Vietnam Will Tighten Transfer Pricing Investigations

September 16, 2010 Taxation in Vietnam

Notre Dame Cathedral, Ho Chi Minh City, VietnamVietnam will soon boost its investigations into transfer pricing practices of local businesses, in order to decrease the occurrence of tax evasion and spurn national tax revenues.

The tax authorities of two of Vietnam’s primary business centers are launching pilot programs of increased investigations into the transfer pricing behavior of local units of international businesses. According to Nguyen Van Mo, deputy head of the tax department in Hanoi, and Le Thi Thu Huong, deputy head of the Ho Chi Minh City tax authority, the two departments will begin more intense scrutiny of companies which potentially could be allocating their profits overseas to avoid tax liabilities in Vietnam.

According to previously released statements by tax authorities, nearly 40 percent of companies registered in Ho Chi Minh City have reported overall losses in their operations, despite showing continued levels of expansion. This ongoing behavior has been partially attributed to tax evasion through unsavory transfer pricing practices. In April 2010 tax regulations in Vietnam were altered, making it necessary for companies to list all of their related party transactions along with their annual tax returns, in the hopes of curbing tax evasion. However, tax authorities in Ho Chi Minh City and Hanoi will now begin closer scrutiny of these records, in an attempt to entirely eradicate negative exploitation of transfer pricing practices. As part of the clamp down, tax authority representatives will begin a series of meetings with local businesses to ensure that best practices are being followed and no tax evasion is being committed. New penalties will also be instated, which could see an offending company pay penalties of up to three times its underpaid tax liability, if transfer pricing based tax evasion is discovered.

Le Thi Thu Huong commented on the new efforts saying that they will lead to a welcome boost in tax revenues, adding that “China has enforced transfer pricing quite stringently and got a lot of tax money.” Explaining further Fredrick Burker, partner at the international law firm Baker & McKenzie Vietnam, said “…like a lot of other countries, they [the Government of Vietnam] need to keep their budget revenue to pay for their stimulus package from last year.”

Photo by Eustaquio Santimano