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Transfer pricing inflicting heavy losses

Update: October, 31/2014 - 08:46

Statistics of the General Department of Taxation showed that an inspection carried out at 39,000 companies found signs of transfer pricing in nearly 2,000 firms. — Photo vtv

HA NOI (VNS) — Appropriate policies and enhanced management capacity are critical in the fight against transfer pricing to ensure a healthy business investment environment in Viet Nam, said experts on Wednesday.

They were participating in an online discussion on the Government's e-portal.

Transfer pricing is causing losses to the State revenue, distorting the business investment environment and reducing the efficiency of the State management, the experts added. This is a global issue, not of a single country only.

Statistics of the General Department of Taxation showed that an inspection carried out at 39,000 companies found signs of transfer pricing in nearly 2,000 firms. In addition, tax arrears of more than VND1 trillion (US$47.16 million) were collected and the total loss was reduced by VND4 trillion ($188.6 million).

Alarm bells rang with several foreign direct investment (FDI) companies allegedly carrying out transfer pricing recently. These firms had reported losses for many consecutive years, but still kept expanding their operations.

In addition, there were signs that domestic companies also carried out transfer pricing to evade tax, although transfer pricing happens more often in multi-national companies, experts said.

According to Nguyen Van Phung from the General Department of Taxation, the Law on Investment allows corporate income tax incentives for investment projects in remote and disadvantaged areas. Companies with headquarters in these areas, but with operations throughout the country, can take advantage of the tax incentives to carry out transfer pricing, he said.

Phung pointed out that companies tend to shift profits from countries with high tax rates to countries with lower rates to reduce payable tax, adding that proving the existence of transfer pricing was a very difficult job. The challenge for management agencies is to figure out how such violations of the law can be detected.

Phung said that in England, investigations against transfer pricing often take 12 to 18 months, or even years.

According to Do Nhat Hoang, Director of the Foreign Investment Agency under the Ministry of Planning and Investment, not all FDI companies which report losses, but keep expanding their operations, are carrying out transfer pricing. He added that some large investors even accept losses to gain a market share.

However, Hoang said that some companies are taking advantage of the legal loopholes to evade tax.

He pointed out that close watch should be kept and evidence collected to prove transfer pricing, to avoid negative impacts on the country's investment environment as well as on the operations of law-abiding companies.

Experts said that to combat transfer pricing successfully, legal mechanisms and policies, as well as the professional skills of tax officers are needed.

The government has asked the Ministry of Planning and Investment to work with relevant agencies and authorities to set up an anti-transfer pricing project.

The Ministry of Finance, which has been commissioned to implement the project, has focused on developing training programmes, running communication campaigns and implementing a number of other measures in an effort to detect and deal with firms that show signs of transfer pricing.

Over the last 26 years, FDI has played a crucial role in boosting Viet Nam's socio-economic development, generating funds for the State budget and accelerating the country's integration into the global economy. — VNS

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