Earlier this year, Coca-Cola Vietnam was fined 821 billion VND for violations in tax activities in Vietnam. (Photo: nld.vn) Hanoi (VNS/VNA) - Anti-transfer pricing measures were included in the Law onTax Administration for the first time, but a guiding decree has not yet beenwritten. Experts said this could mean the rules are less effective.
A few months before the tax administration law took effect on July 1, theGeneral Department of Taxation (GDT) investigated two foreign giants,namely as Coca-Cola and Heineken, in cases of transfer pricing.
Coca-Cola Vietnam was fined 821 billion VND (35.5 million USD), while HeinekenVietnam was fined over 916 billion VND for tax violations.
According to many experts, the loss of revenue from FDI inflows has meantmanagement officials need a stronger law to combat price transfer.
Tax expert Chung Thanh Tien, director of Dong Hung Accounting Service LimitedCompany, praised the law, saying tax administration principles have followedinternational practices and include administrative procedure reform and theapplication of information technology.
"Iappreciate the principle of determining tax based on the operation and thetransactions of the company, not only on paper which could be fraudulent inmany cases," he said.
The current law for the first time stipulates the principles of declaration anddetermination of calculating prices for associated transactions as follows:declaration, determination of transaction price is based on the principle ofanalysis, compared with independent transactions and the principle of thenature of the operation, the transaction of determining the tax obligationsneeds to be paid as in the condition of transactions between independentparties.
It also regulated that the prices of linking transactions were adjusted inaccordance with the independent transactions to declare and determine theamount of payable tax in accordance with the principle of not reducing taxableincome.
With the above provisions, Tien assessed that the law “is quite comprehensive,detailed and clear, with capable contents to limit tax fraud from related transactionsas well as many forms of transfer pricing.”
However, he said it has been a year since the tax administration law waspassed, while no decree guiding the implementation of the law has been enacted,adding: “It could slow the effectiveness of the implementation."
Tien said that there are still not enough conditions to promote the laweffectively, saying though the linking transactions were controlled in the lawof tax administration, there was no content defining the basis for determiningthe associated transactions in the Law on Corporate Income Tax, which was abasis for calculating the income of the enterprise.
He said: “It is necessary to synchronise laws to better support the Law on TaxAdministration.”
Also, the expert said the issue of "determining the case by the nature ofthe activity" was new and required qualified tax officials to identifywithout being dependent on documents provided by the companies.
Tien considered the majority of local tax officials were incapable of doing itand suggested the tax agency train and upgrade their staff.
Le Minh Nam, director of the Audit Training School under the State Audit Officeof Vietnam (SAV), said; “Transfer pricing was increasingly sophisticated now.”
Besides the tax authorities, the SAV must also conduct direct audits at manycompanies including foreign-invested ones to discover any potential fraudulentcases and transfer pricing.
Nam said: “The inspection will be based on the identification of interrelatedactivities containing risks of transfer pricing in which we will collectevidence on suspicious signs of the companies.”
He added: “It is also necessary to detect inadequacies and gaps in policies andlaws on FDI attraction and associated activities to avoid transfer pricing.”
Other experts said there should be severe sanctions for transfer pricing inVietnam, taking examples from other countries such as Australia where the finefor the transfer pricing was 50 percent of the avoided tax amount or in Indiawhere the local tax authorities may impose penalties of up to 300 percent ofthe difference in the tax wrongly calculated by the companies.
Mentioning the new law, a representative of GDT said they will continue tostrengthen the database for tax administration, promote coordination andinformation exchange with other ministries and sectors, especially the Ministryof Public Security.
At the same time, he added they will strengthen international cooperation inthe field of taxation.
According to GDT, it handled more than 11 trillion VND from anti-transferpricing since 2017, adding that many violations were found though theinspection of associated transactions./.
A few months before the tax administration law took effect on July 1, theGeneral Department of Taxation (GDT) investigated two foreign giants,namely as Coca-Cola and Heineken, in cases of transfer pricing.
Coca-Cola Vietnam was fined 821 billion VND (35.5 million USD), while HeinekenVietnam was fined over 916 billion VND for tax violations.
According to many experts, the loss of revenue from FDI inflows has meantmanagement officials need a stronger law to combat price transfer.
Tax expert Chung Thanh Tien, director of Dong Hung Accounting Service LimitedCompany, praised the law, saying tax administration principles have followedinternational practices and include administrative procedure reform and theapplication of information technology.
"Iappreciate the principle of determining tax based on the operation and thetransactions of the company, not only on paper which could be fraudulent inmany cases," he said.
The current law for the first time stipulates the principles of declaration anddetermination of calculating prices for associated transactions as follows:declaration, determination of transaction price is based on the principle ofanalysis, compared with independent transactions and the principle of thenature of the operation, the transaction of determining the tax obligationsneeds to be paid as in the condition of transactions between independentparties.
It also regulated that the prices of linking transactions were adjusted inaccordance with the independent transactions to declare and determine theamount of payable tax in accordance with the principle of not reducing taxableincome.
With the above provisions, Tien assessed that the law “is quite comprehensive,detailed and clear, with capable contents to limit tax fraud from related transactionsas well as many forms of transfer pricing.”
However, he said it has been a year since the tax administration law waspassed, while no decree guiding the implementation of the law has been enacted,adding: “It could slow the effectiveness of the implementation."
Tien said that there are still not enough conditions to promote the laweffectively, saying though the linking transactions were controlled in the lawof tax administration, there was no content defining the basis for determiningthe associated transactions in the Law on Corporate Income Tax, which was abasis for calculating the income of the enterprise.
He said: “It is necessary to synchronise laws to better support the Law on TaxAdministration.”
Also, the expert said the issue of "determining the case by the nature ofthe activity" was new and required qualified tax officials to identifywithout being dependent on documents provided by the companies.
Tien considered the majority of local tax officials were incapable of doing itand suggested the tax agency train and upgrade their staff.
Le Minh Nam, director of the Audit Training School under the State Audit Officeof Vietnam (SAV), said; “Transfer pricing was increasingly sophisticated now.”
Besides the tax authorities, the SAV must also conduct direct audits at manycompanies including foreign-invested ones to discover any potential fraudulentcases and transfer pricing.
Nam said: “The inspection will be based on the identification of interrelatedactivities containing risks of transfer pricing in which we will collectevidence on suspicious signs of the companies.”
He added: “It is also necessary to detect inadequacies and gaps in policies andlaws on FDI attraction and associated activities to avoid transfer pricing.”
Other experts said there should be severe sanctions for transfer pricing inVietnam, taking examples from other countries such as Australia where the finefor the transfer pricing was 50 percent of the avoided tax amount or in Indiawhere the local tax authorities may impose penalties of up to 300 percent ofthe difference in the tax wrongly calculated by the companies.
Mentioning the new law, a representative of GDT said they will continue tostrengthen the database for tax administration, promote coordination andinformation exchange with other ministries and sectors, especially the Ministryof Public Security.
At the same time, he added they will strengthen international cooperation inthe field of taxation.
According to GDT, it handled more than 11 trillion VND from anti-transferpricing since 2017, adding that many violations were found though theinspection of associated transactions./.
VNA
