Decree on anti- transfer pricing to be developed

After inspection and examination of 420 enterprises that had associated transactions in 2015, Tax authorities collected arrears, taking drawback and imposing fines of 4895.16 billion dong. (Photo: internet)

According to the Ministry of Finance, in order to strictly control the activities conducted by joint-stock companies and foreign companies such as transfer-pricing, loss statements and transferring profit abroad, the Ministry of Finance has implemented various measures.

The Ministry of Finance promulgated Circular No. 66/2010/TT-BTC guiding determination of market prices in commercial transactions between parties having a joint relationship; Circular No. 201/2013/TT-BTC guiding advance dealings in Customs value determination methods to prevent and minimize transfer pricing and enterprise income tax but on the other hand, to enable foreign direct investors (FDI) to make their business plans and meet their tax obligations.

The Minister of Finance has set up four bureaus of transfer pricing inspection under four provincial taxation departments (Ho Chi Minh city, Hanoi, Dong Nai, Binh Duong) where a large number of joint companies and foreign enterprises usually have associated transactions, and one bureau of transfer pricing inspection under the General Department of Taxation.

The data for tax management against transfer pricing has been gradually developed to assist inspection of transfer pricing in the fields that have high risks of enterprise income tax avoidance such as fiber production, textile, shoe making, beverage etc.

Inspection of transfer pricing has some achievements and some enterprises upon inspection have adjusted loss statements (lower than reported) and needed to pay a large amount of duty collected in arrears.

Based on the results of inspection and examination of 420 enterprises having associated transactions in 2015, Tax authorities collected duties in arrears and imposed fines of 4,895.16 billion dong; reducing loss by 3,104.11 billion dong; cutting down deduction of 206.81 billion dong and increasing income subjected to tax by 801.7 billion dong.

Inspection and examination of the market price determination for the cases of associated transactions with the results of duty collection in arrears led to clear impacts. The number of FDI enterprises which declared losses fell considerably.

In future, the Ministry of Finance will continue conducting measures synchronously to prevent the abuse of transfer pricing for tax avoidance.

Firstly, the Ministry of Finance will develop a decree on anti-transfer pricing and ensuring duty collection and then submit to Government to be adopted under the Government’s direction in Resolution No. 19-2016/NQ-CP on the tasks and main measures of improving the business environment and raising national competition capacity.

At the same time, the Ministry of Finance will focus on training and capacity building for staff that are in charge of tax management in the field of anti-transfer pricing. They will benefit from the skills in transfer price management and inspection as well as knowledge in terms of economics, computer and foreign languages.

Development and completion of the profit ratio data of enterprises in each field that has high risks in transfer pricing would be promoted to create the common basis for risk management. That helps tax management in transfer pricing.

Besides, it is necessary to push inspection and examination of transfer pricing, at first focusing on corporates that have subsidiary companies and those that have had tax preferences for a long time but not been inspected; or those that are experiencing re-structuring but at risk of abusing transfer pricing for tax avoidance.

Particularly, information exchange will be enhanced, not only between Tax authorities and international organizations for risk analysis and inspection of transfer prices; for negotiating with related foreign tax administrations, but also with agencies to determine values of imported machinery, equipment, material, to prevent enterprises from declaring false import prices (higher than actual prices) for the purpose of increasing input costs and decreasing profit, which causes losses in revenue collection .