Dec 25, 2012

Vietnam - Vietnam launches general offensive on FIEs alleged of conducting transfer pricing

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VietNamNet Bridge – The taxation agencies would gather their strength to fight against the transfer pricing and would go their ways to find out the truth, though it is really a very complicated and hard work.

Metro Cash & Carry, Coca Cola and some other foreign invested giants have been put under the probe by the taxation agencies which have doubts that the giants have made transferred pricing to evade corporate income tax.

It seems that Vietnam has prepared a methodical attack campaign targeting the foreign invested enterprises FIEs, in which the fraudulent enterprises would be attached from all rounds. In principle, press agencies would not be informed anything about the operation of enterprises until wrongdoings are discovered. However, Vietnam goes another way this time. Finance officials appear on local newspapers continuously these days, affirming that all the shady deeds would be brought to life.

Nguyen Quang Tien, Deputy Head of the Tax Reform Division of the General Department of Taxation, has affirmed that the taxation bodies would inspect all the enterprises suspected of conducting transfer pricing. Though admitting that it would be very difficult to find the proofs to accuse enterprises, this does not mean that the taxation bodies would “give up the games” and let the enterprises continue committing trade frauds.

Regarding the case of Coca Cola, Tien said it is difficult to prove that the drink manufacturer declared wrong import material prices to evade tax, because there is no information about the prices of the similar materials for taxation bodies to compare with to find out if the prices declared by Coca Cola Vietnam are higher than the normal levels. The problem is that the materials have been provided only by the parent group.

However, TIen said that taxation bodies would use another method to find the truth – comparing the profits and detaching profits.

Coca Cola Vietnam has repeatedly declared a loss over the last 20 years, since the day it set foot on Vietnam, which means that the drink manufacturer has not paid any dong in corporate income tax during that time.

Surprisingly, despite the big loss, it has been continuously expanding business in Vietnam. The finance books of the manufacturer showed that its losses were too big, which led to the loss of capital and forced Coca Cola Vietnam to borrow capital from the parent group to making investment in other projects in Vietnam.

When asked if Vietnamese taxation agencies are capable enough to fight against the transfer pricing, Tien said that taxation agencies alone would not be able to fulfill the task, but they would be supported by the Ministry of Planning and Investment and auditing firms.

Especially, the strong determination of the taxation agencies has been encouraged by Vietnamese people, who say that Vietnam needs to take actions to ensure its legal right of imposing taxation on the enterprises that do business and make profits on the Vietnamese territory.

An executive of an auditing firm belonging to the Big Four group said he does not think that the big auditors like KPMG, E&Y, Deloitte would provide any negative information about their clients. Therefore, Vietnam would meet big difficulties if it follows normal ways to fight against the foreign giants.

The executive said that mass media and consumers could act as the supporters to the taxation agencies in the fight against the transfer pricing.

Tran Trung Kien, a partner lawyer of S&B Law firm, said on Nguoi lao dong that in some other countries, the local authorities call on consumers to boycott the products made by the enterprises alleged of conducting transfer pricing.

The executive from the auditing firm agreed, citing that the same method was applied successfully with Starbucks in the UK. The giant then had to apologize to the public and promised to pay 32 million dollars worth of tax in 2013 and 2014, no matter if it can make profit with its business in the two years.

Compiled by C. V

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