Not only foreign-invested enterprises but also local companies in Ho Chi Minh City have been found to have transfer pricing practices to evade taxes.
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Nguyen Trong Hanh, Deputy Director of the Ho Chi Minh City Tax Department, acknowledged the illegal activity in a dialogue on May 11 between the department and the European Chamber of Commerce (EuroCham) in Vietnam.
What local enterprises do is to transfer their profits to their subsidiaries in areas where taxes are lower, he said. “Different parts of Vietnam have different tax policies and local companies have taken advantage of this to evade their tax obligations.”
Hanh said data from the Ho Chi Minh City Tax Department show 46% of foreign-invested companies and nearly half of local firms in the city reported losses in 2009. However, the department found some mismatches in their tax declarations.
“We discovered discrepancies in one-third of the foreign-invested enterprises that posted losses. These were businesses that had seen their turnover rising for 11 consecutive years, from a mere VND136 billion (USD5.7 million) to VND9.6 (USD657 million) trillion,” Hanh noted.
The Ministry of Planning and Investment is implementing a project to increase the capacity of discovering transfer pricing practices this year.
Tax agencies are intensifying checks on foreign-invested businesses that have reported losses for years, but have continued to expand their operations.
According to the Ministry of Finance, the total tax collection from the foreign-invested companies last year was more than VND1.4 trillion (USD463.7 million). Meanwhile, official statistics show 80% of companies in the foreign investment sector declared losses.
