Tax authority finds Keangnam $4.5m in arrears
Tax authority finds Keangnam $4.5m in arrears
Keangnam Vina, the Korean-backed developer of Vietnam’s tallest skyscraper - Landmark Tower – in Hanoi, was listed last week among a group of companies which have violated tax regulations.
Keangnam is suspected of avoiding taxable corporate income tax (CIT) valued at VND95.2 billion ($4.5 million).
According to wirenews Vnexpress, an investigation conducted by the Hanoi Municipal Taxation Department, Keangnam Vina was accused of transfer pricing after authorities discovered several irregularities.
Based on the investigation’s findings, the Ministry of Finance (MoF) has asked Keangnam to adjust their revenue and profit calculations and pay back taxes of $4.5 million.
Keangnam has reported losses since it started operating in the country in 2007 and not yet paid any CIT.
In the first part of 2011, it monetised the tower, earning $250 million in revenue, but still reported total losses of $6.7 million. Later that year it revised up its losses to $13.3 million.
Vietnam’s tax policy absolves loss-sustaining companies from paying CIT. Tax authorities, however, recalculated costs and earnings from the company’s reported data.
A major red flag was Keangnam Vina’s agreement with Korean-based Keangnam Enterprises that the latter would be a contractor on the project. Initially the contract stipulated an $871 million payment for these services, that was then decreased to $699 million.
By moving these monies to Keangnam Enterprises, the former avoided paying CIT on what would have been profits amounting to 55 per cent of revenue. Instead, it only paid the much lower contractor tax.
Similarly, Keangnam Vina said it paid $10 million in interest and financial service fees on a $400 million loan from Keangnam Enterprises, as well as $30 million in 2008 alone for financial consultancy fees.
The loan, sourced from Keangnam’s own Kookmin Bank, was believed by authorities to be under a 12 per cent interest rate based on the company’s report of $10 million. The reality is the rate is far below this and more than $90 million of the total is still sitting unused in a business account.
Authorities also discovered major profits from the company’s high-end apartment business that were previously unreported and so far has discovered $4.5 million in unpaid taxes.
In late 2012, authorities started their investigation into possible transfer pricing at Keangnam Vina through related party transactions based on the aforementioned and other suspicious behaviour.
Keangnam Vina was one of 122 foreign direct investors found to have transfer pricing to avoid paying a total VND214 billion ($10.1 million) in taxes.
According to the MoF’s General Department of Taxation, in 2013 more than 3,055 companies were investigated and listed as managing their deals. Those companies have had to increase their taxable income by more than VND5 trillion ($238 million) and reduce losses by nearly VND1.4 trillion ($66.6 million).
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