War declared on tax evasion by foreign firms

The Ministry of Finance has once again urged the Taxa-tion Bureau to regulate the transfer pricing mechanism used by foreign invested enterprises (FIEs) to declare losses to evade taxes in Viet Nam.

This will be one of the main focuses of the tax regime this year, according to the ministry.

The ministry wants provincial tax agencies to scrutinise 3 per cent of FIEs in their localities and re-inspect 20 per cent.

According to the city Department of Taxation, the ration of FIEs in HCM City declaring losses fell from 39 per cent in 2008 to 34 per cent in 2009.

Inspections and investigations at these FIEs have helped the tax agencies collect arrears of over VND3 trillion (US$150 million).

The department hopes to cut the ratio of FIEs declaring losses to below 30 per cent this year, and says tough action will take the figure down to below 20 per cent.

The ministry expects arrears in HCM City, which accounts for 40 per cent of the country’s tax revenues, to range between VND5 trillion and VND6 trillion ($300 million).

All Taiwanese-invested tea-processing enterprises in the Central Highland province of Lam Dong have announced profits in 2010 after the Taxation Bureau inspected their books.

In an interview to Vietnam Investment Review newspaper, Minister of Finance Vu Van Ninh said the price transfer system is commonly used around the world since multinational corporations take advantage of local markets to maximise profits.

“It is difficult to find out if a company is manipulating business results by reporting losses and declaring high input costs to avoid taxes. Therefore, some countries use economic intelligence to investigate suspected companies.”

The Ministry of Finance began to combat transfer pricing in 2005, but its measures were not comprehensive or tough enough, and FIEs have continued to take advantage of this loophole to enjoy greater profits, he said.

Nguyen Dinh Tan, head of the HCM City Department of Taxation, says it is difficult for tax agencies to verify FIEs’ declarations of input costs and selling prices. Tax agencies could end up facing a lawsuit from a firm if it issues a wrong decision on collection of arrears.

Nguoi Lao Dong (The Labourer) newspaper reports that the list of 120 FIEs declaring losses in 2010 released by the ministry includes some big firms.

Tags: Vietnam taxes