On July 19, 2018, the State Audit Office of Vietnam (SAO) held a meeting with the Association of Chartered Certified Accountants (ACCA) to jointly organize an international seminar on the topic "Transfer Pricing – Issues in Current Management Practices". According to the SAO leadership, many domestic enterprises are now applying transfer pricing practices, leading to losses of thousands of billions of dong in state budget revenue.
Mr. Phuoc (the State Auditor General) shared: "Not only FDI enterprises but also many domestic enterprises have shown clear signs of transfer pricing, causing losses to the state budget."
Is transfer pricing beneficial or harmful to businesses?
The State Audit Office of Vietnam stated that it has recently audited the management and use of public finances and recovered hundreds of trillions of VND for the state budget. This includes recommendations to increase revenue from transfer pricing activities of audited entities. According to Mr. Phớc, a prime example is the Saigon Beer, Alcohol and Beverage Joint Stock Company (Sabeco). From a legal perspective, the State Audit Office's recommendation to collect excise tax from Sabeco can be seen as highlighting a major loophole in current tax management regulations.
However, the auditing of transfer pricing has not been clearly and comprehensively considered and implemented by state management agencies to improve legal regulations, leading to many shortcomings and limitations in transfer pricing management.
At the seminar, Dr. Do Thien Anh Tuan from Fulbright University Vietnam argued that the current legal system regarding transfer pricing is still incomplete, and the legal framework is not strong enough, allowing many large businesses and corporations to exploit transfer pricing to evade taxes. The biggest difficulty in combating transfer pricing fraud today is that many auditors have limited research in this field and understand it in a rather simplistic way, while the nature of the behavior is actually very complex.
Significant profits for the company and the trend of "Transfer Pricing" both domestically and internationally.
Experts also say that transfer pricing is now not only occurring in large corporations and FDI enterprises, but there are also signs that domestic businesses are gradually adopting this method to increase their profits.
Mr. Tuan posed the question.The contribution of the FDI sector to the national economy is relatively large, but has it truly been commensurate with the incentives that the State provides to FDI enterprises? This sector currently accounts for about 23% of the total capital size of the economy but only contributes 15% to our total tax revenue. Looking more closely at the figures, it's only slightly higher than the domestic economic sector but significantly lower than the Vietnamese economy as a whole.
Currently, FDI enterprises are declaring relatively high and continuously increasing annual losses. The group of enterprises reporting losses, capital depletion, and negative equity is also rapidly increasing. However, contrary to the trend of consolidation, these enterprises are expanding their investment scale even more – a paradoxical situation that has sparked much public debate. “Losing in the first one or two years of operation is considered normal, but some enterprises that have been losing money for decades continue to invest and expand – this is an abnormal sign and raises questions about potential transfer pricing issues.”…www.expertis.vn
In recent years, this expert cited data from transfer pricing inspections and audits, showing that more than 2.000 FDI enterprises in Vietnam have reduced their losses by $1,5 billion, with the amount recovered and refunded reaching approximately VND 10.000 billion. "If resources were sufficient and inspection and auditing efforts were expanded, this number could increase significantly," Mr. Tuan said.
To address the situation anti-transfer pricingVietnam should not attract FDI at all costs, offering many preferential policies to large corporations if they do not bring real value, and rejecting, not incentivizing, and not showing leniency to businesses that do not adhere to business standards.
