Big-name foreign companies such as Adidas, Coca-Cola and PepsiCo are
facing scrutiny from local tax authorities on transfer pricing possibility in
Vietnam.
The General Department of
Taxation (GDT) last week sent a document to the Ho Chi Minh City Department of
Taxation on defining market price in related parties transactions for Adidas
Vietnam Limited Company, saying that the transactions between Adidas Vietnam
and other partners were likely to be related parties transactions.
The GDT, therefore, is requiring
the Ho Chi Minh City Department of Taxation to inspect the relationship between
Adidas Vietnam and Adidas AG, Adidas Singapore, Adidas International Trading
B.V and retailers. “The agency will check commercial contracts that Adidas
signed with these parties and related documents to define the reasonability of
Adidas Vietnam’s costs in accordance with regulations under Circular
66/2010/TT-BTC,” said GDT general director Cao Anh Tuan in the document.
Circular 66 released by the
Ministry of Finance (MoF) on April 22, 2010 is the latest document containing
Vietnamese transfer pricing regulations. The circular requires arm’s-length
pricing of various business transactions between related party enterprises for
Corporate Income Tax (CIT) purposes and sets the guidance on transfer pricing
methodologies and compliance requirements for taxpayers, among others.
Adidas, the world’s
second-biggest sporting goods maker, forecasted its net income growth in a
range of 15-17 per cent this year and the total profit for the whole year was
estimated to reach $943-962 million.
It was not the first time the
Vietnam tax authorities raised doubt about transfer pricing at foreign-invested
enterprises (FIEs).
FIEs reporting losses for many
consecutive years while still aggressively expanding business and production in
Vietnam have created a headache for Vietnamese management agencies. Le Duy
Minh, head of the Inspection Department 1 under the Ho Chi Minh City Department
of Taxation, said Coca-Cola and PepsiCo were now being inspected to find out
whether they had been implementing transfer pricing activities in Vietnam.
According to the Department of
Taxation of Ho Chi Minh City, the cumulative losses of PepsiCo Vietnam till end
of 2010 were VND1.2 trillion, or $57 million at current exchange rate.
During 13 years, from 1994 to
2007, the firm continuously reported losses. In 2007, PepsiCo Vietnam started
reporting profits but it was allowed to carry forward loss, so the firm did not
have to pay any tax. In 2008, the company continued to report losses. The tax
authority has just collected CIT from PepsiCo since 2009 with the modest total
amount of $1.9 million from 2009-2011. And during the three years, the profit
PepsiCo reported was equivalent to only around 2-3 per cent of its revenue.
Meanwhile, its biggest rival,
Coca-Cola, which operates three plants in Ho Chi Minh City, Hanoi and Danang,
has never reported profits in Vietnam.
Coca-Cola’s cumulative losses in
Vietnam were $181 million till September 30, 2011, which was even bigger than
its equity of $141.8 million, according to Ho Chi Minh City Department of
Taxation.
Minh said Coca-Cola Vietnam had
blamed high price of materials exclusively provided by its parent company for
the loss.
Despite big cumulative losses and
modest profits compared with revenue, PepsiCo still continued to expand its
business scale in Vietnam. In October, the firm officially inaugurated a new
$45 million beverage plant in the southern Dong Nai province and a $73 million
beverage plant in northern Bac Ninh province.
According to the General
Department of Taxation, apart from CocaCola, many big firms such as Metro Cash
& Carry and Big C had reported losses for many years in a row. Metro Cash
& Carry reported a loss of VND1,157 billion ($55.63 million) from 2001-2009
while its the equity was VND633 billion ($30.43 million).
Minh said transfer pricing issues
were present in many FIEs in Vietnam, especially multi-national companies with
a large system of markets in the world. In Vietnam, some sectors with many FIEs
with signs of transfer pricing were textile and garment, beverage and consumer
products.
“In the consumer products sector,
Unilever is also one of the enterprises that need inspecting. Despite high
revenue and growth and tax contribution to the budget, the firm has transferred
a large part of its revenue on trademark and technology to its parent company
which needs to be checked whether it is reasonable and satisfactory or not,”
Minh told VIR.
“In retail industry, Metro Cash
& Carry, Big C and Lotte Mart are big names with big losses for many years
which will also be under inspection in the coming time,” added Minh.
Nguyen Trang | vir.com.vn
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