Dong Nai, together with 3 other provinces and cities, has been approved to establish the transfer pricing inspection department affiliated to tax department in order to inspect and deal with enterprises using transfer pricing. In order to provide insight into this matter, a reporter from Dong Nai Newspaper had an interview with Mr. Nguyen Van Cong, Director of Dong Nai Tax Department.
* Is it true that Dong Nai one of the transfer pricing hot spots so that the Ministry of Finance has approved the establishment of the transfer pricing inspection department?
Director of Dong Nai Tax Department Nguyen Van Cong
- Originally, the Ministry of Finance had the intention to pilot 2 transfer pricing inspection departments in Hanoi and Ho Chi Minh City. However, after seeing that Dong Nai and Binh Duong have attracted many big FDI enterprises with signs of transfer pricing, the Ministry approved the establishment of 4 transfer pricing inspection departments in the aforementioned cities and provinces. On October 30th, 2015, Dong Nai Tax Department officially set up the transfer pricing inspection department with 8 officials who have many years of experience in tax field. In the coming time, Dong Nai Tax Department will continue to transfer more highly capable officials to the inspection department to help fulfill the obligations for investigating and dealing with transfer pricing, creating and managing the balance in enterprises’ day-to-day operations.
* If so, in the coming time, the FDI enterprises in the province having signs of transfer pricing will be inspected?
- We will soon review the loss of profits of more than 600 FDI Enterprises in Dong Nai province. Particularly, we will be focusing on big FDI enterprises reporting a loss but increasing investment capital, expanding their production and labor force. More specifically in 2013, Dong Nai Tax Department in collaboration with the General Department of Tax collected tax arrears of 90 billion dong from several enterprises using transfer pricing, reducing the loss by more than 1 thousand billion dong and creating a future revenue source of more than 280 billion dong. In 2014, Dong Nai Tax Department uncovered 5 enterprises using transfer pricing and collected tax arrears of 300 billion dong. Since the beginning of 2015, 2 enterprises with signs of transfer pricing have been uncovered and Dong Nai Tax Department is proceeding these cases. In the two year-end months, the Department will continue the inspection on transfer pricing cases of 2 big enterprises, one of which is 100% foreign capital enterprise and the other one is a foreign joint venture.
* This year, tax on some goods categories will be reduced to 0%, creating a decrease in revenue, but the revenue estimate increases by more 10%. In order to make up for the tax reduction, is it true that Dong Nai Tax Department has the intention to increase the revenue from inspection activities and tax arrears from enterprises using transfer pricing?
- The revenue estimate of each province increases by 10-15% every year while tax on some goods categories is reduced, creating the province’s revenue loss of 1 thousand billion dong. In order to make up for the loss, Dong Nai Tax Department has enhanced inspection on enterprises in the province and for the first 10 months of the year, the Department collected tax arrears of 600 billion dong. The results of transfer pricing inspection have put great impacts on other enterprises having business transactions with associated partners, some of them declared themselves from loss into profit and some enterprises contacted tax agency to negotiate in advance the method of determining the market price in associated transactions. Dong Nai Tax Department plans to investigate 10-20 FDI enterprises with signs of transfer pricing every year to make sure that the State’s regulations on business and operation are properly followed.
* In fact, many FDI enterprises have reported loss but increased capital and expanded their production at the same time. Which sector will be investigated first?
- Transfer pricing is an objective necessity due when enterprises tend to maximize profits and minimize tax payment for the sake of their business. Therefore, some enterprises certainly transfer their profits from high tax area to a lower one. Transfer pricing is investigated in every country including Vietnam. In the coming time, Dong Nai Tax Department will conduct investigation on big enterprises of key industries including: textile and footwear. As for textile industry, the investigation will be carried out smoothly thanks to the data base we have collected. As for other industries, the General Department of Tax is building a data base to serve the fight against transfer pricing. Currently, many enterprises have declared tax settlements themselves so that they can adjust tax payment prior to investigation. It should be noticed that well-known enterprises whose transfer pricing practices are uncovered will suffer from severe reputation and brand impairment which can lead to a decrease in their share price on the Stock Exchange.
* Thank you very much!
Huong Giang
