Tax, investment changes concern foreign firms
Updated : Wednesday, July 11, 2018 3:15 PM (GMT+0700)

Thechanges in tax policy and investment incentives are the issues of greatestconcern for foreign investors in Vietnam, said Bui Ngoc Tuan, Deputy GeneralDirector of the Audit and Advisory firm Deloitte Vietnam at a workshop on inHanoi on July 10.

A production line of household appliances at a factory of LG Electronics Vietnam in the
northern city of Hai Phong - Source: VNA

Themed “Investmentincentives, related party transactions: situation and solutions,” the workshopwas co-organised by Deloitte Vietnam, the Ministry of Planning and Investmentand the Ministry of Finance.

“The factors impacting foreign direct investment activities often include thefluctuation of the tax rate through the years, available incentives in thecountry, flexibility in the application of incentive schemes, time forinvestment procedure and advantages and disadvantages of administrativeinvestment procedures”, Tuan said.

The Vietnamese Governmentcontinues to make policy adjustments toward a flexible and transparentorientation to create the most favourable conditions for foreign investors toenhance their national competitiveness, Tuan said.

The tax system reformstrategy for the 2011-2020 period has brought achievements, said Nguyen ThuThuy, a representative from the Taxation Policy Department under the Ministryof Finance.

Under the reform, taxpolicies create a fair and equitable environment without discrimination betweendifferent economic sectors, forms of ownership and taxpayers.

However, Thuy said, manyforeign-invested enterprises (FIEs) are taking advantage of strong investmentincentives, such as land rent, Corporate Income Tax (CIT) and Personal IncomeTax (PIT), to transfer prices and profits.

An analysis of financialstatements of FIEs from 2012 to 2016 shows that the number of FIEs reportinglosses is between 44 percent and 51 percent.

At the same time, theincrease in scale of investment and business activities from these FIEsreporting losses is higher than the increase in the number of FIEs reportinglosses, which shows that the problem of transfer price in the FDI sector isincreasing and becoming more complex, Thuy said.

Besides the pricetransferring activities of FIEs from Vietnam to abroad, there are also cases ofthe backward transfer of profits (from abroad to Vietnam) of some large FIEsenjoying high incentives in CIT rates and CIT exemptions and reduction periods.

“This is shown by the datathat the average return on equity (ROE) of FIEs in some sectors over the yearshas always remained very high, such as electrical components computer,peripherals, telecommunications and software, with ROE before tax more than 30percent”, she said.

There should be a controlmechanism to limit the FIEs reporting losses or losses in capital that stillcontinue to invest in expanding operations in order to enjoy incentive tax,Thuy added.

Transfer pricing is anintegral part of global trade, hence it cannot be avoided, said ThomasMcClelland, General Director of Deloitte Vietnam.

“Transfer pricing is notonly about margins and benchmarking analysis, it also requires businessperformance assessments”, McClelland said.

He added that taxauthorities need to understand the business realities and then take anappropriate course of action. They also need to enforce basic compliance firstrather than cherry picking taxpayers for audit.

The national legal systemneeds to be internationalised in order to promptly catch up with internationaltrends. For example, more bilateral treaties should be signed, he said.

“If Vietnam currently doesnot have mechanisms in place to measure the impact of their incentives, it isstrongly advisable that a monitoring and evaluation system (M&E) beimplemented”, said Wim Douw, a senior expert for trade and competitivenesspolicy at the World Bank.

Such a system should bebased on clearly defined policy objectives and would track the performance ofboth the costs and benefits of the incentives offered.


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