FDI firms accused of tax dodges

Many FDI firms have made great contributions to the state budget while many others claim to operate at losses yet still taking steps to expand their operations, raising suspicions of transfer pricing. Deputy head of the Dong Nai Provincial Tax Department Nguyen Van Ngan sheds some light on the issue.

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Dong Nai is home to dozens of FDI projects, many of which are massive. However, reports by the local authorities show many have incurred losses over several years. Can you elaborate on this?

The Dong Nai Provincial Tax Department manages 999 FDI businesses. By the end of November their tax payments exceeded our target by 11 per cent and they continue to employ large numbers of workers. However, many firms reported losses. One example is Control Division 1’s report of two FDI firms with losses over one year, another six firms over two years, and five others for the last three years.

Control Division 2 showed 261 firms incurred consistent losses over the past four years.

Foreign firms such as Suzuki, Toshiba, Posco VST, Nestle and Kao claimed they have suffered from losses for most of their time operating in Vietnam, but have still regularly expanded their businesses. Is that the case?

According to documents we have received, motorbike and automaker Suzuki has struggled due to the difficult market conditions. Posco VST, making stainless steel products, claimed they have suffered losses due to rivals dumping cheap products. Kao and Toshiba have struggled with fierce market competition.

For a number of reasons many firms have been operating at below capacity and are burdened by high management costs, leading to losses.

And why have firms continued expanding despite losses? In our view, producing quality items at competitive prices is not easy and therefore, firms despite their losses are making efforts to weather the storm. In fact, some have actually managed to put their businesses back into the black, such as Nestle which has reported profits over the past six years and paid more than VND350 billion ($16.6 million) in corporate income tax.

Another, more grim scenario though is that of real profits, false losses, and this demands our attention. As such, we at the tax department are requiring firms to declare their related parties’ transactions and fix their real revenues. Already some firms have shown higher revenues from re-checking their declarations and revenues from related parties’ transactions. We have also formed inspection teams to investigate and thwart transfer pricing schemes.

Can you explain how well FDI firms are doing in adhering to tax laws and tell us about some measures that have been applied to support companies in doing so?

Some firms were caught violating tax laws through ‘losing’ invoices and making ‘errors’ in their tax declarations. In fact, this is quite common. Those that are caught must pay arrears and fines.

Firms just upping and leaving are also common. In this regard we have the support of industrial park authorities in determining which firms have done so. But punishing them is a difficult matter. To avoid losing tax collection while still needing to maintain an attractive business environment, the tax department is scaling up its efforts to inform businesses about policies, assist them in fulfilling their tax obligations and ramping up checks and inspections to catch violators in a timely manner.