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Vietnam: Decree against transfer pricing of foreign multinationals hurts local firms
The Hanoitimes – Major Vietnamese corporations said that the regulation has discouraged them from investing.
A Vietnamese decree is in place to tackle transfer pricing abuse by firms, especially foreign multinational companies, but local enterprises complain they are caught in the crossfire.
Decree No. 20/2017/ND-CP, which came into force in May 2017, regulates that interest expenses incurred in the tax period allowed to be deducted for tax purposes must not exceed 20% of earnings before interest, taxes, depreciation and amortization.
Vietnam Electricity (EVN), Vietnam Coal and Mineral Industries (Vinacomin), Masan, Novaland, among the national major corporations, have requested the Ministry of Finance (MoF) to amend the regulation.
In a letter sent to the MoF, EVN said loans provided by the parent corporation to its subsidiary companies are already subjected to the government regulations and market rules. By curbing deductible interest expense to only 20% of net earnings, the decree has boosted the corporation’s tax bill exponentially.
EVN Genco 1 and EVN Genco 3 will see their corporate income tax bills increased by VND339 billion (US$14.48 million) and VND216 billion (US$9.23 million), respectively. Meanwhile, EVN will pay an additional VND762 billion (US$32.56 million) to the state budget.
Vinacomin will be taxed an additional VND410 billion (US$17.52 million) and the figures for Masan Group and Novaland will be VND111 billion (US$4.74 million) and VND185 billion (US$7.9 million), respectively.
Decree No. 20/2017/ND-CP, which came into force in May 2017, regulates that interest expenses incurred in the tax period allowed to be deducted for tax purposes must not exceed 20% of earnings before interest, taxes, depreciation and amortization.
Vietnam Electricity (EVN), Vietnam Coal and Mineral Industries (Vinacomin), Masan, Novaland, among the national major corporations, have requested the Ministry of Finance (MoF) to amend the regulation.
In a letter sent to the MoF, EVN said loans provided by the parent corporation to its subsidiary companies are already subjected to the government regulations and market rules. By curbing deductible interest expense to only 20% of net earnings, the decree has boosted the corporation’s tax bill exponentially.
EVN Genco 1 and EVN Genco 3 will see their corporate income tax bills increased by VND339 billion (US$14.48 million) and VND216 billion (US$9.23 million), respectively. Meanwhile, EVN will pay an additional VND762 billion (US$32.56 million) to the state budget.
Vinacomin will be taxed an additional VND410 billion (US$17.52 million) and the figures for Masan Group and Novaland will be VND111 billion (US$4.74 million) and VND185 billion (US$7.9 million), respectively.
The national major corporations said that the regulation has discouraged them from investing.
According to economist Nguyen Tri Hieu, the regulation is diminishing the Vietnamese businesses profit.
He is also unsure about the decree’s ability to monitor transfer pricing saying companies could easily resort to other tricks such as doubling the product price a subsidiary has to buy from the parent company or increasing the management fees.
Responding to the complaint, the Ministry of Finance has so far proposed changes to the decree so that it should only apply to businesses whose parent company pays a different rate of tax in another country.
Firm hand needed
With the rise of globalization, transfer pricing by multinationals among affiliates that fall under different countries’ jurisdictions has become common practice.
Cao Anh Tuan, deputy general director of the General Department of Taxation (GDT), said that tax avoidance through transfer pricing is posing a challenge for many countries in the world, and Vietnam is no exception.
In Vietnam, though many foreign firms claim to have reported losses for 20 years, they still seek to expand their businesses in the country. According to the Corporate Finance Department under the Ministry of Finance, between 2012 and 2016, 44-51 percent of FDI businesses reported losses.
Tougher regulations on related-party transactions are a must for the country to move towards fair competition and a market economy, Tuan said.
Vietnamese authorities have been working hard to monitor transfer pricing within foreign companies, chiefly by inspecting books and tax details.
According to Nguyen Thi Lan Anh, deputy director of the GDT’s Inspectorate, the GDT has conducted price adjustment inspections on 130 firms since 2010, retrieving VND724 billion (US$32.3 million), adjusting loss reduction by VND2.96 trillion (US$132.1 million) and increasing taxable income by VND3.43 trillion (US$153.1 million).
According to economist Nguyen Tri Hieu, the regulation is diminishing the Vietnamese businesses profit.
He is also unsure about the decree’s ability to monitor transfer pricing saying companies could easily resort to other tricks such as doubling the product price a subsidiary has to buy from the parent company or increasing the management fees.
Responding to the complaint, the Ministry of Finance has so far proposed changes to the decree so that it should only apply to businesses whose parent company pays a different rate of tax in another country.
Firm hand needed
With the rise of globalization, transfer pricing by multinationals among affiliates that fall under different countries’ jurisdictions has become common practice.
Cao Anh Tuan, deputy general director of the General Department of Taxation (GDT), said that tax avoidance through transfer pricing is posing a challenge for many countries in the world, and Vietnam is no exception.
In Vietnam, though many foreign firms claim to have reported losses for 20 years, they still seek to expand their businesses in the country. According to the Corporate Finance Department under the Ministry of Finance, between 2012 and 2016, 44-51 percent of FDI businesses reported losses.
Tougher regulations on related-party transactions are a must for the country to move towards fair competition and a market economy, Tuan said.
Vietnamese authorities have been working hard to monitor transfer pricing within foreign companies, chiefly by inspecting books and tax details.
According to Nguyen Thi Lan Anh, deputy director of the GDT’s Inspectorate, the GDT has conducted price adjustment inspections on 130 firms since 2010, retrieving VND724 billion (US$32.3 million), adjusting loss reduction by VND2.96 trillion (US$132.1 million) and increasing taxable income by VND3.43 trillion (US$153.1 million).
Source: http://www.hanoitimes.vn/economy/2018/11/81E0CEBA/decree-against-transfer-pricing-of-foreign-multinationals-hurts-local-firms/