Oct 22, 2012

Vietnam - Coke hit by transfer pricing call

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Coca-Cola’s plant expansion plan has lost its fizz after central Danang City People’s Committee rejected the plan due to transfer pricing suspicions.

Vo Duy Khuong, Deputy Chairman of Danang City People’s Committee, told VIR that the city rejected Coca-Cola’s 5,000 square metre production line expansion plan because the beverage producer had reported losses since 1998. Furthermore, he added Coca-Cola had been handed 40,000sqm at a preferential price of $0.647 per square metre a year since 2008 but the company had only developed two-thirds of this area.

The loss at Coca-Cola is hard to swallow as American icon Coca-Cola is known as one of the leading players in Vietnam’s beverage market.

Nguyen Thi Ngoc Diem, plant manager of three facilities of Coca-Cola in Hanoi, Ho Chi Minh and Danang, said in a meeting with Danang City People’s Committee that Coca-Cola products had been well consumed in Vietnam, with the growth rate of 25 per cent per annum, explaining why the firm wanted to expand.

However, Khuong said he suspected Coca-Cola had implemented transfer pricing activities to avoid tax contributions. Last year, the city earned a modest budget contribution from the company including $190,000 in value added tax and $3,500 in natural resources tax.

Diem declined to give further comments when contacted by VIR.

Even though Coca-Cola’s market share has been expanding in Vietnam in recent years, the firm reported it had suffered huge losses. Last year, Ho Chi Minh City Department of Taxation said that Coca-Cola reported the loss of about VND100 billion, or $4.9 million at current exchange rate, per annum during over ten years, with 2008 seeing the loss of over VND130 billion, or $6.4 million.

Nguyen Trong Hanh, deputy director of Ho Chi Minh City Department of Taxation, said Coca-Cola Vietnam was a typical example of potential transfer pricing violations.

“According to Coca-Cola, the reason for its loss was that its parent in foreign country exclusively provided materials to its facilities in Vietnam which made up a high proportion of its selling price, from 67-85 per cent,” said Hanh.

The case of Coca-Cola once again raises transfer pricing suspicions at foreign firms which reported huge losses, but kept on expanding production in Vietnam. According to the General Department of Taxation, apart from Coca-Cola, many big firms such as Metro and Big C had reported losses for many years in a row. Metro Cash & Carry reported the loss of $55.9 million from 2001-2009 while its equity was $30.5 million.

Trang Thu and Ngoc Linh | vir.com.vn

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