Most FIEs in Vietnam transfer pricing, evade tax The practices of transfer pricing and tax evasion have been found at nearly all the foreign invested enterprises (FIEs) that the General Department of Taxation (GDT) has inspected recently.   Swearing to do combat with transfer pricing, GDT’s recent inspection tours were aimed at those enterprises that have declared losses in the last several consecutive years, while at the same time expanding their businesses. The tax body has forced 2,110 inspected enterprises to pay fines and tax arrears of VND988 billion, and successfully pressured them to admit to losses VND4 trillion lower than initially declared. The tax arrears were collected mostly from FIEs. The average amount collected from every FIE was VND1.73 billion, an insignificant figure. The problem lies in the high number of enterprises found as committing the transfer pricing or tax evasion. Of the 870 inspected FIEs, 720 have been found to be violating the laws. In some provinces, problems have been found at 100 percent of FIEs. The Quang Ngai provincial tax agency’s officers, for example, discovered violations at all the 27 businesses they inspected. The figure was 14/14 in Bac Giang Province, 16/16 in Hoa Binh, 15/15 in Gia Lai, 6/6 in Bac Kan and 4/4 in Bac Lieu. In Hanoi, 326 out of the 332 businesses have been found to have declared inaccurate figures about receipts and expenses. They have been asked to admit to losses VND1.5 trillion lower than initially declared, and pay tax arrears of VND498 billion. The figures were 164 out 193 businesses, VND870 billion and VND173 billion, respectively for HCM City. The FIEs have reportedly applied familiar methods to commit transfer pricing. They declare import prices higher than the real values and export prices lower than real values, so as to fabricate losses, or at least lower profits. In most cases, it is difficult to discover the frauds in commercial acts, especially at those enterprises using highly unfamiliar technologies and products. Since the products are not popular in the world, tax officers have no reference sources to determine their real value. In other cases, overseas holding companies of the FIEs in Vietnam provide materials to the FIEs and then buy finished products back from them. Therefore, the Vietnamese state management agencies find it hard to control the material import and product export prices, especially if the products were exported to third countries. The Vietnam Chamber of Commerce and Industry (VCCI) last month released the results of its survey on 1,609 FIEs from 49 countries, which are operating in 13 cities and provinces of Vietnam. Twenty percent of FIEs admitted that they do practice transfer pricing in order to ease their tax burdens. 65 percent of FIEs with profits higher than 20 percent and 44.5 percent with 10-20 percent profits committed acts of transfer pricing. TBKTSG