VietNamNet Bridge – Coca-cola has continuously reported losses in the last decade of operations in Vietnam despite it being one of the biggest players in the domestic beverage market.

Coca-cola advert in Vietnam.

In 2006, the company reported VND228 billion in losses, with the figure for 2011 recorded at VND39 billion.

Coca-cola's average losses in Vietnam have been around VND100 billion (USD4.8 million) per annum according to the company.

According to HCMC Department of Taxation, Coca-cola's revenue in Vietnam increased from VND1 trillion to over VND2.5 trillion during the 2007-2010 period. Their sales also increased three-fold during this time.

Nguyen Trong Hanh, former Vice Director of HCMC Department of Taxation said Coca-cola might blame the losses on the high price of raw materials.

"The parent company abroad exclusively provides the materials for Coca-cola in Vietnam, and the prices of flavour essence makes up 70% of the sales price. While this price normally makes up 30% of the sales prices for other beverage companies." he said.

Tax experts said that pushing materials prices up may cause losses for the subsidiary company, but greater profits for the parent company. The subsidiary company could also avoid taxes.

In reality, Coca-cola pays hardly any corporation income taxes in Vietnam.

Le Thi Thu Huong, Vice Director of HCMC Department of Taxation said, "Enterprises must pay excise tax, corporation income tax and VAT. However, due to consecutive losses, Coca-cola has been exempted from corporation income tax. They only made a payment in 2009 when they reported a VND3.5 billion profit, despite taking VND1 trillion in revenues."

Hanh said Coca-Cola Vietnam’s actions may indicate potential transfer pricing violations.

Transfer pricing happens whenever two related companies, a parent company and a subsidiary, or two subsidiaries controlled by a common parent, trade with each other. When the parties establish a price for the transaction, they are engaging in transfer pricing.

Transfer pricing is not, in itself, illegal or necessarily abusive. What is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing.

"Coca-cola has been sued in many countries for transfer pricing with the most recent case in India," economist Tran Ngoc Tho said.

Despite the reported losses, Coca-cola still plans to expand its business and run promotional campaigns.

In October, Muhtar Kent, Coca-Cola Company President and Chief Executive Officer visited Vietnam, saying that it represented one of the most important markets for the company and that the firm would invest USD300 million into the country.

Source: DTriNews