VietNamNet Bridge - No one can explain why K+, a major player in the pay-TV market, has incurred such a huge loss and is now on the verge of bankruptcy. Some analysts say there are dubious aspects to the case, and suspect transfer pricing.

 

 
K+, a television joint venture between Vietnam and France, well-known as the exclusive broadcaster of the British Premier League in Vietnam, has reported an accumulative loss of VND1.9 trillion after five years of operation.

Since 2009, when it made its debut, K+, the television corporation to which the French Canal+ contributes 49 percent of capital, has been provided high-end services.

Nevertheless, K+ is in serious distress. Sources said in 2014 K+ incurred a pretax loss of VND232.4 billion. In 2013, the reported loss was VND314.4 billion.

By the end of 2014, the total losses had reached VND1.9 trillion, while the total investment capital invested by the Vietnam Cable TV and Canal+, the two partners in the joint venture, was VND344.5 billion only.

This means the loss K+ incurred is 5.5 times higher than investment capital. With the continued loss over the last five years, K+ is not obligated to pay corporate income tax. 

Auditors said that if K+ continues taking losses, it will lose all of its investment capital, go bankrupt and stop operations. 

However, they also pointed out while the loss is heavy, K+’s revenues are very high. 

In 2014, its total revenue from sales and services was VND1.232 trillion, up by 46 percent over 2013. Of this, the subscription fee alone brought VND892 billion, an increase of 48 percent over the previous year. 

According to the Ministry of Information and Communication (MIC), there are 40 pay-TV service providers, 7.5 million pay-TV subscribers and VND6 trillion in subscription revenue. K+ alone makes up 14 percent of the revenue.

The problem behind the huge loss is high cost. In 2014, the total cost was VND1.37 trillion, of which capital costs were VND936 billion, equal to 83 percent of net revenue, and the sale cost was VND278 billion, or 24 percent of net revenue.

The high revenue and huge losses have caused experts to suspect that K+ has conducted transfer pricing over the last five years.

Pham Van Niem, an expert, when asked if there is transfer pricing in this case, noted that in general, investors try to optimize their business and minimize taxes they have to pay.

Niem said taxation bodies will have to check the figures about the revenues and production costs and examine the cooperation contracts between K+ and its partners to determine if there is transfer pricing.

Pham Huyen