Tax dodgers in for a fight

Everbest Vietnam is a wholly Hong Kong-China owned shoe maker based in northern Quang Ninh province and since its foundation in 2003, the company continually counted losses.

Phuong Dong Pearl Company Limited, wholly Japanese, bears the same fate. Its pearl products are often sold to a foreign partner. Since going into operation in 2000, the firm bogged down in losses.

These two firms’ transaction figures are under Quang Ninh Tax Department’s microscope and these firms subject to undergo inspections during 2011-2012 to detect whether they involve in transfer pricing cases.

In fact, these cases are multiple and take place in localities nationwide.

For instance, in southern Dong Nai province, wholly Taiwanese Hualon Textile Company also incurred continual losses which exceeded VND1 trillion ($47.6 million) by late 2010, according to Dong Nai Tax Department figures.

Inspection results showed that the firm had unclear transactions with associate foreign firms in purchases of major production materials. However, the Dong Nai Tax Department temporarily did not give final conclusion about the case due to insufficient information and has send all relevant records to the General Department of Taxation seeking support.

In fact, a number of foreign invested firms, though claiming they were at losses for couples of years, have been expanding production and business continually.

According to Ho Chi Minh City Tax Department’s Inspection Office 1 officer Phan Phung Hung, transfer pricing may involve firms which have counted losses for couples of years, but could still build new factories and operate smoothly.

According to a Ba Ria-Vung Tau tax officer there almost does not exist a price database of commodities and products being transacted between independent and associate companies. “Hence, in case internal transactions taking place among associate firms or firms under the same group it is extremely difficult for tax bodies to source similar transactions to define whether the parties involving these internal transactions strictly abide to market prices in their cases,” said the officer.