VietNamNet Bridge – It is the legal loopholes existing in complicated laws which have lent a hand to businesses in evading taxes.

Vietnamese now cast an unsympathetic eye at foreign invested enterprises (FIEs) after the HCM City Taxation Agency discovered the signs of evading tax from capital transfer deals made by a lot of local FIEs

Under the current laws, businesses have to pay the tax of 20 percent on the income they earn from the transfer deals, which is calculated by the difference of the selling price and buying price.

However, the Ministry of Finance has discovered that a lot of businesses have been trying to evade the tax. On December 23, 2013, the ministry stated that its inspectors will take a series of inspection tours to enterprises to clarify the tax evasion. As such, the ministry has shown its strong determination to find the truth and collect tax arrears.

However, some analysts commented that it is unfeasible to tax on capital transfer deals once the existing loopholes in the laws can help businesses evade tax.

Under the current laws, transferring capital means buying or selling stakes and they must be taxed 20 percent.

However, also under the current laws, securities investors who make transactions on the stock market, have two options for tax payment. They can pay either 0.1 percent of the selling prices (the turnover), or 20 percent of the income from the transfer deal (subtract the buying price from the selling price).

In principle, investors have the right to pay tax in accordance with the method more profitable to them.

In many cases, the tax sums investors have to pay are calculated by the two methods which are quite different. And it is the way tax payers follow to evade tax.

The analysts have noted that most of the recent tax evasion cases were found at unlisted enterprises.

In case of Hoan My Medical Company, one of the companies on the black list, has been found as trying to evade tax by declaring the change in the name of the company’s representative instead of reporting the capital transfer deal.

Tax officers found that Hoan My has fulfilled a capital transfer deal which brought the profit of VND157 billion (the selling price is VND776 billion the cost price is VND618 billion), meaning that it has to pay the tax of VND39 billion.

However, if considering the capital transfer deal as a normal stake transaction in the stock market, Hoan My, or the seller, can choose either to pay 0.1 percent of the selling price or 20 percent of the profit.

If it chooses the former, or 0.1 percent of the turnover, it would have to pay VND780 million in tax only, not VND39 billion.

This is the reason explaining why businesses think the taxation on capital transfer deals is “unreasonable” and that they try every possible means to evade tax.

It may happen that businesses would list their shares on the bourse before they transfer capital. If so, as listed companies, they would only have to pay 0.1 percent of the turnover only. In this case, they would be able to reduce the tax sums they have to pay in a legal way.

K. Chi