Vietnam Needs Law against Transfer Pricing

Many multinational corporations are showing signs of transfer pricing in Vietnam. However, the information that authorities need to see is considered trade secrets of Coca Cola, Adidas or Metro, among many others.

 

Foreign companies have long been reported to use tortuous tricks to transfer profits to their homeland without having to pay tax in Vietnam. Even Coca Cola is considered a tax evader for years, but tax authorities cannot take any action to confirm their suspicions of transfer pricing.

 

According to experts, the biggest difficulty is multinational corporations often exert their monopoly on raw materials or technology, making it hard authorities to determine actual input costs.

 

In response to the press, a Coca Cola representative confirmed that the Coca Cola pricing policy is similar to all stakeholders. And, Coca Cola said although it has been in Vietnam for a long time, it is still in the stage of market expansion. With this argument, the representative said Coca Cola has to spend a lot of money on promoting and protecting the brand name as well as the market share, in the face of new competitors.

 

This argument was rebuffed by economic experts and tax authorities as it is hard to believe that Coca Cola and other big companies alike accept losses over 10 - 20 years to expand the market. However, according to experts, it is a long journey to prove the act of transfer pricing.

 

Speaking at an international conference on anti-transfer pricing held in Hanoi, Prof Yan Ding, director of Shanghai National Accounting Institute under the Ministry of Finance, China, said in case companies use monopolistic weapon, authorities need to combine a variety of methods, including profit analysis in the same industry in one or more markets, to clarify the issue.

 

Nguyen Dinh Tan, head of Ho Chi Minh City Tax Department, said that the comparison of independent transaction prices is quite difficult because it is very hard to find entirely similar goods and services for comparison. Currently, we are applying the method of costs plus margins. This is useful for inspecting companies like offshore garment companies, but this is a completely different issue when we deal with multinational corporations.

 

Vietnam now lacks an information database for systematic and legalised tax assessments.

To deal with problems in sensitive areas or with relation to international foreign activities and foreign investment attraction policies in Vietnam, we need a positive direction from the central level. In the short term, the government should issue legal documents to specify tasks for related agencies like tax authority, customs authority, investment management authority, police, inspectorate, courts, and banks to coordinate and exchange information in order to timely detect and strictly handle violations of associated transactions and transfer pricing committed by FDI enterprises. Accordingly, tax authorities are entitled to adopt measures to halt VAT refunds for companies incurring losses in excess of their owner’s equity until they end continuous losses, as this is compliant with international practice and the Civil Code of Vietnam, which specifies the conditions for the existence of economic entity.