Vigilence to detect transfer pricing cases

Not all foreign firms have played with a straight bat regarding taxing issues

Nguyen Duy Long, from the Ministry of Finance’s (MoF) Business Finance Department, said it was expected the number of foreign-invested enterprises  (FIEs) having declared losses would be released by the end of April at the earliest.

“After the deadline of March 31, 2011 for enterprises to submit their financial reports of 2010, the Business Finance Department will summarise to submit to the government and release the result later,” said Long.

Previously, the MoF issued Document 3078/BTC-TCDN dated March 9, 2011 asking for municipal and provincial administrations to supervise and push for FIEs to hand in the financial reports to tax authorities.

Accordingly, local finance departments should work with the departments of planning and investment, management boards of industrial and export processing zones as well as hi-tech parks to urge FIEs to submit their reports on time to the appropriate agencies.

This move is considered the MoF’s first step to inspect tax declaration of FIEs as many reported losses for many consecutive years while still expanding their business activities.

According to the General Department of Taxation’s (GDT) estimates, the number of FIEs declaring losses this year was forecasted to be lower than last year and likely to stay at 30 per cent of the total foreign-invested enterprises in the whole country.

Meanwhile, at the meeting with the National Assembly’s Economic Committee last month, the MoF said it had verified the tax declaration of 3,400 businesses who accumulatively declared losses of VND4 trillion ($190 million).

Remarkably, most enterprises declaring losses were big ones such as Metro, Big C and BAT. Some of them reported losses for continuous years, such as Metro Cash & Carry with losses of VND1,157 billion ($55.9 million) from 2001-2009 and  British American Tobacco (BAT) with the loss of VND1,580 billion ($76 million) from 1994-2007.

Le Dang Doanh, former president of the Central Institute of Economic Management, said transfer pricing meant that a foreign-invested enterprise raised the prices of materials buying from its parent company abroad to evade taxes and this practice had created unfairness for other enterprises operating in Vietnam. “While FIEs enjoyed many preferential policies and the best business conditions, the state did not get any tax contribution from them, on the contrary, it had to refund tax for these enterprises,” said Doanh.

Speaking at the meeting with the GDT in early this month, deputy MoF minister Do Hoang Anh Tuan said the ministry had asked local tax departments to use at least 25 per cent of their staff to inspect tax declarations.

“The inspection focus will be on companies with “big investment and big loss” declarations.

If enterprises reported losses for several consecutive years while expanding their business and production, the MoF can propose to the Ministry of Planning and Investment to consider withdrawing these enterprises’ business licenses,” he added.