55% of FDI enterprises report losses but increase in revenue

	Profitable FDI enterprises account for small proportion while many enterprises suffer from large and continuous losses for years
	Tax evasion questions raised as 55% of FDI enterprises report losses

Transfer pricing and tax evasion still incurs in some FDI enterprises

Transfer pricing and tax evasion still incurs in some FDI enterprises

According to areport of the Ministry of Finance on the production and business of FDI enterprises in 2019, industries that achieved good profit margins include: manufacturing and assembling cars, motorcycles and other motor vehicles; food processing industry; wine, beer, soft drinks; business support services; distribution and motorcycle maintenance; and health, education, training, science and technology. Profit before tax of 22,603 ​​FDI enterprises reached more than VND 387,000 billion, up more than VND 29,000 billion year-on-year.Profit after tax was more than VND 324,000 billion, a rise of more than VND 19,000 billion year on year.

Also, the Ministry of Finance reported FDI enterprises play a more important role in contributing to the country's socio-economic development and increasing their contribution to the State budget, showing in the contributions to the State budget and import and export revenue that havesteadily increased over the years.

The revenue growth rate of the FDI sector to the State budget in 2019 was higher than that of the two prior years. In 2019, the revenue contributed by the FDI sector was more than VND 210,200 billion, up 13% year-on-year. In this report, the Ministry of Finance assessed although the growth of revenue, assets and investment capital of the owner was lower than that of previous years, it still remained at a high level, showing the performance of FDI enterprises still maintains a stable growth rate.

However, according to the Ministry of Finance, efficiency in using assets and investment capital in FDI enterprises is still low, has not fully utilised their potentials, and the budget payment is not commensurate with incentives given to them. Besides, transfer pricing and tax evasion still occurs in some FDI enterprises. They always report losses, or even continuous losses for many years, but still expand production and business and their revenues kept increasing years, causing losses in State revenue.

The number of profitable FDI enterprises accounts for a small proportion atonly 45% while many enterprises suffer large losses for many years. 12,455 enterprises reported losses, accounting for 55% although their revenue reached VND 847,000 billion, up 12.7% year-on-year and the total assets decreased by 0.7% year-on-year. There were 3,545 enterprises losing capital in 2019, accounting for nearly 15.7%, but of these, 2,160 enterprises saw an increase in revenue.

In addition to large projects with high economic efficiency and good budget contributions, there were many projects with low efficiency and low levels of budget contribution. For example, in 2019, the total revenue of the two big companies that are Hung Nghiep Formosa Ha Tinh Iron and Steel Co., Ltd and Posco Yamoto Vina Steel Joint Stock Company, increased from VND 77,456 billion to VND 82,741 billion, but their budget payments decreased from VND 101 billion to VND 92.6 billion.

According to the Ministry of Finance, the payment to the State budget is not commensurate with incentives (land andtaxes) given to these large firms. The ministry also proposed the Prime Minister assign it to continue directing the General Department of Taxation and local tax departments to strengthen inspection and examination for FDI enterprises showing signs of transfer pricing.

There should be a specialised unit for anti- transfer pricing

A resolution of the Politburo on the orientations for completing institutions and policies, improving the quality and efficiency of foreign investment cooperation by 2030 saysthe phenomenon of transfer pricing andunder-investment is increasingly sophisticated and tends to increase. To remove this situation, the resolution specifies it is necessary to study and develop regulations to overcome the “thin capital” and transfer pricing; complete the legal basis on anti- transfer pricing towards becoming the law. At the same time, complete and supplement strict regulations fortax, foreign exchange, customs, investment, science and technology, database building andinformation disclosure to control, manage and prevent transfer pricing right from the establishment and during the operation of FDI enterprises. To build a strong and capable specialised apparatus; the interdisciplinary and specialised inspection mechanism to prevent and limit the transfer pricing of foreign-invested firms.

According to economist Nguyen Minh Phong, based on the legal regulations fortax inspection and examination for enterprises, competent authorities should conduct an inspection and examination for FDI enterprises with signs of transfer pricing andtax evasion to promptly detect and prevent this situation.

Many experts also support the need to have a specialised unit in charge of anti-transfer pricing inspection and control, known as a “special force for anti-transfer pricing” instead of performing concurrent tasks. However, up to now, there has beenno implementation of solutions related to the development of the law on anti-transfer pricing or the establishment of a specialised unit in charge of anti-transfer pricing. Therefore, it is necessary to consider this issue seriously and soon establish this specialised unit to limit transfer pricing.