Tax crackdown nets FDI enterprises

In the V1000, which lists the top 1,000 enterprises in Vietnam by tax contributions, foreign-invested enterprises (FIEs) contributed 24 per cent of the corporate income tax of total V1000’s tax payments in 2012, higher than 19.6 per cent posted the year before.

Among the 458 new names on the list, foreign companies accounted for over 45 per cent, while domestic private sector and state owned enterprises (SOEs) contributed 37.1 percent and 17.5 per cent, respectively.

“2012 marked a positive change for FIEs’ tax contributions to Vietnam’s state budget. The local tax authority’s efforts in tax inspection and investigation of FIEs’ tax duty contributed to FIEs higher tax contributions,” said Phan Huu Nhat Minh, director of research at Vietnam Report, a local company ranking and researching firms published in the list.

Recently, Vietnam’s tax authority strengthened tax inspections for enterprises, with a particular focus on FIEs. As a result, hundreds of billions of dong of back tax was collected and raised accusations of transfer pricing at a number of high profile FIEs operating in Vietnam.

According to recent inspection results, the General Department of Taxation (GDT) checked the business results of 5,531 FIEs, 60 per cent of the total operational in the country, and found “worrying problems”.

Of the 5,531 FIEs, a mere 3,175 enterprises, or 57.4 per cent, posted a profit, and 529 enterprises reported losses despite steadily increasing turnover.

The GDT reported that numerous FIEs repeatedly reported losses and asked for tax refunds, while unceasingly expanding their businesses. Meanwhile, domestic enterprises, operating in the same business fields and under the similar conditions, reported profits and paid corporate income tax.

The GDT inspected 122 FIEs and found many of them guilty of transfer pricing, including Keangnam Vina, the Korean-backed developer of Vietnam’s tallest skyscraper. Those enterprises were forced to pay tax arrears of over VND200 billion ($9.5 million). Big-name foreign companies such as Adidas, Coca-Cola and PepsiCo came under scrutiny suspected of transfer pricing.

In 2012, the local tax authority checked and inspected 2,027 enterprises showing signs of transfer pricing and related parties transactions and collected back tax of VND683.5 billion ($32.55 million).

A GDT representative said that the recent efforts of the local tax authority in tightening tax management had caused many enterprises to report higher profits than those in previous years. Minh also argued that the positive business performance in 2012 of FIEs, most of which focus on exports, was another reason behind their bigger tax contribution.

FIEs’ ranking also advanced given the domestic economic sectors’ financial woes due to shrunk domestic consumption and bad debts.

In 2012, FIEs accounted for 55.9 per cent of the country’s total export turnover value of $114.57 billion, according to figures of the Ministry of Industry and Trade. They recorded an export turnover of $64.05 billion, up 33.8 per cent year-on-year, while roughly $59.94 billion worth of goods were imported, an increase of 22.7 per cent on the same period. Meanwhile, the export turnover of SOEs only made up around 40 per cent, a 1.3 per cent increase against 2011.

Senior economist Le Dang Doanh added that FIEs were not feeling the pressure of high interest rates or inflation as in previous years, which helped them make greater tax contributions.