Transfer pricing: the other side of the FDI coin
VietNamNet Bridge – How to deal with transfer pricing – whether to view it as an inevitable part of foreign direct investment (FDI) or take drastic measures to stop it – remains a controversial matter among Vietnamese.
METRO Cash & Carry Vietnam (MCC) will have to pay VND507 billion (US$23.8 million) as tax arrears to the State budget.
Observers noted that this is the third largest case of tax law violation uncovered before the public and this is the first case confirmed by the General Department of Taxation (GDT). Why was this the first time?
Suspected violations left on shelf
In fact, tens of foreign invested enterprises (FIEs) have been alleged to conduct transfer pricing since 2009. The enterprises have been repeatedly reporting losses, but have been been scaling up their business in Vietnam.
There were many well-known names in the “black list” – Big C, Unilever, Coca-Cola, Pepsi-Cola and Adidas. However, the names were only orally handed down, while they did not appear in official reports released by state management agencies.
In 2012, some local taxation agencies began giving the alert about transfer pricing conducted by some FIEs. The declared 10-year losses incurred by Coca-Cola and Adidas were made public at that time, which raised anger among the public.
However, to date, what is behind the huge losses declared by the big companies has not been clarified by state management agencies.
The Lam Dong provincial taxation agency was the only taxation body that listed the names of 17 foreign-invested tea companies that transferred pricing.
The struggle against transfer pricing turned into a new period in 2013, when 122 enterprises were found committing transfer pricing and then forced to pay tax arrears of VND200 billion.
The biggest violator, Keangnam Vina, an investor from South Korea, the owner of the 72-storey building in Hanoi, was forced to pay VND100 billion.
Later, Hualon Corporation was also brought into light the same way. The big textile & garment enterprise from Malaysia was forced to pay tax arrears of VND78 billion.
In Metro’s case, after the two-month inspection tour, GDT on April 20 made public the results of the inspection. The information appeared on VTV (the national television) News on the evening of the same day.
On April 21, GDT planned to hold a press conference to make public the inspection results about Metro. However, the plan, for some reason, was cancelled.
Metro’s behavior of conducting transfer pricing was only discovered when the German retailer planned to sell Metro Vietnam to a Thai group. Apparently, nothing had been done before by state agencies, though the retailer had repeatedly declared losses for the last 12 years.