Major loss-making foreign-invested firms to be inspected for tax compliance

17:46 | 14/11/2018
The foreign-invested enterprises which have been running large, prolonged losses and large related-party transactions, will be inspected for tax compliance.
major loss making foreign invested firms to be inspected for tax compliance
The General Department of Taxation ordered tax inspections at companies running large losses

The General Department of Taxation (GDT) has just sent a document asking provincial and city Departments of Taxation to inspect and supervise groups, corporations, and companies, which reported big losses over the past years.

According to the GDT, from the beginning of the year to October 23, tax authorities have conducted 70,102 inspections, reaching 78 per cent of the yearly plan and equalling 97 per cent of the same period last year. The resulting tax arrears detected by the amounted to VND12.84 trillion ($558.2 million).

According to tienphong.vn, based on the list of businesses in the 2018 plan of inspection, tax agencies will need to start immediately auditing certain groups, corporations, and businesses.

The GDT also ordered the inspection of FDI firms which made big losses over the past years and have conducted large related-party transactions, especially those where the parties are located in countries and territories that charge low- or no corporate income tax.

Earlier, in 2012 GDT reported that 57 per cent of 5,500 reviewed foreign-invested firms (equalling 60 per cent of the total number of FIEs) reported net losses in 2010 and 2011. Among all economic sectors, the rate of loss was highest among FDI firms, between 48 and 52 per cent in 2008-2014.

Meanwhile, the GSO reported that the pre-tax profit of all economic sectors in 2017 was VND876.7 trillion ($38.1 billion). Of this, FDI enterprises made the largest profit with around VND384.1 trillion ($16.7 billion), equalling 44 per cent of the total, nearly doubling the state-owned sector (VND200.9 trillion – $8.7 billion), while the domestic sector made VND291.6 trillion ($12.7 billion).

However, the FDI sector contributed only VND265.7 trillion ($11.6 billion) to the state budget, equivalent to 28 per cent of the total, while the state-owned sector contributed VND291.6 trillion ($12.7 billion) and domestic sector VND407.6 trillion ($17.7 billion).

In a conference on transfer pricing organised by the State Audit Office of Vietnam (SAV) a few months ago, Tran Khanh Hoa, director general of SAV’s General Affairs Department, pointed out specific signals through studies of cases suspected of transfer pricing, such as Coca-Cola, PepsiCo, as well supermarkets Metro and Big C.

These signals include reporting losses over many years but continuously expanding the scale of production and business; very low profit margin; low rate of contribution to the state budget, while total investment and expenses are high; being sponsored by affiliated or parent companies; goods are sourced from at least three countries.

By Nguyen Huong

Based on MasterCMS Ultimate Edition Ver 2.8 2018