VietNamNet Bridge – Dr. Phan Huu Thang, director of National Economics University’s Centre for Foreign Investment Studies, discusses the role of foreign business associations in helping state agencies combat transfer pricing for tax evasion by some multinationals.

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Transfer pricing suspicions at several foreign invested enterprises (FIEs) or ‘false declarations for tax evasions’ of other businesses are now common in Vietnam’s business practices. Over the past couples of years, throngs of domestic businesses had to pay back huge sums in tax arrears after being detected of tax frauds.

Recently, however suspicions of transfer pricing at some well-known FIEs had created media storms in the country. It has grabbed the public particular attention while triggered concerns to many other FIEs who strictly adhere to Vietnamese and international laws and make big contributions to Vietnam’s budget every year.

Obviously, transfer pricing is a complex trade act and bringing such cases to life would require a great deal of time and energy since businesses tend to apply all possible means striving to maximise their profits. To confront this, there needs to be an apparatus and qualified manpower who have good professional qualifications, are devoted to work and also honest.

Regarding transfer pricing acts at some FIEs, the prime minister two years ago assigned relevant ministries, agencies and local governments to work on and in 2011’s fourth quarter finalised a plan to combat transfer pricing at FIEs via the Directive 1617/CT-TTg dated September 19, 2011 to foster implementation and adjust foreign direct investment (FDI) management in the upcoming period. The plan, however, still sits on the drawing board until present.

We would like to underscore the role of foreign business associations like Amcham, Eurocham or Korcham in Vietnam as well as our needed attitudes to help bolster efficiency of on-going efforts by Vietnamese competent agencies to bridle transfer pricing in the country.

In fact, support of foreign business associations in management of FDI generally and FIEs particularly was helpful in the past years. These associations have contributed inputs to help perfect Vietnam’s legal system and ameliorate the country’s investment climate through diverse platforms like the annual Vietnam Business Forum (VBF).

Amid current transfer pricing rumours, these associations, parallel to commenting on irrationalities within Vietnam’s legal and law management system, may deliver internal comments to their member units reminding these units to obey host country’s legal system. This helps them to shield prestige and their general image.

With long-term business commitment in Vietnam during the course of international economic integration and in the context that most foreign investors seriously abide by Vietnamese laws, transfer pricing by particular businesses would surely be condemned by their associated business associations, helping to avert such unfair acts.

FIE management experiences are there, showing us the importance of taking advantage of support from the FIE community.

Representatives from successful FIEs have joined diverse Vietnam’s business groups heading abroad for investment promotion. They responded to diverse queries about corruption or administrative procedure reforms in Vietnam, helping to regain confidence of the international business community in Vietnam.

In reality, contributions by the FIE community to Vietnam’s socio-economic development in the past years is fairly significant. For instance, FIE community paid over $3.5 billion to state coffers in 2011 and gave jobs to more than two million direct and several hundred thousand indirect labourers.

Scores of FIEs have properly performed their tax obligations. In 2012, Ho Chi Minh City Tax Department honoured 13 businesses with excellent performance of tax obligations many of whom were FIEs with tax payment surpassing VND1 trillion ($48 million) a year.

Besides, many FIEs have put hands on propelling community development through practical corporate social responsibility (CSR) activities like Unilever’s Operation Smile programme.

In this context, how should we act?

Competent state agencies referring to transfer pricing (tax, financial, customs, market watchdog, trade, and planning) shall sit together to make clear transfer pricing suspicions. The offenders must receive due sanctions then their cases be put on the media for criticism.

Holding transgressors responsible also serves to avert rumours that harm FIEs that operate effectively and make contributions to the Vietnamese society development as well as the state coffers.

Besides, state management agencies on FDI and management authorities of foreign business associations need open dialogues targeting transfer pricing acts of their association members under transfer pricing suspicions.

FDI in 2012 held on its downward trend. FDI is heading to several regional markets like Myanmar and Indonesia following recent breakthrough reforms in these countries. So what must we do to attract more and more FDI to Vietnam while inspiring operating FIEs to scale up investments for their production expansion? The answer is pending on the side of Vietnamese government agencies in charge of FDI management.

Source: VIR