Transfer pricing abuse in Vietnam

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Thanhniennews.com has reported:

At the [Vietnamese] National Assembly session, the government filed a report saying 2006's tax revenues collected from foreign-invested businesses were around VND1.97 trillion (US$122 million) less than expected. The government attributed the discrepancy to the slow growth of the automobile and tobacco markets.

But the explanation was met by harsh opposition from other deputies. Deputy Nguyen Van Phuc from the central province of Binh Thuan said automobile demand had soared over the period and that slow car sales could not have been the cause of the low tax payments. Deputy Tran Du Lich, Director of the Ho Chi Minh City Institute for Economic Research, said 70 percent of foreign-invested firms in HCMC had declared revenue losses in 2006 to avoid paying taxes.

But Lich pointed out that those firms were in fact doing much better than they had declared. He said that a government failure to root out price fixing would result in big losses to the state coffers.

Speaking at the session, Finance Minister Vu Van Ninh admitted that several multinationals in Vietnam were guilty of transfer pricing. He said the government had taken different measures to ward off transfer pricing, but admitted it would be very difficult to do so.

Nguyen Duc Kien, a permanent member of the National Assembly's Economic Committee, suggested that the government rethink its preferential policies towards foreign-invested firms. Kien said the government should only roll out the red carpet for joint ventures that boost national development.

There are the issues the Christian Aid report addresses in a nutshell.