The number of foreign direct investment (FDI) enterprises continues to increase in Vietnam, but more are reporting losses. 

Inspections against transfer pricing will be increased as per a proposal by the Ministry of Finance in the context that more than half of foreign direct investment (FDI) enterprises reported losses.

Tax management performed on enterprises which conduct affiliated transactions will rely upon the principle of fairness, transparency and no discrimination against neither domestic nor foreign enterprises, said a top taxman.

The regulations on the cap on loan interest deductions will cause enterprises to face difficulty as they have small capital and operate mostly with borrowed money.

The Government’s recently-issued Decree 132/2020/NĐ-CP would help prevent transfer pricing and limit thin capitalisation to develop a healthy investment market, Deputy Director of the General Department of Taxation Dang Ngoc Minh said.

The State Audit Office of Vietnam requested the police to investigate the case.

The General Department of Taxation inspected 72 enterprises suspected of indulging in transfer pricing, collecting taxes and imposing fines of VND212 billion, 

The interest expense deduction limit may be raised from the current 20% to 30% to support businesses, according to a draft decree on tax management for enterprises with related party transactions the Ministry of Finance made public for comments.

Such increases have created a burden on the citizens, while multinationals are taking advantage of Vietnam’s incentive policies to avoid taxes.

Under the draft law, financial incentives would be given in three fields – corporate income tax, import/export tax; finance and land; and accelerated depreciation.

While FDI firms continue to report losses, they keep expanding operations in the country.

Vietnam plans to enact a law to fight against the transfer pricing tax in an effort to enforce transfer pricing rules more aggressively, according to Cao Anh Tuan, general director of the General Department of Taxation (GDT).

The extent of economic restraints caused by COVID-19 now cannot be known, but the Vietnamese economy will not grow as was estimated until recently.

The growth of FIEs in Vietnam has recently raised increasingly complicated tax concerns. These problems arise primarily from the practical issues of determining the transaction price between FIEs and their related parties.

There were 5,720 cases of foreign investors contributing capital or buying into Vietnamese enterprises in HCM City in 2019, which was 4.3 times higher than the number of FDI projects, according to the HCM City Planning and Investment Department.

Economists, applauding the decision to impose fines and force Coca Cola to pay tax arrears, totaling VND821 billion, said it is necessary to deal with foreign invested enterprises that evade tax and conduct transfer pricing.

Vietnamese corporations have complained that the new solution to fight against transfer pricing by controlling loan interest rates is causing problems for their operations.

Established years ago, the taskforce in charge of fighting transfer pricing under the General Department of Taxation (GDT) remains unheard of by the public. 

Transfer pricing has always been a heady problem for the Vietnamese government and ministries since the country began attracting FDI (foreign direct investment).