Transfer pricing to be reduced by improved data system, tighter laws

Penalties must be imposed on firms that commit acts of transfer pricing to evade taxes, deputy director of the Industry and Information Centre Dr Le Quoc Phuong tells the Viet Nam News Agency.

Ministry surveys reveal that over 70 per cent of foreign-invested firms have declared losses. How do you comment on that?

I can't deny that. Quite a lot of firms have declared that their businesses were operating at a loss for several years. And yet their production lines have kept expanding. This is a big question for which we must find an answer. But many have found a loophole in our laws to conduct transfer pricing in order to evade taxes.

Are they small- or medium-sized enterprises?

Strictly speaking, tax fraud does not depend on the enterprise's scope or the type of business they are engaged in. However, in reality, such practices have been reported against a number of manufacturers, who have been accused of falsifying their raw material inputs. For major corporations, prestige is a more valuable commodity for them, so only a few have been detected engaging in transfer pricing. But trade frauds are rampant with small companies, particularly those don't have trademarks to protect.

Are there measures in place to penalise firms that engage in transfer pricing?

There are five groups of measures that might help solve the problem of tranfer pricing. First, it is imperative to have technical measures to help determine correct prices, comparable transaction methods and advance pricing agreements. Second, we need a complete legal framework. Third, we need to increase the capacity of tax officers. Fourth, we need stronger mechanisms in place to penalise any firms that engage in transfer pricing while improving the quality of monitoring and evaluation. And finally, we need to encourage foreign investment in areas with high added-value, not in areas that can be outsourced or subcontracted. In addition to these measures, it is important to have good co-ordination between relevant agencies, including tax and customs offices.

How does the situation here differ from that in other countries?

Transfer pricing has become a universal problem. However, the problem in our country is more serious than in other countries. There are some factors attributing to the problem, including a weak legal system, immature subcontracting industries and poor data systems. I hope that, once the anti-transfer pricing project is approved, the situation will be under control.

Is your centre involved in developing a data system?

I have to concede that data relating to taxes is the weakest link in our system at present. Our centre is willing to co-operate with relevant agencies, particularly the General Department of Taxation, to develop a strong data system to curb the problem of transfer pricing.­ — VNS