COCACOLA AND RESPECT FOR VIETNAMESE TAX LAW OF MULTI-GROUP OF VIETNAM
The fact that Cocacola is fined 821 billion is not a new story in the Vietnamese market, before Cocacola, there were dozens of foreign corporations operating in Vietnam for decades but still reporting errors and being in doubt of transfer pricing. These include companies such as Adidas, Pepsi, Kengnam, Honda … Taking advantage of preferential policies for foreign companies to attract investment, these corporations automatically operate, expand market share in Vietnam. Male but always in a state of heavy losses and losses. Many questions still arise, why are global profits of these groups in the group of profits growing every year but in Vietnam they operate so inefficiently.
One of the main reasons leading to a series of multinational corporations always in a loss-making situation in Vietnam Market is the story of “Transfer pricing” – “Move in and out”, optimizing taxes in Group aspects in many countries around the world. Price transfer was first mentioned in 1997 when the regulations on foreign contractor tax and then formally issued a legal document referring directly to related transactions and transfer pricing through Circular 66. / 2010 / TTBTC. Since the issuance of this circular, a number of Multinational Corporations in Vietnam have been on alert and repeatedly exposed, including a few prominent names that have been fined for moving acts. such as Metro Cash & Carry VN (fined 507 billion), Honda Vietnam (182 billion), Keangnam – Vina (95.2 billion) ….
For experts who are not surprised, tax advisers and large corporate auditors regularly issue warnings about the risks associated with understatement, however, because of self-reliance. trust the global tax advisory systems of these Corporations without respect and compliance with Vietnamese tax laws. Tax authorities have always been aware of the painful problem for decades in multinational companies but have not taken specific actions to handle a thorough responsibility, the underlying reason is the difficulty in information gathering and screening in the situation of too many complicated transactions in member units of the same corporation in different countries in the world.
Transfer pricing is simply understood as the transfer of profits where there is a high tax rate to tax-incentive countries. Most of the press refer to the story of Moving Out (“remittance of profits abroad) to companies with faulty years, but rarely mentioning the opposite situation which is the transfer of inward prices (” remittance of profits ” profits ””, even if the company has hundreds of billions in profit, it is still in the form of transfer pricing (in the period of tax incentives).
(1) ℎ ̂̉ ́ (“ ̛̣ ℎ ̣̂ ”) ̛ ̛́ ̀ ℎ ̂ ́ ℎ ̀ ℎ ℎ ̛́ ℎ ̛ ℎ ̂́ ̀
(i) Raising the price of input materials is the most common and hard-to-detect form often used by these companies, due to recipe security issues, or there is no substitute for the material, thus Price to adjust the profit is relatively easy.
Example: Company A operates in Vietnam market with an annual turnover of VND 100 billion, a turnover and a profit as follows:
Before transfer pricing:
Turnover: 100 billion
Cost of raw materials: (80 billion)
Other expenses (Administration & Insurance): (10 billion)
Profit: 10 billion
Tax * 20%: 2 billion
After transfer pricing:
Turnover: 100 billion
Cost of Materials: (90 billion) – raising the input price to 10 billion
Other expenses: (10 billion)
Profit: 0 billion
Tax * 20%: 0 billion
=> After transferring the tax amount paid to Vietnam Tax Office = 0
(ii) Raise the purchase price of input equipment – production lines. Typically, to control the cost of parent companies or companies in the same group, the subsidiary will always sell the production lines and associated equipment to the subsidiary, and very few cases buy directly from suppliers. provided. This is similar to raising input prices, production costs will increase through depreciation of assets. Also from the example in Company A, after converting the total cost of depreciation into the cost, it will increase as follows:
Turnover: 100 billion
Cost of raw materials: (95 billion) – increase due to increased cost of depreciation
Other expenses: (10 billion)
Profit: -5 billion
Tax * 20%: 0 billion
=> After transferring the tax amount paid to Vietnam Tax Office = 0
(iii) Transfer pricing through allocation fees from the parent company of the Group (patents, copyrights, trademarks): these are intangible assets and their valuation is transferred to their subsidiaries in Vietnam. is very normal, because of the reason you are using My brand, you have to pay the fee is natural, as in the case of Cocacola, Pepsi, Honda … however, there is no sure basis to determine the expenses. This charge is reasonable.
Turnover: 100 billion
Cost of raw materials: (80 billion)
Other costs: (20 billion) – increase due to copyright costs
Profit: 0 billion
Tax * 20%: 0 billion
=> After transferring the tax amount paid to Vietnam Tax Office = 0
(iv) Sell at a lower price to the parent company and its subsidiaries
Instead of transferring prices through raising input prices, multinational corporations can use the method of lowering the selling price for the parent company or subsidiaries in the same group. Reducing the production cost or selling much lower than that of 3rd parties is also used for processing, temporary import and re-export companies in Vietnam.
Revenue: VND 80 billion – discount for parent company
Cost of raw materials: (80 billion)
Other expenses: (10 billion)
Profit: (10 billion)
Tax * 20%: 0 billion
=> After transferring the tax amount paid to Vietnam Tax Office = 0
(v) Transfer pricing through other forms: increasing interest expenses, marketing expenses allocated from the parent company, cost of using software … many other expenses that in recent years the tax authorities Vietnam is almost seeking to extract and dispose of the actual nature of it, or not, and a series of units that are subject to additional collection such as Pepsi, Honda …
(2) ℎ ̂̉ ́ (” ̛̣ ℎ ̣̂ “) ̀ ̣̂
(i) Expanding investment
Normally, investment projects in Vietnam during the first period are usually entitled to incentives in the form of tax exemptions for 2-4 years, tax reductions from 4 to 9 years, usually with interest rates much lower than the rates. typically (“20%”). Taking advantage of tax incentives instead of transferring profits to other countries, the Corporations will take advantage of continued investment in expanding scale, increasing capacity, expanding more factories to increase production. amount of production in Vietnam market.
Based on Circular No. 96/2015 / TT-BTC dated June 22, 2015 of the Ministry of Finance on corporate income tax, a project is considered expanded investment if it meets one of the three criteria:
– The cost of fixed assets increases when the investment project is completed and put into operation, at least from VND 20 billion for expansion investment projects in the field of enjoying enterprise income tax incentives under the provisions of Decree No. 218/2013 / ND-CP or from VND 10 billion for expansion investment projects implemented in areas with difficult or extremely difficult socio-economic conditions according to the provisions of the Decree No. 218/2013 / ND-CP
– The proportion of the original cost of additional fixed assets reaches at least 20% of the total cost of fixed assets before investment.
– The designed capacity of expanded investment shall increase at least 20% compared to the designed capacity according to the technical and economic feasibility study before the initial investment.
Thus, according to the dossier submitted to the Department of Planning and Investment and the competent authorities, if the Company has expanded beyond the designed capacity and exceeded the initial capital scale (“being entitled to incentives”), the excess amount will be exceeded. This process will be subject to tax at the current rate.
Example: Company B has a total profit of VND 100 billion and is currently enjoying 0% tax incentives.
Current project profit: 100 billion
Expansion project profit: 50 billion
Total profit = 150 billion * 0% = 0 billion.
In case the expansion of the project exceeds the initial registration / design scale and the enterprise does not actively apply for further incentives, the company B’s additional tax must be = 50 billion * 20% = 10. Billion.
(ii) Adjusting the selling price for the parent company or subsidiaries in the same group: this method is the opposite of the transfer price, that is, the company in Vietnam will raise the price for another company in the same group. The delegation is subject to a much higher tax rate than in Vietnam. This will reduce the total tax payable at the corporate size and maximize profits and cash flow.
So clearly these multinational corporations understand better than ever this model, because developed countries have handled many similar cases, so it cannot be said that the Vietnamese tax authorities pressed. Going back to the story of Cocacola, General Director Mr. Peeyush Sharma affirmed, “The reputation of Coca Cola Vietnam is very important, so we never take actions of fraud or tax evasion. It may damage the reputation of Vietnam Coca Cola, ”however, if just a simple calculation can immediately see that the payment of Cocacola is really problematic for many years ago. Of the 3 beverage companies that have the largest market share of Pepsi market (41%), Tan Hiep Phat has the same revenue but reported a profit of thousands of billion dong, but Cocacola alone still reported a loss, in the same market, together. For a customer, the equivalent price, the loss for many years and do not pay any tax in Vietnam is obviously too much disregard for the qualifications of the Vietnamese.
(3) Who will continue to be targeted by the Vietnamese tax authorities
The time when the state agency announced a tax-related mistake of Cocacola came in the context that the Law on Prevention and Control of Alcohol and Beer Harm 2019 came into effect from January 1, 2020. Love or intent will be great news for non-alcoholic beverage suppliers like Cocacola. The announcement of a penalty of VND 821 billion for Cocacola is just one of the necessary steps to remind all the remaining multinational companies to continue to report losses and continue to expand production and business activities in Vietnam. Male. More importantly, “when you’re on my playground, you have to obey the rules” and recovering the remaining taxes in other multinational companies reporting losses is just a time when all the paperwork , the report has been published and submitted to the tax authorities. Instead of waiting for the tax office to touch, businesses should revise their tax strategy so they can fix it before it’s too late.
In addition to the transfer pricing of multinational manufacturing corporations, one of the next holes that the State Tax Agency has not touched is “tax on e-commerce companies and online game companies. , The scale of e-commerce market in Vietnam is estimated at more than 50 billion dollars, and with the active activities of big brands appearing in Vietnam such as Facebook, Google, Grab, Amazon, Alibaba, Alibaba, Supercell … every year tens of billions of dollars are transferred abroad but the state agencies have not had sanctions to sanction or collect enough taxes.
Of course, when the rapid development of e-commerce leads, it will be very difficult for the tax authorities to keep up and make appropriate circulars and decrees but “What will come, will come,” respect the law. Vietnamese taxes and don’t look down on Vietnamese people.
