Tax authorities drafting decree on transfer pricing

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Speaking with VIR after the government’s recent regular meeting for June 2016, Nguyen Van Phung, head of the Big Corporate Tax Management Department of the General Department of Taxation under the MoF, said the department and related agencies were in the process of building a decree on determining the market price in transactions between related parties.

“Currently, there is Circular No.66/2010/TT-BTC guiding the determination of market price in transactions between related parties to regulate potential transfer pricing. Since its issuance six years ago, it has been useful, but because it is only a circular, enforcement still encounters difficulties from time to time,” Phung said. “I think in the long term there should be a Law on Transfer Pricing, like in other countries. But for the near future, we have asked for and received the MoF’s approval to draft a decree.”

According to Phung, in the past five years, the department has been inspecting an increasing number of intercompany transactions that showed signs of transfer pricing. In 2015, the number of companies inspected was 4,751, the highest ever. The companies’ losses after the inspections decreased by VND10.05 trillion ($451 million), also the highest amount ever.

Phung said that recently the department had enlisted the help of the World Bank, International Finance Corporation, and a range of other international organisations. It has also requested the MoF to collect data from willing consultancy companies and companies selling information on prices in order to facilitate the inspection.

Foreign invested companies often engage in suspected, and proven, transfer pricing to evade tax. The latest major case involved Formosa Ha Tinh, which submitted VND1.55 trillion ($70 million) less tax than it was supposed to, as discovered by the tax authorities at the end of February.

Popular ways of transfer pricing to evade tax, which have been used by multinationals operating in Vietnam, include paying for the right to use the brand and trade secrets of the parent company.

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