Nov 13, 2012

Vietnam - Tax agencies cast doubtful eyes on Metro Cash & Carry and Coca-Cola

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VietNamNet Bridge – Reporting repeated losses, but still scaling up business, Metro Cash & Carry, a distributor, and Coca-Cola, a drink manufacturer, have raised doubts that they are conducting the transfer pricing.

Metro Cash & Carry has continuously opened new distribution centers recently in Buon Ma Thuot City, Rach Gia (Kien Giang province) and Ha Dong in Hanoi, raising the total number of distribution centers to 19, capitalized at 15-20 million dollars for each, according to

Managing Director of Metro Cash & Carry Vietnam Randy Guttery said the distribution chain plans to have 30-35 such centers in Vietnam in the next 3-5 years.

When asked why it still tries to expand the business in Vietnam despite the loss, the manager said that in general, the costs in the first years of operation are always high and unstable, thus causing loss.

A question has been raised that if Metro Cash & Carry is conducting the transfer pricing to evade tax.

Dau tu has quoted Le Thi Thu Huong, Deputy Head of the HCM City Taxation Department, as saying that inspection would be carried out on the enterprises which repeatedly report loss, (in many cases, the accumulative loss exceeds the stockholder equity), but still keep expanding their business.

Huong’s words can be understood that Metro Cash & Carry Vietnam has been named in the list of the enterprises to be probed.

Huong, when talking about the tricks used by enterprises to conduct the transfer pricing, said that the enterprises transfer the profits to foreign partners by declaring high expenses paid to the foreign partners, such as the system management costs, salaries for foreign workers, royalties or the fees paid to franchisors (Metro Cash & Carry Vietnam is a franchisee).

The same thing is occurring with Coca-Cola. The drink manufacturer two weeks ago announced the plan to pour another 300 million dollars to Vietnam over the next three years, to raise the total investment capital of the manufacturer in Vietnam to 500 million dollars.

Prior to that, local newspapers reported that the Da Nang city’s local authorities said they would still have to consider thoroughly before deciding on whether to allocate land to Coca-Cola once the manufacturer has repeatedly reported loss over the last few years.

Though taking loss, the enterprises do not intend to cut down the salaries paid to foreign workers, while the pay does not depend on the business results. The most popular methods applied by the enterprises is that they report very high prices of the materials which they buy from the foreign holding companies, or report high prices of fixed assets.

However, since the currently applied Circular No. 66/2010 dated April 22, 2010, of the Ministry of Finance does not cover all the arisen problems, taxation officers can only use the currently apply inspection methods, which explains why the fight against price transferring has just brought modest results.

One thing taxation officers need to do when examining enterprises’ account books, is to find out the actual prices of the services and goods by referring to the quoted prices of the same kinds of goods available on the market.

However, the problem is that it is very difficult to find out the goods of the same kinds on the market to prove that the enterprises’ reported prices are higher than the real prices.

Coca-Cola is a typical example. Eighty percent of the materials are imported from the foreign holding company. However, since these are exclusive materials, it is very difficult to find out if Coca-Cola reported wrong material prices.

Compiled by C. V

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