Firms in cross hairs of the transfer pricing teams

Bui Van Nam, head of the General Department of Taxation (GDT), said one of the main tasks for the tax authority in 2013 would be the inspection of related party transactions, a method of transfer pricing often employed by foreign-invested enterprises (FIEs).

Transfer pricing issues are present in many FIEs in Vietnam, especially multi-national companies with a large system of markets in the world. Famous foreign names such as Adidas, Coca-Cola, PepsiCo, Keangnam Vina, BigC and Metro Cash & Carry have been suspected by local tax authorities of possible transfer pricing violations in Vietnam.

“Big cities and provinces with many FIEs such as Hanoi, Ho Chi Minh City, Dong Nai, Binh Duong and Vinh Phuc will amplify anti-transfer pricing activities which will focus on FIEs with signs of transfer pricing,” said Deputy Minister of Finance Vu Thi Mai.

According to the GDT, these big cities and provinces will focus on transfer pricing inspection in five different sectors.

Specifically, Hanoi will inspect transfer pricing in construction and real estate, Ho Chi Minh City in garment and textile sector, while Dong Nai, Binh Duong, Vinh Phuc in automobile and motorbike assembling, fabric production and cloth weaving and mechanical manufacturing.

“Many FIEs in Vietnam appeared party to transactions of transfer pricing with its parent company or other member companies in foreign countries,” GDT deputy head Tran Van Phu noted, despite acknowledging FIEs’ important role in Vietnam’s economic development.

“Thus, Vietnamese tax authority is promoting cooperation with foreign tax authorities to raise efficiency in anti-transfer pricing, and ensure fair business environment for all investors,” said Phu.

In 2012,  Vietnamese tax authorities carried out inspections of 1,495 enterprises reporting losses as a transfer pricing signal. After the inspections, many enterprises adjusted to report profits instead of losses.

The tax authorities collected tax arrears of VND622.8 billion ($29.9 million), reduced losses of VND3.3 trillion ($158 million) and paid additionally to the state budget of VND206 billion ($9.9 million).

Mai said the Law on Tax Administration, to take effect on July 1, 2013, will apply Advanced Pricing Agreement, considered an efficient means to curb transfer pricing.

However, Mai said enforcement was hampered by  a lack of a data system on FIEs and heavy state official workloads.