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War declared on tax evasion by foreign firms

Update: January, 24/2011 - 09:37

by Le Hung Vong


The Ministry of Finance has once again urged the Taxation Bureau to regulate the transfer pricing mechanism used by foreign invested enterprises (FIEs) to declare losses to evade taxes in Viet Nam.

This will be one of the main focuses of the tax regime this year, according to the ministry.

The ministry wants provincial tax agencies to scrutinise 3 per cent of FIEs in their localities and re-inspect 20 per cent.

According to the city Department of Taxation, the ration of FIEs in HCM City declaring losses fell from 39 per cent in 2008 to 34 per cent in 2009.

Inspections and investigations at these FIEs have helped the tax agencies collect arrears of over VND3 trillion (US$150 million).

The department hopes to cut the ratio of FIEs declaring losses to below 30 per cent this year, and says tough action will take the figure down to below 20 per cent.

The ministry expects arrears in HCM City, which accounts for 40 per cent of the country's tax revenues, to range between VND5 trillion and VND6 trillion ($300 million).

All Taiwanese-invested tea-processing enterprises in the Central Highland province of Lam Dong have announced profits in 2010 after the Taxation Bureau inspected their books.

In an interview to Vietnam Investment Review newspaper, Minister of Finance Vu Van Ninh said the price transfer system is commonly used around the world since multinational corporations take advantage of local markets to maximise profits.

"It is difficult to find out if a company is manipulating business results by reporting losses and declaring high input costs to avoid taxes. Therefore, some countries use economic intelligence to investigate suspected companies."

The Ministry of Finance began to combat transfer pricing in 2005, but its measures were not comprehensive or tough enough, and FIEs have continued to take advantage of this loophole to enjoy greater profits, he said.

Nguyen Dinh Tan, head of the HCM City Department of Taxation, says it is difficult for tax agencies to verify FIEs' declarations of input costs and selling prices. Tax agencies could end up facing a lawsuit from a firm if it issues a wrong decision on collection of arrears.

Nguoi Lao Dong (The Labourer) newspaper reports that the list of 120 FIEs declaring losses in 2010 released by the ministry includes some big firms.

PM eyes idle villa projects

With Ha Noi facing a shortage of land for public housing, Prime Minister Nguyen Tan Dung has ordered authorities to inspect villa projects that have remained unfinished for several years.

Among them are semi-finished villas at the An Sinh – My Dinh 2 Residential Area in Tu Liem District. Their construction was suspended five years ago after their frames were completed, newswire VnExpress reports.

They have become a haven for thieves and drug addicts while using up valuable space.

Dung has also ordered relevant authorities to resolve this issue and report the settlement to the Government Office by February 15.

There are also hundreds of other luxury villas worth at least US$1 million each that remain unfinished and unoccupied for five or six years, including dozens in the Phap Van – Tu Hiep Residential Area in Hoang Mai District.

Each of them has changed hands several times but none of the owners moved in. According to VnExpress, for the owners, these villas merely represent investment and not housing.

The Ha Noi People's Committee has said city authorities will inspect the projects and come up with solutions.

Foreign investors conned

Cambodia may be an attractive market for foreign businesses, but in this promised land lurk con men who pose as brokers and rip off gullible foreign investors by claiming to have contacts and get them deals.

Many Vietnamese firms seeking to win contracts to build roads, bridges, hospitals, and schools in Cambodia have fallen prey to them.

Vu Thinh Cuong, commercial councellor at the Vietnamese embassy in Phnom Penh, told Tuoi Tre (Youth) newspaper that most of the fraud happens in connection with infrastructure development.

The con men approach foreign companies and ask them for fees ranging from $50,000 to $100,000, claiming it is required for "lobbying" for the contract.

Sometimes, they also approach foreign companies looking to invest in forestry and crops like rubber, cashew, sugarcane, cassava, and rice.

Foreign investors who cannot get land from the Cambodian Government are forced to turn to local firms that have land, and the brokers offer to put them in touch with such companies. For a price, a lobbying fee of $20,000 to $50,000 in this instance.

To gain foreign investors' confidence, the con men boast of their relationships with senior government officials, and sometimes even arrange meetings with them.

However, at these meetings, the two sides just say "hello" to each other and hardly discuss contracts or projects, Cuong says.

The swindlers then ask for more money and, if a suspicious investor does not look like coughing up, break off negotiations.

Most of them pocket the so-called lobbying fees and threaten the foreigners if they demand their money back, Cuong says.

Vietnamese firms seeking business and investment opportunities in Cambodia should seek consultancy from Vietnamese agencies like the trade bureau at the embassy, he warns. — VNS

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