FDI companies report losses: signs of transfer pricing, tax evasion
This was also the first year in the 2016-2020 period when state budget revenue from foreign-invested enterprises decreased compared to the previous year.
Although revenue and profit before tax still grew over the years, the proportion of FDI enterprises reporting losses and accumulated losses is still high.
This shows that transfer pricing and tax evasion still exist, causing losses to state budget revenues, affecting the investment environment and healthy competition.
These are issues noted by the Ministry of Finance in a document sent to the Prime Minister in a report analyzing the financial situation in 2020 of foreign-invested enterprises.
Profits increase, losses still high
Accordingly, the profit before tax in 2020 of foreign-invested enterprises reached VND 406,585 billion, an increase of VND 37,245 billion, equivalent to 10.08% compared to 2019. After-tax profit was VND 341,786 billion, up VND 35,652 billion, equivalent to 11.65% compared to 2019.
The five sectors with the largest contribution and accounting for 85% of the value of pre-tax profit of FDI businesses include: electronic components, computers and computer peripherals, optical equipment; food, wine and beverage processing industry; chemicals, plastics, cosmetics; manufacturing and assembling of automobile, motorcycles and other engines; textiles and footwear.
When Vietnam took measures to prevent Covid such as social distancing, and temporary suspension of visa issuance for foreigners, restriction on domestic flights, the revenue and pre-tax profit of businesses were affected, causing a significant decrease in the state budget revenue.
Business groups with a sharp drop in pre-tax profit included tourism, hotel business, accommodation and catering services with a reduction of 203.22%; real estate business down by 100.63%; and manufacturing of pharmaceutical chemical products, pharmaceutical materials and medical equipment down by 49.63%.
In terms of quantity, the FDI sector had 10,125 enterprises with profitable production and business results, accounting for 40.2% of enterprises. Pre-tax profit value reached VND 557,649 billion, up 6.6% compared to 2019.
The number of FDI enterprises reporting losses in 2020 was 14,108, accounting for 56% of reported enterprises, with a loss value of VND 151,064 billion.
Total assets of enterprises reporting losses in 2020 was VND 2,476,870 billion, up 22% compared to 2019. Revenue of enterprises reporting losses in 2020 was VND 1,072,816 billion, up 27% year on year.
By the end of 2020, there were 16,164 FDI enterprises with accumulated losses on financial statements, accounting for 64% of reported enterprises, with a total value of accumulated losses on financial statements of VND 623,337 billion, equal to 44% of the owner's investment capital (an increase of 12% in the number of enterprises with accumulated losses and 20.1% in the value of accumulated losses compared to 2019).
The total assets of FDI enterprises with accumulated losses on the financial statements in 2020 was VND 2,910.234 billion, up 8.1% year on year.
The number of FDI enterprises losing capital in 2020 was 4,250, accounting for 16.88% of the total 25,171 reported enterprises, an increase of 22.7% year on year with the total value of equity in financial statement of minus 141,274 billion VND.
According to data from the State Budget Department - Ministry of Finance, the domestic revenue (excluding crude oil) of the FDI sector in 2020 was 206,088 billion VND, down 6,111 billion VND compared to 2019. This was the first year in the 2016-2020 period recording a decrease in state budget revenues and payments from foreign-invested enterprises compared to the previous year.
The firms invested in by investors from Europe (Cyprus, Luxembourg, the Netherlands, France, Germany) have a high return on equity (ROE). In terms of the harmony between ROE, ROA (return on assets) and ROS (return on sales), the Netherlands leads with 29.9%, 15.5% and 10.51%, respectively.
Enterprises invested by investors from France and Germany have the highest ROE at 83.2%, but ROA (-3.8%) and ROS (-1.86%) showed a low return on assets and revenue.
Regarding countries with a large number of businesses investing in Vietnam, Korea leads with 6,764 enterprises, with ROE, ROA, and ROS indexes are 11%, 6.1%, and 4.42%, respectively.
Japan has 2,928 enterprises, with a better profitability coefficient when profitability indicators are 16.1%, 8.2%, and 6.6%, respectively.
In general, Asian countries have a large number of businesses investing in Vietnam, but profitability is still low compared to those from Europe. Particularly, two territories in the top 10 countries and territories with the highest number of enterprises investing in Vietnam - Taiwan and Hong Kong - have low profitability, with ROA of 1.2%, 2.2%, ROE of 3% and 5.2%, and ROS of 1.62% and 2.4%, respectively.
Australia, Turkey, and British West Indies are also in the group of investors with low profitability indicators.