Jul 20, 2018 / 17:14
Besides foreign firms, Sabeco is an example of transfer pricing: Auditor General
Transfer pricing undermines state budget revenue and distorts the business environment, according to Ho Duc Phoc, auditor general of the State Audit Office of Vietnam (SAV).
Not only foreign invested companies (FIEs) but Vietnamese ones are also showing signs of transfer pricing. Among them, Saigon Beer Alcohol Beverage (Sabeco) - the country's largest brewer is an example, said Phoc.
Domestic companies involved in transfer pricing
From a legal standpoint, the SAV's proposal to collect tax arrears from Sabeco implies that there is a loophole in the process of special consumption tax (SCT) management, Phoc stressed at a conference discussing transfer pricing in Hanoi on July 19.
Phoc referred to the case of Sabeco having to pay nearly VND2.5 trillion (US$110 million) in tax arrears following the conclusion of the SAV in March.
Under State Audit's assessment, before selling nearly 54% shares to Vietnam Beverage, a local unit of Thai Beverage, Sabeco held more than VND2.7 trillion (US$118.2 million) in profit after which it had not declared tax from 2016 backwards.
"Transfer pricing causes losses to state budget revenue collections and distorts the business environment. Moreover, it could create unfair competition, among other risks," Phoc continued.
According to the audit chief, in recent years, Vietnam has issued regulations and mechanisms, creating legal foundation for tax authorities to tackle transfer pricing.
However, the legal framework to tackle transfer pricing is still inconsistent with low efficiency, leading to numerous inadequacies and limitations in the process of transfer pricing management.
"The strong development of the sharing economy and the Fourth Industrial Revolution has directly impacted the production and distribution method between economic actors, while transfer pricing has become increasingly sophisticated in both FDI and domestic enterprises," he stressed.
Loss-making FIEs still plan expansion
According to Le Xuan Truong from the Academy of Finance, in the 2015-2017 period, despite about half of FIEs reporting losses, in which many reported losses for a number of years in succession, the majority still planned to expand production.
"There are certainly cases of real losses, for which the reasons may vary. However, we cannot rule out transfer pricing, as foreign investors would not continue to invest in Vietnam if they are having losses," Truong added.
Statistics showed that 60% out of 3,500 FIEs in Ho Chi Minh City have been reporting losses for many years. Lam Dong province faces a similar situation with 104 out of 111 FIEs reporting losses.
The percentage of loss-making FIEs in Binh Duong is around 50% in the 2006 - 2011 period.
Most of those enterprises are operating in the fields of manufacturing, textile and garment, footwear, home appliances, retail and beverage industries, according to tax authorities.
Data from the Ho Chi Minh City Taxation Department indicated that a whopping 90% textile and garment companies in the city report losses, while the majority of local companies in the same sector show profits.
However, in fact, the majority of the mentioned FIEs are still planning to scale up investment and expand production.
The view was backed by experts at the conference who stated that transfer pricing has become more common and serious.
"The FDI sector, in addition to its significant contribution to the economy, has been exposing negative impacts on the economy, such as transfer pricing, tax evasion, causing losses to the state budget revenue and creating unfair competition among economic actors," stated the report at the conference.
Illustration photo.
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From a legal standpoint, the SAV's proposal to collect tax arrears from Sabeco implies that there is a loophole in the process of special consumption tax (SCT) management, Phoc stressed at a conference discussing transfer pricing in Hanoi on July 19.
Phoc referred to the case of Sabeco having to pay nearly VND2.5 trillion (US$110 million) in tax arrears following the conclusion of the SAV in March.
Under State Audit's assessment, before selling nearly 54% shares to Vietnam Beverage, a local unit of Thai Beverage, Sabeco held more than VND2.7 trillion (US$118.2 million) in profit after which it had not declared tax from 2016 backwards.
"Transfer pricing causes losses to state budget revenue collections and distorts the business environment. Moreover, it could create unfair competition, among other risks," Phoc continued.
According to the audit chief, in recent years, Vietnam has issued regulations and mechanisms, creating legal foundation for tax authorities to tackle transfer pricing.
However, the legal framework to tackle transfer pricing is still inconsistent with low efficiency, leading to numerous inadequacies and limitations in the process of transfer pricing management.
"The strong development of the sharing economy and the Fourth Industrial Revolution has directly impacted the production and distribution method between economic actors, while transfer pricing has become increasingly sophisticated in both FDI and domestic enterprises," he stressed.
Loss-making FIEs still plan expansion
According to Le Xuan Truong from the Academy of Finance, in the 2015-2017 period, despite about half of FIEs reporting losses, in which many reported losses for a number of years in succession, the majority still planned to expand production.
"There are certainly cases of real losses, for which the reasons may vary. However, we cannot rule out transfer pricing, as foreign investors would not continue to invest in Vietnam if they are having losses," Truong added.
Statistics showed that 60% out of 3,500 FIEs in Ho Chi Minh City have been reporting losses for many years. Lam Dong province faces a similar situation with 104 out of 111 FIEs reporting losses.
The percentage of loss-making FIEs in Binh Duong is around 50% in the 2006 - 2011 period.
Most of those enterprises are operating in the fields of manufacturing, textile and garment, footwear, home appliances, retail and beverage industries, according to tax authorities.
Data from the Ho Chi Minh City Taxation Department indicated that a whopping 90% textile and garment companies in the city report losses, while the majority of local companies in the same sector show profits.
However, in fact, the majority of the mentioned FIEs are still planning to scale up investment and expand production.
The view was backed by experts at the conference who stated that transfer pricing has become more common and serious.
"The FDI sector, in addition to its significant contribution to the economy, has been exposing negative impacts on the economy, such as transfer pricing, tax evasion, causing losses to the state budget revenue and creating unfair competition among economic actors," stated the report at the conference.
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