Vietnam - Many FDI firms in Vietnam found to fake losses

Following the local tax agency’s campaign to curb transfer pricing, a number of foreign-invested businesses operating in the southern province of Binh Duong have been found to fake losses to evade taxes.

According to Binh Duong Tax Agency, Korea’s Sung Shin Vina Co Ltd in My Phuoc II Industrial Park has reported an accumulated loss of more than VND55 billion (US$2.68 million) during its operation between 2007 and 2010 in Vietnam.

But the paradox was that the company constantly expanded its production despite the huge losses, the tax agency said, adding its revenue last year rose by 33 times compared with 2007.

The tax inspectors said the massive losses were caused by the company’s trick whereby it imported materials from its parent company in Korea at high prices while exporting its products back to the parent at prices lower than market rates by 15 percent.

Under the provincial tax agency’s request, Sung Shin Vina Co has adjusted the export prices in its financial report in accordance with market prices, resulting in the actual profit of VND88 billion instead of the ‘losses’.

Similarly, the car component manufacturer Myung Jin Vina Co Ltd in My Phuoc III Industrial Park also bought materials from its parent company Myung Jin Tec in Korea and sold its products under market prices to DJV Co Ltd, another subsidiary of Myung Jin Tec.

After working with the tax agency, Myung Jin Vina adjusted prices in its financial report, which showed that the company actually enjoyed a profit of VND5.9 billion in 2008 and 2009.

The tax agency then collected corporate income tax on the profits and fined the company VND456 million for the transfer pricing act.

For its part, Ngu Kim Chinh Nguyen Co Ltd also had to pay the corporate tax after tax officials found that it had falsely reported losses in 2006 and 2007 under the same ruse as Sung Shin Vina and Myung Jin Vina.

Half of FDI projects make losses

Binh Duong Tax Agency said 50 percent of the more than 1,700 FDI projects operating in Binh Duong Province with a total investment of US$14 billion had reported losses since 2006.

Vo Thanh Binh, deputy head of the agency, said it was not easy to have the businesses admit to faking the losses.

He said some experts had suggested developing a bank data to compare the businesses’ reported prices with the actual market prices.

“But this is not simple since the companies also have excuses for their low prices,” he said.

“For instance, they can plead that a shirt made in Vietnam can cost lower than in Malaysia thanks to some tiny difference in details while we do not have the Malaysia-made shirts to verify.”

Truong Cao Nghia, head inspector of the tax agency, said the agency could only raise businesses’ awareness on their duty to pay taxes to curb transfer pricing.

However, Do Hoang Anh Tuan, Deputy Minister of Finance, said the anti-transfer pricing campaign had gained positive results in some 20 localities around the country.

The tax agencies’ inspections on 500 FDI businesses countrywide had detected many violators and increased the state budget collection by VND1.2 trillion, he said.

TUOI TRE

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