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FDI transfer pricing on the rise

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HCMC – A report by the Vietnam Institute for Economic and Policy Research (VERP) revealed that several foreign-invested enterprises have been reporting losses for years even as they are expanding businesses, indicating complicated transfer pricing in the sector, reported the Thanh Nien Online website.

Ending May, the nation saw over 32 active foreign direct investment (FDI) projects with a total registered capital of US$376.6 million. The number of FDI firms is increasing as the sector enjoys better tax incentives than other businesses.

According to the VERP report, the real tax evasion by FDI firms may be three or four times larger than that uncovered by relevant agencies, estimated at some VND13.3 trillion to VND19.7 trillion each year.

Deputy State Auditor General Doan Xuan Tien said that some 50% of FDI enterprises are operating at a loss or bringing outdated machines to the country. In HCMC alone, 60% of the 3,500 FDI companies have been reporting annual losses.

Coca-Cola Vietnam was fined over VND821 billion for tax violations in 2019. The enterprise has reported losses for over 20 years since entering the country in 1995, making it the top firm suspected by the HCMC Department of Taxation.

Lawyer Chau Huy Quang from R&T LCT Lawyers noted that the most common practice of transfer pricing involves selling goods and materials to associated firms at low prices but buying from them at high prices. The companies report losses due to high operating expenses, while the associated firms enjoy low-priced goods and services.

The nation has issued Decree 20/2017 to clarify and compare the prices of goods offered among associated firms, and the amended Law on Investment has added regulations to calculate taxes and fight transfer pricing and tax evasion. However, transfer pricing is still on the rise due to the limited competence of tax officials and economic policies.

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