Keangnam Vina, the Korean-backed developer of Vietnam’s tallest
skyscraper, is the next big name to face transfer pricing scrutiny.
Nguyen Quang Tien, director of
the Ministry of Finance’s Tax Reform and Modernisation Department, said Hanoi
Department of Taxation (HDT) was investigating whether Keangnam Vina
transferred profits to its parent company through related party transactions.
He said Keangnam Vina was inspected on fees for loans, consultancy services and
other matters with its partners to determine whether violations designed to
dodge local taxes occurred.
Tien said when carrying out the
Keangnam Hanoi Landmark Tower project in Tu Liem district, Hanoi in May 2007,
Keangnam Vina borrowed $400 million from Kookmin Bank, also a member of
Keangnam Group.
However, Keangnam Vina had to pay
the average interest rate of up to 12 per cent per year, higher than Vietnamese
banks’ interest rates of 5-7 per cent for loans in US dollars at that time. The
loan was kept in a business account with the value of VND2,030 trillion ($97.6
million)
Ha Jong Suk, Keangnam’s Vina
president, told VIR that the suspicions reflected an incorrect appraisal of the
company’s dealings.
“We started this project in 2007.
At that time, many Korean banks wanted to lend and promised to provide money
for the project. However, when Vietnam’s foreign exchange market imploded in
April, 2008 due to high inflation rate and global finance market turbulence,
all the banks cancelled their promises and stopped providing money,” said Suk.
Suk said, even though the market
situation was difficult and required considerable work, the loan was assembled
by variety of contribution from about 20 banks, with Kookmin serving as the
representative bank.
“This difficult situation has
lasted from 2008. Naturally, lending interest rate was going up and the
additional cost was high,” Suk said.
Also, the contract between
Keangnam Vina and its contractor Keangnam Enterprises was claimed to be much
higher than it costs. Accordingly, Keangnam Vina had to pay a fee for loan
arrangement for its contractor of up to $20 million and the fee for advertising
and consultancy on granting land use rights and an investment licence of
several million dollars per year. In 2008 particularly, Keangnam Vina reported
financial costs of $30 million.
Tien said tax authorities found
Keangnam Vina’s main contractor had a profit of up to 55 per cent of its
revenue, which would entail a corporate income tax (CIT) obligation of up to 13
per cent of revenue, with the CIT rate of 25 per cent in Vietnam. But the
contractor paid just 2 per cent.
“The tax agency suspects that
there was a related party transaction among three members of Keangnam group. It
is considered a sign of transfer pricing,” Tien said.
In 2011, Keangnam Vina began to
earn revenue from Landmark Tower project, bringing in more than VND5.2 trillion
($250 million), but reported losses of VND140 billion ($6.7 million). By late
2011, its cumulative losses reached VND277 billion ($13.3 million). Due to its
losses, Keangnam Vina has never paid corporate income tax in Vietnam.
Ngoc Trang | vir.com.vn
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