Need strong penalties for transfer pricing

	Additional provisions on anti-transfer pricing
	A Steering Committee for anti-transfer pricing should be established
	Strongly deal with enterprises transferring price for tax evasion

By the end of October, the tax authorities conducted inspections and audits of 391 enterprises engaged in associated transactions. Photo: T.L

10 months, reducing loss of nearly 4,000 billion VND

Over the past years, Vietnam has made efforts to create conditions to attract foreign investment, but it is accompanied by haunting tax evasion and transfer pricing. Large corporations take advantage of investment incentives in Vietnam to expand production, exploit the advantages but continually report losses to avoid paying the state budget.

Many businesses and multinational corporations, when investing in Vietnam, want to maximize profits, and have used various strategies to reduce profits and avoid taxes. Big names such as Coca Cola, Metro, Adidas, Keangnam-Vina (Korea) have been listed on the list of subjects suspected of transfer pricing, large tax evasion in the anti-transfer pricing tax.

Because of that fact, the inspection and examination of enterprises with associated transactions are always paid attention by the tax branch. According to the latest data from the tax office, up to the end of October, the tax authorities have conducted inspections and examinations for 391 enterprises conducting associated transactions. The number of inspected enterprises increased by 133, and 152% compared with the same period in 2017. From the summary from 391 inspections, the tax agencies have collected and recovered 1,217 billion VND. Since then, the loss has decreased by 3.943 trillion VND; deducted 20 billion VND and increased taxable income 5,596 billion VND.

On the legal foundation available, in the past years, the tax sector has made great efforts in fighting against transfer pricing, which focuses on anti-price transfer for FDI enterprises. In terms of organization, the tax branch has set up the Department of Inspection for transfer pricing at the General Department of Taxation Inspectorate and the Department of Inspection at a number of large tax departments such as in Hanoi, Ho Chi Minh City, Binh Duong and Dong Nai.

Recently, the General Department of Taxation has also written to request the local taxation departments to strengthen the inspection of FDI enterprises with large losses, losses over consecutive years, and the value of large transactions. . At the same time, the tax department also warns of the case where an enterprise has transactions with its affiliates residing in countries or territories with low or no tax rates.

Penalty regulations for transfer pricing

It can be said that over the past time, the fight against revenue losses for enterprises with associated transactions has had a big change, but it is also needed to acknowledge that management is still difficult due to the main policy loopholes as well as coordination between nations. Regarding this issue, Mr. Le Xuan Truong, Head of the Tax and Customs Department, Financial Academy, said that the legal framework on anti-price transfer is not complete. At the current level of the law, the regulations on transfer pricing and anti-price transfer is not really complete and clear.

"Only Point e of Clause 1 of Article 37 of the Law on Tax Administration stipulates that a relevant item may be used as a basis for combating price transfer. The transaction has just stopped at the decree level, so the legal effect is not high, causing difficulties for the implementation process," Mr. Truong analyzed.

Mr. Le Xuan Truong said that another difficulty for anti-price transfer is that there are no clear regulations on budget expenditures for anti-price transfer (expenses for purchasing information, investigation costs, verification...). Notably, there is no regulation on coordination between relevant agencies (police, economic counselors) to help the tax branch collect information for anti-price transfer.

To overcome difficulties, Dr. Dang Van Hai, Deputy Director of Legal Department, State Audit, said that the legal framework for anti-price transfer should continue to be improved.

"In the immediate future, it is necessary to supplement the anti-transfer law into the Law on Tax Administration, creating a high level legal basis for anti-price transfer activities." The law must stipulate the mechanism for coordination among functional agencies to deal with tax offices in anti-price transfer activities, especially the coordination of Vietnamese diplomatic missions overseas in order to collect fully and promptly information and data on taxpayers. Acting against price transfer shows that to determine the transfer price in accordance with anti-transfer pricing principles as prescribed by law, information must be collected, but without information, it will not be possible to determine the transfer price," said Mr. Dang Van Hai.

In particular, representatives of the Legal Department, State Audit, said that it is necessary to take measures and remedies strong enough to handle acts of transfer pricing, tax evasion. Mr. Hai, for example, has the power to impose severe penalties for transfer pricing, such as Singapore does, which provides for a fine of up to 100% to 400% of the tax payable; Indonesia applies a penalty of 2% to 48% per month on the amount of tax paid due to fraudulent transfer; Malaysia stipulates that fines range from 100-300% of the tax found to be fraudulent, and at the same time, publicity of the name of the transfer pricing enterprises appropriating state tax.

Establishing a database of transfer pricing and tax evasion VCN - It is necessary to collect the database of taxpayers in order to improve the efficiency ...

On the business side, Ms. Hoang Thuy Duong, Deputy General Director of KPMG International Tax Services, said that in order to limit risks, enterprises should comply with the regulations on making and keeping records. Determine the associated transaction price and full declarations of associated transactions, and highlight quality issues in the preparation of these documents. In addition, businesses should assess the business structure and potential risks associated with the new principle, as well as consider the method of determining the price for taxation (APA) as an alternative to the rules of concluding the dossier for determination of associated transaction price according to Decree No. 20/2017/ND-CP on tax management applicable to enterprises having associated transactions.