Tax audits focus on transfer pricing

Tax audits focus on transfer pricing

At least 20 per cent of annual tax audit activities in the 2012-15 period would be devoted to transfer pricing, according to survey results released by Ernst&Young Viet Nam in HCM City yesterday.

The "2012 Global Transfer Pricing Tax Authority Survey" says such activities would focus on four main areas: labour-intensive industries; automotive industry; pharmaceutical industry; and export processing enterprises in garments, textiles and footwear industries.

The survey report said, "all companies in Viet Nam are likely to be subjected to be on the examination list."

However, it said, Vietnamese auditors would give high priority to inspect firms that have reported losses for consecutive years, but continued to expand during the period.

Companies having manufacturing contracts but reporting losses or those with significant related-party transactions would also be inspected, said Nitin Jain, Partner, Tax&Advisory Services and National Transfer Pricing Leader for Ernst&Young Viet Nam.

Vietnamese tax authorities would also focus on companies under suspicion of abusing transfer pricing or have significant tax dues, he said, adding that the list included companies that have not been audited for multiple years and were entitled to tax incentives.

Out of 48 countries and territories surveyed, Ernst&Young found that Viet Nam was the only one that had no advance pricing agreement.

"This was an advanced step and it is a good time for Viet Nam to apply this method now. By the end October, the country would have regulations relating to it," the report said.

In terms of human resources, the survey found that like other countries, Vietnamese authorities were setting up a centralised transfer pricing team that would develop transfer pricing policies, monitor implementation of the rules and participate in transfer pricing audits.

Tax authorities in large localities have also been developing separate teams for transfer pricing administration and audit.

In 2011, auditors found that 900 companies had abused transfer pricing, the survey report said

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