Transfer pricing: Hundreds of businesses named in black list

The General Department of Taxation (GDT) has taken inspection tours to 122 enterprises in 23 cities and provinces by September 2013 and found the behavior of transfer pricing there.
A lot of enterprises which took losses, turned out to be profitable after the inspection, while the enterprises which reported modest profits, have been found as making fat profits.
Most of the enterprises operate in the fields of textile and garment, footwear, and food processing, while some of them are in the real estate and construction sector.
Hanoi leads the country in terms of the amount of tax arrears FIEs have to pay (VND98 billion), followed by HCM City (VND15 billion), Thai Binh (VND7 billion), Quang Ninh, Lam Dong (VND5 billion) and Hai Phong (VND1.3 billion).
The GDT’s inspectors, after inspecting an enterprise in Dong Nai province, released the decision to collect the tax arrears of VND78 billion.
The enterprises in HCM City have to reduce the reported loss by VND362 billion. The increased taxable income of the enterprises in Hanoi is VND1.233 trillion.
Before taking the inspection, the taxation general department had checked the business results of 5.531 FIEs, which account for 60 percent of the total operational FIEs, and have found worrying problems.
Of the 5,531 FIEs, 3,175 enterprises, or 57.4 percent, have been found as having accumulated profits. 529 enterprises reported loss, though the turnover increased steadily.
As a lot of businesses reported loss, the financial efficiency indexes were very low. The ROE (return on equity) of the enterprises was 10.26 only in 2010, 10.89 percent in 2011–just equal to the treasury bond interest rates.
The FIEs repeatedly reported losses, asked for tax refund, while having been unceasingly expanding their business scale. Meanwhile, the other enterprises, domestic owned, which operated in the same business fields and under the similar conditions, still reported profits and paid corporate income tax.
Some provinces and cities which took pride with the high achievements in attracting foreign direct investment (FDI) have been found as having a high percentage (50 percent) of FIEs reporting losses.
In HCM City, the loss has been reported mostly by the FIEs that make products for export. It is estimated that over 50 percent of the 3,281 businesses reported loss.
In Da Nang City in the central region, 69 out of the 157 operational FIEs regularly report loss. They operate in different business fields, from garments, footwear, electronics, to mechanical engineering and hotel. Some of the enterprises incurred the huge losses higher than the stockholder equity, but they still have been scaling up production.
In the northern city of Hai Phong, 109 FIEs, or 44 percent, had reported loss regularly by the end of 2012. The 109 enterprises took the loss of VND1.2 trillion in 2011.
According to GDT, the price transferring has been occurring in the last many years. In 2005, the Ministry of Finance released the Circular No. 117, which is considered the “weapon” to help fight against the price transferring. However, in 2006-2009, no enterprise was proven as conducting the price transferring.

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