Media reports have suggested the Government build a more effective mechanism to tackle the problem that prolonged loss-making FDI enterprises have still enlarged investment and production. (Photo: cafebiz.vn) Hanoi(VNS/VNA) – Prime Minister Nguyen Xuan Phuc has assigned the Ministry ofFinance (MOF) and General Department of Taxation (GDT) to study media reportson transfer pricing of foreign direct investment (FDI) enterprises and taxpolicy.
Media outlets have reported that the number of FDI enterprises reporting lossesduring 2012-16 accounted for 44-51 percent of total enterprises, a sign whichmay indicate transfer pricing. However, it can be difficult to know the truthas the tax authority is not empowered to investigate.
The report in Tuoi tre (Youth) newspaper pointed out a fashionable transferpricing strategy is through intra-firm parent debt or related-party loans,following which firms borrowed from their parent companies or affiliates withexcessive interest expenses.
Other pricing methods include inter-company transactions in various forms suchas overseas parent companies selling raw materials and equipment tosubsidiaries with high prices, charging high royalties fees, or Vietnameseaffiliates bearing the cost of advertising, marketing and research which shouldbe covered by overseas parent firms.
Dang Van Hai, deputy director of the Legal Affairs Department under the StateAudit Office of Vietnam (SAV), said the purpose of those transactions was tominimise tax payments in Vietnam, causing big losses to the State budget,creating an unfair competitive environment and contributing to the country’strade deficit.
The MOF also reported that the expansion of investment and business ofloss-making FDI firms is higher than the growth in the number of enterprisesreporting losses and accumulated losses.
An SAV survey showed loss-making firms focus on garment and textile, footwearand the processing industry. Up to 90 percent of FDI companies operating in thetextile industry in HCM City reported losses while most domestic firms postedprofits.
Media reports have suggested the Government build a more effective mechanism totackle the problem of prolonged loss-making FDI enterprises with enlargedinvestment and production.
Apart from transfer pricing, the Government’s Office also quoted a report onDoanh nhan Vietnam (Entrepreneur) newspaper saying that tax incentives arebiased in favour of region rather than sector.
High value-added services have not given practical incentives while many taxpreferences are still rigid which reduce investment attractiveness, accordingto the report.
Meanwhile, a report on Vietnamplus said that Vietnam has signed 75 tariffagreements but in practice, the FDI sector complained that tax reduction underthese agreements is not automatic.
Tax authorities have not issued any documents and notices certifying the taxexemption or reduction to enterprises, it said.
Nicolas Audier, co-chair of the European Chamber of Commerce in Vietnam, saidmany EU firms complained that they are confused about their rights under thetariff treaties. Businesses must learn by themselves the regulations to assesstheir eligibility. If they are eligible for tariff reductions or exemptions,they must submit a ‘tax exemption or reduction under the agreement’ notice to thelocal tax office.
Regarding these issues, Prime Minister Nguyen Xuan Phuc asked MOF and GDI tostudy and devise a policy response.-VNS/VNA
VNA
