Transfer pricing in gun sights

General Department of Taxation’s Tax Policy Department deputy head Vu Van Cuong puts VIR in the picture.

It seems that the acts of transfer pricing have become increasingly sophisticated these days. Is that the case?

First of all, we should know that transfer pricing is commonplace around the world, not only in Vietnam. Besides, transfer pricing does not only occur in transactions between foreign parent companies and their Vietnam-based subsidiaries, or between Vietnam-based subsidiaries and foreign subsidiaries of the same groups, but also happen between affiliated businesses in Vietnam. Both foreign-invested and domestic enterprises were detected to carry the acts of transfer pricing.

Why has this issue previously yet to garner the tax sector’s due attention?

In fact, transfer pricing has captured particular attention from competent state agencies generally and the tax sector particularly in the past years. In 1997 the Ministry of Finance (MoF) made public Circular 74/1997/TT-BTC on setting market prices in transactions between relevant parties. To boost efficiency of the fight against transfer pricing from 1997 until present the MoF enacted four relevant circulars covering the issue, and most recently Circular 66/2010/TT-BTC.

Many regulations in Circular 66 are close to those referring to transfer pricing in diverse countries which is an important factor for the tax sector to come up with inspections at foreign-invested enterprises (FIEs) showing signs of transfer pricing. Consequently, in the year to date the tax sector carried checks and inspections at 1,495 businesses and saved the state budget over VND3.3 trillion ($157 million) on the back of price revisions.  

The tax sector has scored initial achievements in combating transfer pricing. Can we expect more?

The tax sector was given a ‘baton’ to enhance efficiency in dealing with transfer pricing and generally tax control in the forthcoming time; that is the amended and supplemented Law on Tax Administration.

First, the Law continues allowing taxpayers to fill in tax declarations, calculate and pay their taxes by their own. Besides, the Law contains regulations on the application of a comprehensive risk control mechanism in tax administration. Towards this goal, the tax bodies will build a set of criteria and increase human resources in check and inspection activities to assess tax policy obedience level of taxpayers.

Besides, tax bodies will apply strict sanction measures towards tax fraud and evasion, including acts of transfer pricing such as hiking fine level from 0.05 per cent/day to 0.07 per cent/day if taxpayers are late in their payment duty above 90 days or raising fine level towards wrong tax declarations leading to deficiency in tax payment.

Second, the law presents the Advance Pricing Agreement (APA) mechanism in dealing with transfer pricing at FIEs. The move helps increase efficiency in tax collection, while firms would be more active in outlining business plans and handling tax obligations.

Third, under the law, state management bodies can procure information about taxpayers from foreign sources under inked treaties and agreements serving tax administration generally and the fight against transfer pricing particularly.

Coca-Cola, Adidas, Metro Cash & Carry etc. are being suspected with transfer pricing. Will the tax sector come up with inspections in these firms?

Check and inspections relevant to transfer pricing will take place at all firms showing signs of transfer pricing.