VietNamNet Bridge – Five years after setting foot in Vietnam and repeatedly declaring a loss, the South Korean real estate investor, the developer of the tallest building in Vietnam – Keangnam Vina – has admitted its behavior of conducting the price transferring worth VND1.22 trillion.

Transfer pricing: Hundreds of businesses named in black list

Pocketing trillions of dong and declaring loss

The developer of Keangnam Hanoi Landmark Tower reported losses for the last five years. In 2011, when the building was put into operation, the developer got the turnover of VND5.2 trillion. However, it still declared the loss of VND140 billion.

In October 2007, or three months after it got the investment license, Keangnam VIna signed a turn-key contract with Keangnam Enterprise on choosing the latter as the EPC contractor. The value of the contract was $871 million.

Keangnam Enterprise, a “brother” of Keangnam Vina, also provided the finance consultancy service and arranged loans for Keangnam Vina.

In 2008, Keangnam Vina paid $30 million, or VND485 billion to the brother for the finance consultancy services alone.

While Keangnam VIna repeatedly declared loss for which it did not have to pay the corporate income tax, the EPC contractor Keangnam Enterprise in South Korea pocketed big money. Keangnam Vina only had to pay the contractor withholding tax in Vietnam, much lower than the corporate income tax rate at 25-28 percent.

The Vietnamese inspectors have found a lot of illegal expense items, thus reducing the total EPC contract value from $871 million to $699 million.

They have also found that Keangnam Vina made fat profit in selling high grade apartments. The cost price of the apartment bloc just amounted to 33 percent of the total EPC contract value. The revenue from apartment sale was VND3.5 trillion.

Keangnam Vina has been forced to pay the corporate income tax arrears of VND95.2 billion for the apartment sale.

In terms of hotel and office leasing services, Keangnam Vina actually still takes loss. However, inspectors have found that the loss incurred by it is much lower than the reported figure.

When hearing about the inspection plan, the South Korean real estate developer took steps promptly to fool tax officers.

At first, Keangnam Vina reported that it had to pay 12 percent per annum for the $400 million loan it borrowed from Kookmin Bank, also a “brother” in same group. The interest rate was fabulous, because it was twice as high as the dollar interest rates offered by Vietnamese banks at that time.

With the sky high interest rate, the interests for the loan was estimated at VND2.03 trillion.

However, later, just before receiving the tax inspectors, the investor lowered the reported lending interest rates to 5-7 percent.

Keangnam Vina makes too much money in Vietnam

Vietnam laid a red carpet to welcome the South Korean investor. An expert commented that the investor’s plan has been implemented very smoothly in Vietnam. It did not have to wait too long to get the license, while it could sell apartments at high prices, when the real estate market was “scorching hot.”

In 2008, an apartment there was offered for sale at VND7-8 billion, or $3,000 per square meter, or VND60-80 million

Keangnam Landmark is the building about which residents complain most. Local people believe that the service fees are too high, while the investor threatened to cut electricity and shut lifts because of the loss.

Pham Huyen