Ministry of Finance combats transfer pricing

Hanoi (VNA) – The Ministry of Finance is seeking a joint force comprising relevant ministries and agencies to combat transfer pricing under a draft decree which was being raised for public comments.

The draft decree, developed under government’s Resolution 19/2016/NQ-CP, was the first ever decree to regulate the pricing of related party transactions to prevent transfer pricing and loss in budget collection.

Under the draft decree, not only tax authorities, but also the State Bank of Vietnam, the Ministry of Planning and Investment, the Ministry of Science and Technology, the Ministry of Information and Communications and the Ministry of Industry and Trade must, under their respective authority, exchange information to prevent transfer pricing.

Related party transactions under regulation of the decree will include trade, economic and financial deals among related parties during the business and production progress.

With the decree, the Ministry of Finance is hastening efforts to tighten management towards transfer pricing to prevent tax evasion, especially by joint venture and multinational companies.

The Ministry of Finance said focus would be on improving capacity of tax watchdogs and completing the margin database system of independent firms in industries with high risk of transfer pricing to prevent tax evasion, as transfer pricing was complicated and resulted in significant loss to the state budget.

In addition, transfer pricing inspection would be hastened, the ministry said, especially in corporations with a number of members or companies enjoying tax incentives or under restructuring.

Tax authorities would also improve information sharing with international organisations for risk analysis.

In October 2015, the Ministry of Finance founded a department in charge of inspecting the pricing of transactions and four departments in Hanoi, HCM City, Binh Duong and Dong Nai Province, where a large number of foreign invested firms were located.

The tax inspection of 420 firms which had related party transactions in 2015 helped collect a total of 4.89 trillion VND (218.3 million USD) in arrears and fines, reduce firms’ losses by 3.1 trillion VND, reducing tax reduction amount by 206 billion VND and increasing taxable income by 801.7 billion VND.

There were some13,000 foreign-invested firms in Vietnam, more than 4,000 of which had related party transactions.-VNA