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Minister Dinh Tien Dung at the meeting this morning.

After listening to the reports on the socio-economic situation as well as the additional State budget of 2018 and implementing the first four months of 2019, the Head of the Delegation Tran Van Tuy raised concerns about transfer pricing situation of foreign invested enterprises (FDI).

Tran Van Tuy said revenue from this area did not reach while production efficiency was very good. Despite these paradoxes, the Government has not yet made any specific analysis and assessment on this issue in the report submitted to the National Assembly Standing Committee.

Newly inspected production and business stages

Appointed to be a reviewer, Minister of Finance Dinh Tien Dung said on the transfer pricing in 2018, the Finance agency has inspected 95,940 transactions, handled 19,000 billion VND; in fact, by the end of 2018, it collected 14,740 billion VND. In addition, it reduced the loss of 40,900 billion VND. Similarly, in 2017, the loss reduction was 37,000 billion VND.

Judging that this is a "very serious situation", the head of the Finance sector said in the amended Law on Tax Administration, it is necessary to clarify the responsibilities of agencies in managing FDI, from investment to production.

“Handling tax through new inspection is partly because some FDI enterprises say they invest in Vietnam with billions of dollars but who reviews? We are very anxious, if they just depreciate, then it will be the transfer pricing at the investment stage. But we can check the production and business stages" - Minister Dinh Tien Dung said.

On the causes of FDI in the FDI sector did not reach the estimate, the Minister Dinh Tien Dung explained, first the estimate is too high. In 2016, the revenue estimate increased by 12.2% compared to 2015, especially for FDI sector revenue increased by 12.8% while 2016 GDP increased by only 6.21%.

Similarly, in 2017, the estimated increase in overall revenue was 18.1%, of which the FDI sector increased by 23.4%, too high compared to the 2017 GDP growth of 6.81%, plus about 4% of inflation, means double the growth rate of GDP and inflation.

In 2018, the general estimate was 21.6%, the State-owned sector was 13.1%, the FDI sector was 30.1%, too high compared to the economic growth of 7.08% and inflation 4%.

"We have reported to the National Assembly and learned from the estimation of 2019. The estimates have been assigned more rationally between economic sectors and localities. However, transfer pricing is a long story, there is a need to evaluate and have many more solutions" - he said.

Already have a solution

Speaking next, Minister of Planning and Investment Nguyen Chi Dung said:

“Transfer pricing is a story from 30 years ago. Transfer prices occur in two stages, the initial investment stage and at the stage of production and business. The Ministry of Finance's production and business has already done. In the initial stage of investment, the previous Investment Law stipulates that it is required to assess investment properties immediately after the investment is completed to determine the value of official assets, thereby calculating depreciation and accounting the income taxes. At that time, we have implemented this clause but in practice, it has encountered many difficulties. In 1992, we hired an independent inspection company to inspect 17 projects, all 17 projects were wrong. But to give legal treatment, the argument is very complicated.”

The Minister also added that the Investment Law later removed this provision in a way that allowed them to be self-aware. But up to now, the governing body has found that it is impossible for them to be self-conscious. After assessing 30 years of FDI, the Ministry of Planning and Investment found that this is still a loophole when the enterprise only invested 10 million USD but declared 20 million USD, the entire depreciation of fixed assets was fully withdrawn to reduce taxable income. "This is a phenomenon of false holes, real interest, happened a long time ago - Minister Nguyen Chi Dung stated.

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The proposed revision of the Investment Law will soon be supplemented with provisions: In case of necessity, the State may hire an inspection company to reevaluate investment assets. Proposing that open mechanism, it is necessary for the inspected party to pay the inspection cost, thus resolving this situation somewhat.