GDT establishes specialist departments to inspect possible instances of transfer pricing by enterprises.
With the aim of strengthening the fight against transfer pricing, the General Department of Taxation (GDT) under the Ministry of Finance (MoF) has established the Transfer Price Inspection Department under the Inspector of General Department of Taxation and a separate Transfer Price Inspection Department in Hanoi and Ho Chi Minh City and southern Binh Duong and Dong Nai provinces. The Departments were officially launched on October 28.
MoF also said that by the end of this year it will complete a database on 11,500 foreign invested enterprises (FIEs) and hopes it will boost results in transfer pricing inspections in the future.
Transfer price inspections began in 2012, when the GDT established a transfer pricing management team. The policies and solutions introduced partly controlled transfer pricing activities and declarations by businesses have gradually become more orderly.
According to Mr. Nguyen Quang Tien, Head of the Modernization Department at the GDT, in the three years inspections were conducted there were 29 cases completed, collecting taxes of nearly VND20 billion ($900,000) each.
The first inspection was on the Hualon Corporation in Dong Nai. The results reduced the company’s losses by over VND1.2 trillion ($54 million) and collected VND78 billion ($3.51 million) in taxes.
Mr. Tien added that the database on transfer pricing was established in fields where there is a risk of transfer pricing occurring, especially textiles and footwear. “There is a risk in these two sectors, especially with the TPP coming into effect and Vietnam is expected to become a textile and footwear factory of the world,” he said.
Inspection results to date show that the fight against transfer pricing at businesses with associated transactions is no easy task.
After many years of operating in Vietnam, Coca-Cola has recently began turning a profit and paying taxes, Metro paid tax arrears, and Samsung is in the process of negotiations over an advance pricing agreement (APA).
Regarding the Coca-Cola case, Deputy Minister of Finance Do Hoang Anh Tuan told VET that it was conducted three years ago and solutions were identified. Coca-Cola Vietnam recently confirmed that total taxes paid in 2014, including corporate income tax, license tax, environmental tax, and VAT, reached $20 million, while sales volumes increased 25 per cent. Taxable profits for the year stood at $16.6 million, double the $7 million reported in 2013.
For Samsung, the process of negotiation over the APA started three years ago and is ongoing. Samsung initially intended to implement a unilateral APA between the business and the government. It then changed to a pricing agreement with the South Korean government.
After many years fighting transfer pricing, Mr. Tien admitted inspections face many obstacles, in data collection, declaration management, staff training, and international cooperation.
The positive results are not only in terms of tax arrears collected but also in raising awareness among enterprises. Through these inspections many have actively proposed APA negotiations from the beginning.
Mr. Nguyen Huu Anh, Head of the Tax Inspection Department, agrees that transfer pricing inspections are a difficult task. “But in recent years inspections have achieved results,” he said. The establishment of Transfer Price Inspection Departments is an important step in the continued fight against transfer pricing.