The suspicious names are numerous. Many local newspapers point the accusing finger at the fishy practice of transfer pricing, which is a popular trick employed by tax evaders worldwide.

Tuoi Tre publishes a series of investigative reports on the problems, unveiling the various acts taken by the suspected enterprises.

A sportswear firm, for example, is found to have engaged in internal business transactions beyond their licensed business spheres, according to Tuoi Tre. Operating as a wholesaler under its business license, but the firm has incurred numerous expenses typical of a retailer, says the paper, adding this is an act of transfer pricing under the mode of internal transactions among subsidiaries of the parent company in order to evade tax in Vietnam.

The newspaper, citing an inspection of the HCMC Tax Bureau, mentions many illogical expenses incurred by the firm, including international marketing costs, copyright costs, and support for retailers in Vietnam. An inspector of the tax bureau is quoted by Tuoi Tre as saying “there are cases in which ‘unintelligible’ costs account for up to 59% of the selling price of products.”

The inspector asserts that even the company has admitted to internal transactions, adding that without internal or affiliate transactions, it will enjoy huge profits since the selling price in Vietnam is three times the initial cost.

Another enterprise that takes the spotlight in local media is a leading soft drinks producer, which has not reported any profits after 18 years doing business in Vietnam. Even worse, the beverage giant has reported accumulated losses of up to VND3,700 billion as of end-2011, or some US$180 million, Thanh Nien reports, quoting figures from the city’s taxman. The key reason behind the reported losses is the high cost for materials imported from the parent company stateside that accounts for over 60% of the selling prices. Sai Gon Giai Phong says the proportion in most other beverage firms in Vietnam is around 30% only.

Le Thi Thu Huong, deputy director of the HCMC Tax Bureau, says in the paper that the company has revenues increasing by 20% to 30% annually, and its annual sales had exceeded VND1 trillion since 2006. Despite the worsening losses and thus inefficient business, the beverage giant has recently announced a scheme to invest an additional US$300 million in Vietnam in the next three years.

Due to losses, it has recently failed to win approval from Danang City authorities for land to expand its factory there, says Tuoi Tre.

Another suspected trick is to lower the price of products sold to the parent firm abroad, as is the case of a Japanese-invested food firm, which sells spirits to its parent firm in Japan at VND8,480 a liter compared to its production cost of VND26,023, according to Thanh Nien.

The suspected tax evasion among foreign-invested enterprises has prompted tax authorities to intensify their inspection activity on such concerns this year and next, says Nguyen Quang Tien, a tax official, who told a seminar in Hanoi on Tuesday that the illicit practice has become widespread.

Tien, according to Vnexpress, says a long list of foreign-invested enterprises has been prepared for inspections, including a Taiwanese footwear maker that has not paid any tax sum although its annual revenue amounts to VND22 trillion with a 80,000-strong workforce.

“It’s not that tax agencies are incapable, and tax inspections will be launched at these suspected companies,” Tien is quoted by Vnexpress as saying on the sidelines of the seminar.

This official in an interview with Tuoi Tre also blames auditing companies for their colluding with enterprises in tax evasion, and stresses that State agencies will have punitive sanctions against such auditors.

This year, according to Tuoi Tre, tax agencies have launched inspections into 1,495 enterprises suspected of engaging in transfer pricing practices, and has found quite a few wrongdoings, collecting over VND620 billion, and reduced the amount of reported losses by up to VND3.3 trillion.

The fight is going on, says Phap Luat, citing the tax official Nguyen Quang Tien at the aforesaid seminar. “The tax agency has submitted to the Ministry of Finance an action plan to fight transfer pricing for the 2012-2015 period, with the focus laid on those enterprises reporting continued losses but still increasing investments and making expansions,” Tien asserts.

Source: SaigonTime daily