VietNamNet Bridge – Vietnam should blame itself for a series of transfer pricing cases found recently.

The trillions-of-dongworth illicit price transferring affair of Keangnam

Hanoi leads the country in terms of the tax arrears foreign invested enterprises (FIEs) have to pay (VND98 billion), followed by HCM City (VND15 billion), Thai Binh (VND7 billion), Quang Ninh and Lam Dong (VND5 billion), Hai Phong VND1.3 billion.

In the southern province of Dong Nai, one FIE has been reportedly forced to pay the tax arrears of VND78 billion out of the total VND100 billion worth of tax arrears to be paid by the local enterprises.

The fact that 122 FIEs have been found as conducting the transfer pricing and forced to pay tax arrears worth VND214 billion has heated up the ongoing National Assembly’s session.

Tran Ngoc Vinh, a National Assembly’s Deputy from Hai Phong City, said tax evasion and transfer pricing both cast a dark cloud on the foreign direct investment (FDI) panorama.

Professor Nguyen Mai, former Deputy Minister of Planning and Investment, attributed the increasingly high number of FIEs trying to evade tax through transfer pricing to the Vietnam’s bad policy response capability and the lack of comprehensive measures to fight against transfer pricing.

“Taxation bodies raised doubts that Coca-Cola and Keangnam conducted the transfer pricing three or four years ago already. We should have had prompt policy response to stop them and prevent others from conducting the transfer pricing,” Mai said.

As Vietnam could not make quick reactions, more and more enterprises have been put under the suspicion.

A report of the General Department of Taxation released after checking the 5,500 businesses’ results in 2010 and 2011 showed that 57 percent of them had accumulative losses. The 5,500 businesses accounted for 60 percent of the total operational FIEs.

Of the enterprises that reported accumulative losses, 529 businesses still saw turnover increasing steadily. Most of them are in the fields of textile and garment, leather and shoes, farm produce processing.

The provinces which have numerous enterprises reporting losses are Bac Ninh (9 businesses reported the accumulative losses higher than the stockholder equities), HCM City (more than 50 percent of businesses declared loss), Hai Phong (109 businesses in the city reported the loss of VND1.2 trillion in 2011), Long An (46 percent declared the loss worth VND1.44 trillion).

According to Mai, it is necessary to immediately take four drastic measures. First, it is necessary to make thorough research to find out the reasons and the loopholes through which enterprises conduct the transfer pricing.

Second, it is necessary to reconsider the legal system and fix the legal loopholes.

Third, it is necessary to keep a close watch over enterprises, the thing that management agencies now don’t pay much attention.

“The HCM City Taxation Agency told me that Coca-Cola has been conducting the transfer pricing, but it does not know this in details,” Mai said.

“It is too dangerous. When discovering the signs of tax evasion, it is necessary to supervise enterprises, seek information from different sources to deal with the frauds,” he added.

And fourth, it is necessary to reconsider the tax rates. In some cases, enterprises may try to evade tax because the tax rates are overly high. A reasonable tax mechanism would encourage businesses to pay tax self-consciously.

Pham Huyen