Last update 10/26/2010 9:00:00 AM (GMT+7)

“Price transfer” by FIEs causes headache to taxation body

VietNamNet Bridge – Many foreign invested enterprises (FIEs) reported losses for the last 9-10 consecutive years, but in reality, no losses were made. Instead, many of them have been expanding their production and increasing the investment, according to Pham Duy Khuong, Deputy General Director of the General Department of Taxation.

The V1000 ranking declaration ceremony, the event to praise the biggest corporate income tax payers took place on Oct.22, 2010 in Hanoi.

Pham Duy Khuong, Deputy General Director of the Generation Department of Taxation (GDT), said on the sideline of the event that this is for the first time Vietnam has a ranking in terms of tax payment. Declaring V1000 ranking is a good way to praise the enterprises which show good business performance, pay high taxes to the state budget, and encourage the development of other businesses.

“As we worked on the ranking with Vietnam Report Company and VietNamNet newspaper, we thought that ranking businesses in accordance with the amount of tax paid is the best way to show the enterprises’ performance and their contribution to the society,” Khuong said.

Looking at V1000 ranking, one realizes that the biggest tax payers are the big state-owned enterprises. This is because the enterprises are ranked according to the total sum of tax they paid. “In the future, we will calculate the tax sum per capita, or the tax sum per capital. Which means that V1000 will also show enterprises’ productivity and their efficiency in using the capital,” Khuong said.

In the interview with VietNamNet’s reporters, Khuong also expressed his worry about the tax payment by foreign invested enterprises (FIEs).

What does the V1000 ranking tell us about the tax payment by FIEs?

Besides the profitable FIEs which paid high taxes to the state, there are many FIEs which declared continued losses and did not pay much to the state budget. This is a big problem, partially owing to lack of adequate policies.

In the past, we tried to attract foreign direct investment (FDI) by offering corporate tax incentives. FIEs began enjoying tax reductions when they began making profit. Many enterprises then declared losses for 9-10 consecutive years and they did not have to pay tax.

However, the policy has changed since 2009. FIEs enjoy tax incentives only in the first three years of operation.

Many experts have warned that a lot of FIEs take unfair advantage of the policies to make “price transfer”, i.e. they declare false losses in order to avoid tax. What would you say about this?

We can see this ourselves. A lot of enterprises, though declaring continued losses for the last 9-10 years, have been developing and expanding production. They do not have to pay taxes and they do not need tax incentives.

Did GDT take any action? Is the “price transfer” problem really serious?

We have found out that this happens mostly at the enterprises which make products for export, and they have to import technologies, production lines and equipments, and even input materials. The enterprises declared high input production costs which led to losses.

Could you please give us some examples of “price transfer”?

We have found an FIE in Lam Dong province, a tea export company from Taiwan. The company has been reportedly incurring losses for the last 9-10 years. The total loss has become 2-3 times higher than its chartered capital. However, it still has been developing and expanding.

The abnormal thing we found is that the tea export price of the enterprise was even lower than the production cost. However, the enterprise showed all necessary books. Similar cases are found in other provinces, such as Binh Duong and Dong Nai.

What should we do to deal with the problem?

I have to admit that it is extremely difficult to deal with the problem. Enterprises can only make the “price transfer” in cooperation with foreign partners. Therefore, we need to cooperate with foreign agencies to find out the truth.

The case in Lam Dong province is a typical example. Even though we know there is a problem, and it is clear that they are “dodging the law”, we still cannot do anything, because the company shows the necessary accountancy books.

Pham Huyen