Bac Lieu province leads other in attracting FDI in Vietnam in 2020 with the total foreign investment of about 4.5 billion USD. Number of FDI enterprises increases but many of them report losses. (Photo cafeland.vn)Hanoi (VNS/VNA) - The number of foreign direct investment (FDI) enterprisescontinues to increase in Vietnam, but more are reporting losses. TheMinistry of Finance (MoF) said FDI firms' contributions were not yetcommensurate with the preferential policies given to them.
According toa report based on financial statements of 2019, the number of foreignfirms continued to increase compared to 2018. The report said in 2019, therevenue of these firms reached 7.18 quadrillion VND (312.17 billion USD),an increase of 720 trillion VND, and total assets reached 7.7 quadrillion VND,an increase of 981 trillion VND. Profit before tax reached 387 trillionVND, an increase of 29 trillion VND, while profit after tax reached 324.4trillion VND, and increase of 19.5 trillion VND from 2018.
Thoseincreases were equivalent to 11.2 percent, 14.5 percent, 8.2 percent and 6.4 percentcompared to 2018, respectively.
The MoF’sreport also said 9,494 FDI enterprises, or 45 percent of the whole FDI sectorin Vietnam, reported profit in 2019, while another 12,455 FDI enterprisesreported losses of 131 trillion VND.
The reportsaid revenue of those reporting losses in 2019 was 846.8 trillion VND, up 12.7 percentfrom 2018, but their profit was lower. The MoF said by the end of 2019, therewere 14,822 FDI enterprises with accumulated losses worth more than 520.7trillion VND on financial statements, assessing that: “The efficiency of assetsand investment capital in FDI enterprises are still low. ManyFDI enterprises have not fully utilised their potential.”
The MoF’sreport also said: “The profitability targets of some industries are stillnegative, the budget payment is not commensurate with the incentives theyenjoyed. The number of profitable FDI enterprises accounts for a smallerproportion while many enterprises have large and continuous losses for manyyears.”
At the sametime, the MoF pointed out the phenomenon of price transfer and tax evasionin some FDI enterprises, mentioning: “Enterprises always report losses, evencontinuous losses for many years, but still expand production and business andtheir revenues keep increasing every year.”
Earlier,research by the Vietnam Institute for Economics and Policy Research(VEPR) on the avoidance of income tax by FDI enterprises in Vietnam statedthat the annual tax loss from the FDI sector can be up to 8 trillion VND to 9trillion VND, or 4 to 4.5 percent of the corporate income tax revenue.
Nguyen HoangOanh, expert from the National Economics University, said the typicalmethod of transfer pricing, evasion and tax avoidance of FDI enterpriseswas that they declared high prices of goods and materials and administrative,technical and legal services within the group.
Oanh addedtransfer prices could be made through loans from parent or affiliated companieswith higher interest rates in order to be able to transfer profits abroad.
Strongmeasures against price transfer
To deal withthe matters, the MoF said that it would continue to direct the GeneralDepartment of Taxation and local tax branches to strengthen inspection andexamination of FDI enterprises with signs of transfer pricing.
The taxagency said Decree 132/2020 / ND-CP (Decree 132), effective since December 20last year on regulating tax administration for enterprises with associatedtransactions would be a strong measure to combat transfer pricing in Vietnam.
According tothe General Department of Taxation, there are about 16,500 enterprises withassociated relationships, of which over 8,000 enterprises have associatedtransactions. Among enterprises with associated transactions, FDI enterprisesaccount for over 83 percent.
Nguyen ThanhTung, director of ICC Law Firm, said: “Decree 132 has supplemented therequirement for multinational companies to conduct inter-national profitreporting,” adding the regulation was close to international practices.
Currently,the submission of cross-border profit statements by supreme parentcompanies has been agreed upon by the members of the base erosion andprofit shifting (BEPS) forum and Decree 132 has detailed regulations incases where taxpayers with a foreign parent company were obliged to prepareinternational profit reports to tax authorities.
He added: “Vietnamshould quickly study and apply anti-evasion and tax avoidance measures appliedin other countries, along with stronger inspection and examination, increasingfines and enhancing the qualifications of tax officers to deal with theproblem.”
On thetopic, economist Le Dang Doanh told local media that: “MoF needed to verify andbring some typical cases of transfer pricing to the public,” addingthat “Vietnam needs to attract FDI but not at all costs or keeping itseyes closed to the mistakes of some FDI enterprises.”
Doanh askedrelated agencies to connect with specialised agencies of the country where theFDI enterprises are based to best verify and clarify the real cost ofproduction./.
According toa report based on financial statements of 2019, the number of foreignfirms continued to increase compared to 2018. The report said in 2019, therevenue of these firms reached 7.18 quadrillion VND (312.17 billion USD),an increase of 720 trillion VND, and total assets reached 7.7 quadrillion VND,an increase of 981 trillion VND. Profit before tax reached 387 trillionVND, an increase of 29 trillion VND, while profit after tax reached 324.4trillion VND, and increase of 19.5 trillion VND from 2018.
Thoseincreases were equivalent to 11.2 percent, 14.5 percent, 8.2 percent and 6.4 percentcompared to 2018, respectively.
The MoF’sreport also said 9,494 FDI enterprises, or 45 percent of the whole FDI sectorin Vietnam, reported profit in 2019, while another 12,455 FDI enterprisesreported losses of 131 trillion VND.
The reportsaid revenue of those reporting losses in 2019 was 846.8 trillion VND, up 12.7 percentfrom 2018, but their profit was lower. The MoF said by the end of 2019, therewere 14,822 FDI enterprises with accumulated losses worth more than 520.7trillion VND on financial statements, assessing that: “The efficiency of assetsand investment capital in FDI enterprises are still low. ManyFDI enterprises have not fully utilised their potential.”
The MoF’sreport also said: “The profitability targets of some industries are stillnegative, the budget payment is not commensurate with the incentives theyenjoyed. The number of profitable FDI enterprises accounts for a smallerproportion while many enterprises have large and continuous losses for manyyears.”
At the sametime, the MoF pointed out the phenomenon of price transfer and tax evasionin some FDI enterprises, mentioning: “Enterprises always report losses, evencontinuous losses for many years, but still expand production and business andtheir revenues keep increasing every year.”
Earlier,research by the Vietnam Institute for Economics and Policy Research(VEPR) on the avoidance of income tax by FDI enterprises in Vietnam statedthat the annual tax loss from the FDI sector can be up to 8 trillion VND to 9trillion VND, or 4 to 4.5 percent of the corporate income tax revenue.
Nguyen HoangOanh, expert from the National Economics University, said the typicalmethod of transfer pricing, evasion and tax avoidance of FDI enterpriseswas that they declared high prices of goods and materials and administrative,technical and legal services within the group.
Oanh addedtransfer prices could be made through loans from parent or affiliated companieswith higher interest rates in order to be able to transfer profits abroad.
Strongmeasures against price transfer
To deal withthe matters, the MoF said that it would continue to direct the GeneralDepartment of Taxation and local tax branches to strengthen inspection andexamination of FDI enterprises with signs of transfer pricing.
The taxagency said Decree 132/2020 / ND-CP (Decree 132), effective since December 20last year on regulating tax administration for enterprises with associatedtransactions would be a strong measure to combat transfer pricing in Vietnam.
According tothe General Department of Taxation, there are about 16,500 enterprises withassociated relationships, of which over 8,000 enterprises have associatedtransactions. Among enterprises with associated transactions, FDI enterprisesaccount for over 83 percent.
Nguyen ThanhTung, director of ICC Law Firm, said: “Decree 132 has supplemented therequirement for multinational companies to conduct inter-national profitreporting,” adding the regulation was close to international practices.
Currently,the submission of cross-border profit statements by supreme parentcompanies has been agreed upon by the members of the base erosion andprofit shifting (BEPS) forum and Decree 132 has detailed regulations incases where taxpayers with a foreign parent company were obliged to prepareinternational profit reports to tax authorities.
He added: “Vietnamshould quickly study and apply anti-evasion and tax avoidance measures appliedin other countries, along with stronger inspection and examination, increasingfines and enhancing the qualifications of tax officers to deal with theproblem.”
On thetopic, economist Le Dang Doanh told local media that: “MoF needed to verify andbring some typical cases of transfer pricing to the public,” addingthat “Vietnam needs to attract FDI but not at all costs or keeping itseyes closed to the mistakes of some FDI enterprises.”
Doanh askedrelated agencies to connect with specialised agencies of the country where theFDI enterprises are based to best verify and clarify the real cost ofproduction./.
VNA
