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FREE: Vietnam revenue pledges to focus on transfer pricing deceptions

The Ho Chi Minh City Tax Department in Vietnam has promised to investigate global companies who claim to make consistent losses in the country.

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In an interview with newspaper, Tuoi Tre, Le Thi Thu Huong, deputy director of the city’s revenue department said a business may establish two or three companies at the same time and then adjust the revenue to avoid paying tax.

One method companies use is to register an affiliate on the country’s stock exchange and then let other affiliates contribute profits to the listed one so it appears to be doing better than it is and pushes the share price up to deceive investors.

The revenue official said 15 out of 197 domestic firms that reported losses in 2010 are suspected of engaging in transfer pricing after inspection. Of these 15, she added, four will be followed closely.

Huong said the inspection has paid off so far, uncovering several domestic companies, which show signs of transfer pricing abuse, but it is difficult for the tax department because of the problems involved in confirming selling prices between these businesses and others internationally.

“The Finance Ministry’s Circular 66 currently is the base for transfer pricing fighting with five price calculation and comparison methods,” said Huong. “However, a tax officer finds it difficult to carry out the methods as he cannot base them on any independent data provider and has to survey and collect information from the market and related agencies. For FIEs [foreign invested enterprises], authorities should provide tax departments with policies in their home countries to make comparisons.”

The tax agency plans to focus its inspection on those businesses suspected of transfer pricing over the 2011 to 2015 period.

The loss-making companies still enjoy value-added tax refunds.

“They should be responsible for paying taxes to support development of the country where we operate, in addition to providing jobs for locals. This is a matter of business ethics for business people and FIEs,” Huong said.

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