Ministry to foster anti-transfer pricing inspections

Tuan said the Ministry of Finance has ordered the General Tax Department to submit reports on the tricks of transfer pricing, as well as a solution to curb this issue.

The ministry has gradually developed a specialized team to conduct anti-transfer pricing inspections, and is also joining hands with the Ministry of Planning and Investment to complete the anti-transfer pricing plan, he added.

Tuan said the inspectorate sector will mainly run scans on the businesses suspected of engaging in transfer pricing, those that have repeatedly reported losses, and those subject to tax incentives.

“We will focus on businesses operating in the banking, pharmaceutical, real estate, power, oil and gas, and telecom sectors.”

Tuan said the inspectors will pay special attention to businesses that have reported losses in many consecutive years.

“A comparison between the firms’ financial reports and statistics from the relevant agencies, such as customs, will lay an important basis for the inspection,” Tuan said.

He added that in its draft plan to amend the Tax Management Law, the Ministry of Finance suggests adding the advance pricing agreement to the law to increase the effectiveness of the fight against transfer pricing.

Accordingly, the tax agencies and businesses will negotiate to reach agreement on a tax rate the latter will have to pay before they begin investment and operation.

“The method is being piloted in investment projects of Korea’s Samsung Co in the northern province of Bac Ninh,” Tuan said.

He also admitted the limited abilities of the tax agencies in detecting transfer pricing activities in the past few years.

“Only 58 per cent of tax officials hold university degrees, and they also lack experience, while the executives of major businesses, especially those with foreign investment, are highly experienced,” he said.

Regarding the suggestion that the corporate income tax should be cut from the current 25 per cent in order to curb transfer pricing activities, Tuan said the finance ministry will consider the issue.

He said Vietnam’s corporate income tariff is only higher than that of Singapore, which sits at 19 per cent, while in other regional countries, such as Malaysia and Thailand, the taxes are as high as 32 and 30 per cent, respectively.

“The tax rate in Vietnam is expected to be cut to 20 or 22 per cent, in order to prevent businesses from transferring revenues to pay taxes in other countries with much lower tariffs,” Tuan explained.