PepsiCo fizz following tax scandal

PepsiCo recently paid VND7.4 billion in tax arrears, and has now been required to pay an administrative sanction Photo: Le Toan

Vietnam’s tax authority recently collected tax arrears totaling VND7.4 billion ($352,380) after discovering PepsiCo Vietnam declared incorrect HS codes at customs for many imported products and applied incorrect value added tax (VAT) rates on some items.

HS codes are an international system of codes on imported goods used by customs agencies worldwide to assess duties, collect trade statistics, and generally control imports and exports.

In addition to the initial tax arrears, the firm has been asked to pay an administrative sanction of VND740 million ($35,238), 10 per cent of its back tax value.

PepsiCo Vietnam has already paid the back taxes but is fighting the administrative sanction, having formally asked the local taxation department to consider not applying it. The administrative penalty will represent a black mark on PepsiCo’s customs documents excluding the company from benefiting from preferential treatment during customs clearance procedures.

PepsiCo Vietnam’s CEO Shekhar Mundlay was unavailable for comment on the issue when contacted by VIR last week.

The soft drink giant is one of foreign giants under the Vietnam tax authority microscope suspected of transfer pricing to evade paying tax in Vietnam.

Late last year, Le Duy Minh, head of the Ho Chi Minh City Department of Taxation’s Inspection Department 1, told VIR, “The consecutive losses reported over the last 13 years, and beggarly profits compared with its business scale raised doubts over transfer pricing activities at PepsiCo in Vietnam.”

According to Ho Chi Minh City’s Department of Taxation, the accumulative losses of PepsiCo Vietnam till the end of 2010 were VND1.2 trillion, or $57 million at the current exchange rate.

Having operated in Vietnam since 1994, the company only reported its first profits in 2007. Yet even then, the company was allowed to carry forward losses, thus did not have to pay corporate income tax (CIT). In 2008, the company again posted a loss. The tax authority has only collected CIT from PepsiCo since 2009, amounting to a modest total of $1.9 million during 2009- 2011.

Over the three years that PepsiCo has reported profits, the earnings have only represented 2-3 per cent of its revenue.

Despite cumulative losses and modest profits compared with revenue, PepsiCo continues to expand in Vietnam. In October, the firm officially inaugurated a new $45 million beverage plant in the southern Dong Nai province and another $73 million plant in northern Bac Ninh province.