Transfer pricing in FDI sector raises concerns: Ministers
Transfer pricing in FDI sector raises concerns: Ministers
The ministers of Finance and of Planning and Investment have expressed concern over the increasingly complicated developments of transfer pricing among enterprises receiving foreign direct investment (FDI), the local media reported.
At the National Assembly (NA) Standing Committee’s 34th session, which opened on May 8, Tran Van Tuy, head of the NA’s Committee for Deputy Affairs, said that FDI enterprises tend to have stronger business performance, but the tax revenue collected from them remains modest, raising public concern.
Minister of Finance Dinh Tien Dung stated that the ministry last year detected 95,940 transfer pricing cases and imposed fines amounting to VND19 trillion (US$811.9 million), which is alarming.
In addition, transfer pricing mainly occurs during FDI firms’ investment phase, while tax agencies can now check only their production and business activities.
Therefore, the ministry proposed that the Law on Tax Management should regulate the specific responsibilities of the relevant agencies in managing FDI firms, from investment to production and business activities.
Minister Dung also explained the lower-than-expected tax revenue from the FDI sector, noting that the target set for the FDI sector was too high.
Last year, the FDI sector was expected to grow by 30.1%, much higher than the country’s gross domestic product growth of 7.08%. The figures in 2017 were 23.4% and 6.81%, respectively.
According to Minister of Planning and Investment Nguyen Chi Dung, the situation of FDI enterprises earning profits but reporting losses has existed for a while. However, getting sufficient evidence to prove transfer pricing activities took place is hard.
He said the previous Investment Law included regulations on the appraisal of assets owned by FDI firms during both their investment and business operation periods, which was the basis for calculating their taxes.
In 1992, an independent company was hired to appraise 17 projects. It found violations at all of them.
Vietnam later abolished the regulations, calling for self-awareness among FDI enterprises.
However, after nearly three decades, transfer pricing in the FDI sector remains a pressing issue, Dung said, adding that the ministry would propose supplementing a regulation to the Investment Law that enables the State to hire independent companies to appraise FDI firms’ assets.
At the session, Tuy of the NA’s Committee for Deputy Affairs also mentioned the loose connectivity between FDI and domestic enterprises.
In response, Minister of Planning and Investment Dung attributed the problem to their different capacities for capital, technology and market connectivity. Local firms cannot get involved in FDI firms’ value chains as they fail to meet certain requirements.
Minister Dung stated that he would submit to the top authorities a plan on selective FDI attraction with policies to encourage FDI firms to connect with domestic ones.
