Vietnam plans new transfer pricing rules to curb tax fraud

By Dam Tuan   October 5, 2016 | 04:36 pm GMT+7
Vietnam plans new transfer pricing rules to curb tax fraud
A man pushes carts at a Metro supermarket in Hanoi August 8, 2014. The company entered Vietnam in 2012 and in the following years reported huge losses despite more outlets. Photo by Reuters

Various agencies are expected to work together to draft a decree and keep the practice in check.

In a move that signals Vietnam's apparent stronger stance against tax evasion, the Ministry of Finance has sought to work with other ministries and agencies to draft a new decree on transfer pricing management.

The central bank and the ministries of investment, information and science have been asked to coordinate in the drafting, according to a post on the Vietnam General Department of Taxation’s website.

A specific timeframe is not available, but this will be the first government decree regulating transfer pricing in Vietnam.

Transfer pricing allows related business partners to determine prices between themselves, without considering market factors. The practice is not illegal per se, but this has always been one of the gray areas that tax agencies keep a close eye on.

Abuses of the practice are often very difficult to prove, especially when it involves multinational corporations with a complex network of internal buyers and suppliers.

It is likely that the new decree will allow tax authorities to inspect related party transactions early to detect possible evasion.

The central bank may also start collecting and providing more details regarding financial transactions of companies linked to foreign businesses. Data on loans and interest payments will also be considered by tax authorities.

Vietnam has opened up its market to a large number of foreign companies.

Tax fraud allegations against multinational corporations are not rare, with some major companies posting successive losses and at the same time continuously expanding their business activities

According to local media, Coca-Cola, PepsiCo, Adidas, Metro and Big C are among those whose tax payments have been and will be monitored by local authorities.

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