Transfer pricing evidence elusive

Cargill Vietnam is one of the animal feed makers suspected of evading tax via transfer pricing

Nguyen Huy Dien, vice head of the Ministry of Agriculture and Rural Development’s (MARD) Directorate of Fisheries, told VIR that an inspector group had investigated seven major foreign firms that produce animal feed in Vietnam to determine whether or not they had been conducting transfer pricing to evade tax.

“No transfer pricing evidence has been found from these firms,” Dien said.

The inspectors include the representatives of the MARD and the ministries of Public Security, Planning and Investment, Industry and Trade, and Finance.

The foreign firms in question are Thailand’s C.P Vietnam, Taiwan’s Uni-President Vietnam, the UK’s Grobest Vietnam, the US’ Cargill Vietnam, China’s Tongwei Vietnam, France’s Guyomarc’h Vietnam, and Taiwan’s Sheng Long Bio-Tech International.

In October 2015, Deputy Prime Minister Vu Van Ninh ordered these ministries and the people’s committees of all provinces and cities under the central rule to conduct transfer pricing investigations over animal feed firms in Vietnam. This order came amid local enterprises lamenting their foreign rivals’ unhealthy competition by committing tax fraud via transfer pricing.

However, Le Ba Lich, chairman of Vietnam Animal Feed Association, told VIR, “It is highly doubtful that many foreign animal feed firms have been conducting transfer pricing for years for tax evasion, but it is hard to find specific evidence.”

The expert, with 30 years of animal feed experience, explained that each feed mill in Vietnam had hundreds of types of feed. Each type of feed has about 20-30 kinds of substances. “Meanwhile, prices of feed materials fluctuate every day, and 70 per cent of materials for making feed in Vietnam are imported. Also, Vietnam currently has no transfer pricing specialist.”

“Thus it is very hard to affirm that foreign firms are conducting transfer pricing. It is also a challenge for authorities to determine transfer pricing,” Lich said.

Meanwhile, C.P Vietnam told VIR via email that “C.P thinks there is no transfer pricing among firms in Vietnam”.

“With the state’s determination to strictly and periodically examine firms and punish violators, we believe that a healthy business climate will be created, and firms’ violations will be limited,” said the email.

Transfer pricing activities usually occur when multinational corporations with a network of subsidiaries located in different countries declare higher costs and higher prices in order to declare operating losses in certain tax jurisdictions, thereby reducing their payable tax. Recently, the issue of tax avoidance through transfer pricing has been receiving more attention from authorities and the media in Vietnam.

However, Dien of the MARD noted that though no transfer pricing had been discovered, inspectors found that these seven foreign firms had paid “huge commission” for local distributors.

“Some distributors even receive Camry-branded cars as a commission though they can sell only about ten tonnes of feed a year,” Dien said. “Often, the commission is worth 30 per cent of a distribution contract’s value. This has greatly contributed to a very high price of animal feed in the market.”

He said the MARD had sought help from the Ministry of Finance to clarify the cahoots between the foreign firms and their distributors.

According to the MARD, Vietnam currently has 64 foreign animal feed mills, holding about 65 per cent of market share.