International auditing firms lend a hand to FIEs’ transfer pricing?

Iwama Shinichi, President of Daiwa Seiko, said at a workshop in late 2012 that in 2007, Daiwa Vietnam, based in Da Nang City, employed 400 workers and got the turnover of $300 million.

The number of workers has increased by five times, while the turnover has increased by 10 times.

Established in September 2005, Daiwa Vietnam, a subsidiary of Daiwa Seiko, is listed among the first-generation FIEs in the central city. In June 2008, Daiwa Vietnam inaugurated the second phase of the world’s biggest sports instrument factory in Hoa Khanh Industrial Zone in Da Nang, capitalized at $35 million.

However, the unceasingly developing company reported the big loss of VND319 billion in 2007-2009.

Taxation bodies noted that all the assets of Daiwa Vietnam, including machines and equipment that serve the domestic production, are imported from the other subsidiaries of the same group. Meanwhile, the products of Daiwa Vietnam have been sold to the subsidiaries.

When checking documents, tax officers found an important thing. Daiwa Vietnam once sold a consignment of goods to Daiwa Taiwan at a low price, and then the consignment was sold to another enterprise in HCM City at a price which was much higher.

The undeniable evidence forced Daiwa Vietnam to admit the transfer pricing and accept to pay the tax arrears of VND233 million.

With the same method, tax officers discovered that LesGans Vietnam, a golf and baseball glove manufacturer, conducted the transfer pricing when it sold products to the holding company at the price which was 36-44 percent lower than to other companies.

Therefore, the company, which declared the loss of VND21 billion had to admit the profit of VND24 billion.

In Binh Duong province, the local taxation agency found that the South Korean Sung Shin Vina, an electric motor manufacturer, sold products to the holding company at the price 10-15 percent lower than the market price.

The enterprise repeatedly reported loss in 2007-2010, though its turnover increased steadily by hundreds of billions of dong a year. The reported loss increased rapidly from VND6-7 billion to VND21 billion in 2010.

However, the company was finally found as making fat profits of VND8.5 billion in 2008, VND15.5 billion in 2009 and VND55.7 billion in 2010.

Vietnamese tax officers admit that it is very difficult to find the evidences to prove the behavior of transfer pricing because of the lack of information. Meanwhile, tax inspectors also have to “battle” with worldwide experienced auditing firms.

A tax officer said all the FIEs in the suspected transfer pricing cases have relations with well known auditing firms. The majority of them use the services from the “big four” auditing firms. Keangnam Vina, for example, used the tax procedure consultancy service of Deloitte Vietnam.

Of the other two suspected cases, a rubber production company used the services provided by PWC Vietnam, while the other, a garment maker, used KPMG Vietnam’s services.

em style=”margin: 0px; padding: 0px;”>Pham Huyen