Last update 10/6/2011 8:29:00 AM (GMT+7)

Part 3: The fight against FIEs’ price transfer and tax evasion

VietNamNet Bridge – A lot of foreign invested enterprises (FIEs) in Lam Dong province have been believed to play tricks to evade tax. The tax sums the local taxation agencies collect from the FIEs are very small, while the agencies have to make 120 billion dong worth of VAT refund to the enterprises.

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The FIEs which expand business despite constant losses

According to the Lam Dong provincial management agencies, most of the FIEs in the locality have reported losses in the last many consecutive years.

In 2009, for example, 104 FIEs in Lam Dong (95 percent of total FIEs) reported losses. Bigger businesses reported bigger losses. Tra King Lo (which has 32 billion dong capital in legal capital) reported the loss of 47.7 billion dong, Haiyih (11.2 billion dong) reported the loss of 47.6 billion dong, TFB Vietnam (32 billion dong) reported the accumulative loss of 40 billion dong.

According to Nguyen Van Tua, a taxation officer of the Lam Dong Taxation Agency said that the accumulative loss that the 17 FIEs reported by the end of 2009 had reached 317 billion dong. Especially, some enterprises had incurred the loss which was higher than their investment capital.

As such, in principle, the enterprises do not have financial capability to maintain production. However, in fact, the enterprises still can keep normal operation, and many of them have even been expanding business, setting up more workshops, installing more equipment and renting more land to grow tea.

The Lam Dong Taxation Agency had every reason to have doubts that the FIEs tried to evade tax by conducting the so called “price transfer”. Therefore, it has decided to take inspections at the 17 enterprises from Taiwan, specializing in making o long tea for export, the enterprises which reported the biggest losses.

Buying high, selling cheap

The leaders of the Lam Dong Taxation Agency said they had too many difficulties in the tax inspection due to the limited data collected from the FIEs. Therefore, the taxation agency had to collect information from relevant agencies such as the department for industry and trade, customs agency, the planning and investment department and food hygiene management body.

In 2010 alone, the taxation agency carried out six dialogues with the enterprises that reported losses in an effort to clarify the truth.

The trick that most of the Taiwanese enterprises used was “buying high and selling cheap.” They declared the high prices of the materials and equipment imported from Taiwan, while reporting low prices of the finished products exported to Taiwan.

In order to make one kilo of o long tea, the enterprises needed 5 kilos of material tea which was sold at 35,000 dong. As such, the spending for materials alone to make one kilo of product was 175,000 dong. Besides, enterprises also had to pay for electricity, water, labor force, management and other expenses.

Meanwhile, the enterprises reported the average export price at 4 dollars per kilo only, or 64,580 dong, which was just equal to 37 percent of the production cost.

While the products were exported at 64,580 dong per kilo, they were sold at 1.2 million dong per kilo on the domestic market, which was 18 times higher than the export price.

After the inspection, the export price for o long tea has been raised by 2-3 times to 8.6 dollars per kilo on average. Especially, the price of special products was raised to 11.68 dollars per kilo. As such, the enterprises turned out to be profitable, instead of taking loss since 2005 as they initially reported.

Agencies attempt to control export prices

The Lam Dong provincial taxation agency said that it is carrying out the second step in the fight against the price transfer. An official of the taxation agency has pointed out that the actual export prices have been increasing over the last few years, while the export prices reported by FIEs have not changed since 2009.

Senior ranking officials of the taxation agency said that it plans to refer to different information sources to find out the actual export prices of products which help fight against the price transfer of FIEs.

An official from MOF said in 2011, MOF will inspect 700 FIEs which reported big losses.

Source: Tien phong