Domestic firms under radar for transfer pricing

As many foreign-invested businesses were recently discovered to engage in transfer pricing to evade taxes, tax officials are now looking closer at domestic ones.

In an interview with Tuoi Tre, Le Thi Thu Huong, head of the Ho Chi Minh City Tax Bureau, said 15 out of 197 domestic firms that reported losses in 2010 are suspected of engaging in transfer pricing after inspection.

She said 4 of these 15 suspect firms would be followed closely. “The practice of transfer pricing has been spreading widely,” Huong said, adding that domestic firms have different ways to cheat tax authorities.

One way is to establish two or three different subsidiaries at the same time to spread profits and losses among them to minimize taxable profits, Huong said.

Other companies opt to open many subsidiaries to fake a successful business result in order to lure investments.

For instance, after one subsidiary is listed on the stock market, the other subsidiaries will transfer their profits to the listed subsidiary to increase its stock values to attract investors, Huong said.

Huong said another trick is for a parent company to give all of its revenues to a newly-established subsidiary to take advantage of the tax reductions available to the latter.

Vu Thi Mai, Deputy Minister of Finance, said in the next 5 years, tax authorities would inspect domestic firms suspected of transfer pricing. Foreign-invested businesses that have reported losses for years but continued to expand will also be inspected, she said.

Tags: Vietnam transfer pricing