VietNamNet Bridge – After inspecting textile and garment enterprises, taxation bodies will cast their eyes on automobile manufacturing enterprises and put international auditing firms under probe, according to Bui Van Nam, General Director of the General Department of Taxation (GDT).

Most of the 2,110 enterprises inspected in 2013 had to admit to losses lower than initially declared and accepted to pay tax sums set by the taxation bodies after the inspection.

Regarding foreign invested enterprises (FIEs), Nam said taxation bodies have completed the inspection of over 20 enterprises in 17 cities and provinces throughout the country. Tax inspectors determined that the enterprises’ taxable income is VND3.75 trillion higher than initially declared, while their losses are VND759 billion.

Taxation bodies are demanding to collect VND230 billion in tax arrears from the 20 businesses and are imposing fines of VND12 billion in total.

Three discoveries made by the taxation bodies during the course of their investigations have been deemed most noteworthy.

First, many of the enterprises were in the grace period, enjoying government-bestowed investment incentives, but still continuously reported losses.

Second, many enterprises declared such heavy losses that they exceeded the initial investment capital, i.e., they claimed to have no taxable income.

Third is the practice of transfer pricing. In some cases, foreign investors made corrupt use of the large stakes they held in enterprises to set the buy and sell prices of products in their trade relations with partner enterprises. As they bought highly and sold cheaply, the enterprises repeatedly took losses in Vietnam.

Analysts have warned that this could be a trick played by foreign investors with an aim to take over Vietnamese enterprises.

When asked what enterprises would be the next targets of taxation bodies, Nam said GDT will turn its attention to automobile manufacturers. Some have forecast that taking on that industry will be a hard struggle for tax officers.

In trying to combat the abuses of transfer pricing, tax officers have to face great difficulties, including strong resistance from the enterprises themselves and the machinations of the international auditing firms servingthose enterprises.

“We can see that some big auditing firms lent a hand to help FIEs make transfer pricing and evade tax,” Nam said.

In many cases, taxation bodies were accused of deliberately creating obstacles for enterprises.

Meanwhile, tax officers only have 30-45 days as stipulated by the Inspection Law to fulfill one case. By contrast, the permitted time in the world is 18-24 months.

Automobile manufacturers are believed to begin conducting transfer pricing as soon as they set foot in Vietnam. As Vietnamese experts were incapable enough to valuate modern technologies, the foreign partners easily exaggerated the values of the technologies.

A report by the Vietnam Chamber of Commerce and Industry (VCCI) and USAID showed that the transferring pricing rate in the automobile industry was very high, about 51 percent, following finance & insurance and textile & garment.

Twenty percent of the enterprises admitted they conducted transfer pricing, while 37 percent of FIEs from the countries where the tax rates are lower than in Vietnam tend to make transfer pricing.

Tien Phong