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Thursday, November 26, 2020

Transfer pricing among FDI firms causes severe tax revenue loss

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HCMC – Vietnam’s tax collection has suffered heavy losses in the past few years as a result of transfer pricing among foreign-invested firms operating in the country, according to the State Audit of Vietnam.

So far, some 50% of foreign direct investment (FDI) firms in Vietnam reported that they are operating at a loss. In HCMC, some 60% of 3,500 FDI firms have been reporting losses for many years, the agency announced at a recent conference.

Despite the heavy losses, the FDI enterprises are still expanding business and production here. While most Vietnamese enterprises in the apparel and footwear sectors have announced profitability, FDI firms operating in the same industries have reported losses even though they enjoy several tax incentives offered by the Government.

While many investors are looking for ways to transfer obsolete machines and equipment to recipient countries including Vietnam, it is very difficult to evaluate the real value of these machines, noted the State Audit of Vietnam.

Doan Xuan Tien, deputy State Auditor General, said that several multinational groups and FDI firms have set up a complicated intermediate system to buy and sell goods and services among subsidiaries and associated companies. They usually lower the prices in the system before selling to consumers, thus reducing tax obligations, especially the special consumption tax.

FDI firms may also sell services and products to their associated firms at a low price but buy materials and machines from them at high prices, Tien noted.

Nguyen Thi Phuong Hoa from the National Economics University said many FDI firms remain profitable during the tax exemption period and then report losses, suggesting transfer pricing regulation violations.

Besides this, spending on internal services, training, management consulting and finance makes up a high ratio at these enterprises. It is unusual to spend regularly on these services for years, added Hoa.

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