value of investment assets, meaning that businesses will declare a much higher value (above the market price) in order to reduce future tax obligations.
Viet Nam has made great efforts to create a legal framework for the tax sector to fight transfer pricing of enterprises.
However, the legal framework remains inconsistent with many loopholes, and is not effective, experts said.
Dr Phoc said: “Recently, the State Audit of Viet Nam has improved auditing of the management and use of public finance and public assets, revoking hundreds of billions of Vietnamese dong that should have gone to the State.”
Not only FDI enterprises, but many local companies have also shown clear signs of transfer pricing, causing loss of State revenue, especially in the case of Sabeco, he said.
The SAV discovered that Sabeco’s transfer pricing had allowed the company to avoid paying special consumption tax of VND408 billion (US$17.68 million).
To avoid tax, the company, which produces beer, did not sell beer directly to consumers but through its subsidiaries. The beer was then sold to three levels of agents, who then sold it to restaurants, according to the auditing office.
Sabeco recently paid a total of VND408 billion in special consumption tax to the State, according to the auditing office.
Phan Vu Hoang, chairman of the Association of Chartered Certified Accountants (ACCA) in Viet Nam, said: “The action plan on Base Erosion and Profit Shifting (BEPS), which refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no tax, is being implemented in many countries, including Viet Nam.”
“Multinational corporations, including Vietnamese enterprises wishing to invest abroad and foreign firms wishing to invest in Viet Nam, will need to ensure compliance with countries’ transfer pricing regulations for their investment projects.”
Last year, Viet Nam issued Decree 20 which was more in line with global legal standards.
The decree expands on existing regulations and introduces new concepts under the Organisation for Economic Co-operation Development’s (OECD) guidelines for fighting BEPS tax avoidance strategies.
The workshop was held by the State Audit of Viet Nam and ACCA.
It was attended by nearly 200 participants from the National Assembly, the Government, ministries, professional associations, universities, research institutes, businesses, and international organisations.
