Tax departments in Hanoi and Ho Chi Minh City have recently revealed that thousands of foreign-invested enterprises (FIE’s) are failing to keep up with regulatory demands and authorities will increase their investigations into enterprises that are suspected of underpaying their taxes.
Tax authorities discussion multinational corporations said that its possible for companies to use various schemes to avoid paying taxes so its important that tax authorities to in-depth audits of companies that they believe are not in compliance with tax payments.
World Economic Forum research shows that billions of dollars in corporate profits are shifted out of countries every year, including high-profile names operating in Vietnam such as Adidas and the Central Group.
In the case of Adidas, the company registered its business as a wholesaler, but it was found to have expense items like a retailer and included intermediary costs that increased the company’s import costs and decreased its tax liabilities. Tax authorities have expressed concern that Adidas may be avoiding its Vietnamese tax liabilities and that the company should be audited and monitored.
Identifying exactly where profits are generated is complex, and has become only more so as supply chains become more global. Notwithstanding, some FIEs have mostly preferred to stay quiet on the latest episode of tax obligations.
In the case of the Central Group, a Thailand company operating in Vietnam, Vietnam’s General Department of Taxation (GDT) had to force the company to pay $87 million USD in taxes for BigC, a supermarket chain that has operated in Vietnam for more than 10 years, which Central Group bought in 2016.
The heightened scrutiny of multinationals is a response to public backlash against tax avoidance and an OECD report that Vietnam is estimated to be losing $2.15 billion USD in tax revenue fro FIE’s each year.
While the national government looks at nationwide tax issues, authorities in Hanoi and HCMC are looking at what they can do to prevent multinationals from structuring affairs in order to divert profits to low tax jurisdictions, particularly in companies with little physical presence.
In addition to FIE’s in Vietnam, several other high-profile areas that both national and local tax authorities are looking at are apartment and home sharing and online e-commerce sales. In addition, authorities continue to discuss how companies like Facebook and YouTube should be taxed for local advertising on their platforms and whether they can tax companies based upon Vietnamese or worldwide profits.
Warrick Cleine, Chairman and CEO of KPMG Vietnam commented on tax issues that FIE’s face when doing business in Vietnam and said, “First, continual tax reform puts foreign investors in uncertainty. Second, compliance procedures can be quite time consuming and require resources and cost. Last but not least, it is how FIE’s react when a tax dispute arises.”
Tax experts agree that focusing on tax issues related to FIE’s makes sense, and Johan Langerock of Oxfam Tax Policies suggested that Vietnam eliminate tax incentives to build a fairer market and said that, “The burgeoning tax deficits are large enough to give Vietnamese regulators an incentive to clamp down on avoidance and that FIE’s, on the other hand, would find it harder to shift profits to low tax rate locations.”