Vietnamese subsidiary of Taiwan’s Formosa suspected of transfer pricing

By Duc hung, Thanh Lan   May 27, 2016 | 03:19 am PT
Vietnamese customs authorities have accused Formosa Ha Tinh Steel Corporation (FHS) of transfer pricing after the Taiwanese-invested firm was found to have manipulated the prices of imported machinery and equipment on several ocassions.

The steelmaker allegedly declared imports cost much more than the actual prices in order to enjoy a bigger tax deduction for property depreciation, according to a report submitted recently to Vietnam Customs by Ha Tinh's Customs Department.

The Taiwanese steelmaker imported machinery and equipment to be used as fixed assets for its steelmaking complex and Son Duong Formosa Port in Ha Tinh Province, but declared incorrect prices for the shipments.


Formosa is under close scrutiny following suspected transfer pricing and tax avoidance. Photo by Duc Hung

The Vietnamese subsidiary of the Taiwanese company declared a shipment of dust filter covers cost $1.63 million to customs officials, but that figure was changed to $1.48 million on a tax exemption form.

According to Formosa, the difference was due to the time it took to import the shipment to when the company registered for tax exemption, so the declared cost was just a temporary estimate. The company went on to say that similar situations could occur in the future.

Ha Tinh's Customs Department views the case differently, and says this is an indication of transfer pricing.

The department also said that Formosa had hired logistics company SAS Vung Ang Co. Ltd. to state on the customs declaration that the value of one shipment was only $348,659 while the bill from the foreign supplier said it was worth $1.42 million.

After customs officials had looked into the discrepancy, the company re-declared the value of the shipment at $470,690, still nearly $1 million short of its actual value. The department has said that more evidence needs to be collected to prove the allegations of transfer pricing and undervaluing the cost of the shipment.

Following previous inspections in 2013, 2015 and 2016, tax authorities have repeatedly asked Formosa to pay tax arrears. In the audit from August to December, 2013, authorities collected more than VND283 billion (nearly $13 million) from the company due to incomplete paperwork.

After the audit last year, tax authorities concluded that the Taiwanese steelmaker had falsely inflated the cost of many of its operations including imports and construction with the help of foreign contractors. In late February, tax authorities also discovered that Formosa had used nearly 20,000 receipts that did not comply with regulations to claim tax refunds.

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