Describe your understanding of transfer pricing activities of mnes analyze the impact of transfer pricing on the receiving country and the

NATIONAL ECONOMICS UNIVERSITY SUBJECT: THE MULTILATERAL INVESTMENT SYSTEM AND MULTINATIONAL ENTERPRISES Topic: Describe your understanding of transfer pricing activities of MNES.. Ana

NATIONAL ECONOMICS UNIVERSITY

SUBJECT: THE MULTILATERAL INVESTMENT SYSTEM AND MULTINATIONAL ENTERPRISES

Topic: Describe your understanding of transfer pricing activities of MNES

Analyze the impact of transfer pricing on the receiving country and the

investing country.Attitudes and actions of The Governments.Analyze case of

Vietnam

Instructors : Dr Tran Thi Mai Hoa Group 16: Bui Quang Thdi - 11203505

Tran Thi Bich Ngoc -11202885 Nguyễn Văn Quốc -11203311

Class: Investment Economic

Table of Contents

List Of ADDreviations 2.0.00 ccc ccecc ce ố ố ố.ốố.ố 4

/ n6 Nn ng ố ố ố ố ố ốố.ố 5

/ 8u 5

//,/0/0//00nẺ8n88 6

hÝY⁄VV/1//90/0/20//10/.0 00000 nền .ốốốố.ố 7

[04070170700 00nn8 8

CHAPTER 1: THEORY OF MULTINATIONAL COMPANIES AND TRANSFER PRICING ISSUES OF MULTTINATIONAL COMPAINIE À Q0 SH e 9 1.1.Overview 0ƒ MHỈHH(fiOH(Ï COTH(HHTS- nnnHn nhàng HH TK Thn nHcr 9 In“ 9

1.1.2 Basic characteristics of multinational companies: 2.0.00 ccc cece cee eee eee ees 9 1.1.3 Classification of multinational COMPANICS 00.00 Hình HH ng kh He 10 12 Transfer Pricintg ISSUCS nan cố 11

LQ CONCEP nh 11

1.2.2 Some signs to recognize ÍFIHSÍGF DFÍCÏH" Q0 ST nh HH HH HH rệt 11 W1) 0,17 0n ốc 12

1.2.3.1 Transfer pricing throuHgli IHIVGSHNGHf CDÍẨ(Í: Ghi gu 12 1.2.3.2 Transfer pricing through technology ÍFGHSGP con nh nh hy 12 1.2.3.3 Transfer pricing through the transfer of raw materials qnd good 13

1.2.3.4 Transfer pricing througlhi (OFHIS Gƒ S€FVICG DFOVISIOH ào Tnhh He 13 1.2.3.5 Transfer pricing through interest payments on production and business loans 13

1.2.3.6 Transfer pricing through market domination 0.0.00 nhàn nghe 14 1.2.4 NVÍOfIV(fÏOHH cee ens nneeneceneenneneecneensesecenessaessecusesseeneesiesaesaeseaeeaaeaecneesesieesiessaeeassneeeneentees 14 L2A4 LD External Motor ccccccccccccccccccsccescencenssssesnecesesseeneecucennecnecsnesuaeeaeceaeeneeneesneenesesenaes sneeenaeenneeees 14 CHAPTER IT: IMPACT OF TRANSFER PRICES ON RECEIVING COUNTRIES AND TNƯESTING COUNTTRIE à à SH HH HH HH HH TH HH TH HH HT HH Hư 17 2.1 For investment-receiving COHHTIE Q.0 Sàn HH HH HH HH HH HH HH He 17 2.2 For investment exporting COHHẨTIE Ặ nh Hành HH Hư HH HH rệt 18 CHAPTER HT: CURRENT STATUS OF TRANSFER PRICE PROBLEMS OF MULTI- NATIONAL COMPANIES IN VIETNAM'S TERRITOR Y - SH re 20 3.1 Vietnam has become an attractive destination for foreign direct investment flows 20

3.2 Foreign-invested sectors contribute increasingly to the country's socio-economic

(ÍŒVCÏODIHGHHÍ àÚ nành n nh HH TH HH gu HH HH TH 21

3.3 The importance of the FDI sector to Vietnam's socio-economic development 25

3.3 Currernf sfqfHs 6ƒ transfer pricing qCHviHies in FDIÏ €HÍCFDFIYS chen hhese 28 3.3.1 FDI enterprises grow rapidly in both number of enterprises, scale and production

21/7/00 29

3.5.2 The FDI sector is a dynamic, stable and effective production and business sector 31 S1 can 62 86a 34 CHAPTER IV: ACTUAL CONSEQUENCES OF THE CURRENT COMMON

TRANSFER PRICING SITUATION OF MNES COMPANIES OPERATING IN

l7” m— 38

4.2.1 Lotte Vietnam Shopping Joint Stock GIHD(HỊ, nh HH neo 39 06.16 na nổ ốc ốốốốốốố 41 4.3 Current status of transfer pricing control policy - Vietnam's anti-transfer pricing policy ececescesevscesesseaecasenevaesececesaesessaeseseeecasenevaeseceavsaesessaeaeesessecaseaevacseseacsassessaeaeesesaecaseaevassesearsesseeserseseeeasensesneeats 44 4.4 Causes of the current widespread situation of taking advantage of transfer pricing to

CHAPTER V: GOVERNMENT ATTITUDE AND ACTIONS REGARDING TRANSFER

74/00 0(0.090///01/ An nnh 49 5.1 Forecast oƒ Mulfinational Cormpdries' Investnent Trends in Viefdm 49

3.1.2 Trends IH VÏGÍH(HTH à Tnhh nh TH HT HH HH TH HH crk 51 5.2 RECOMMENAATIONS 0.10 cecccccee tenets n teste ceneesneneecneeuneeneceessaeeneceaesseeneecneeniesneseaeenaeeneeenegesensenaeee 54

3.2.1 GOVGFHIHCHT SỌÍHÍẨ[OH QC 54

3.2.2 BHSIHGSS (ŠỌHÍÍOTN, Go HH HH ng HH TH Ho nh 55 3.2.3 60CHHÍ ÏMÍC(SHFỚS Go Tnhh HH HH HH HH TH HH HT HH 56

06/1/80 17A0 Ẻ 58

List Of Abbreviations

List of tables and chart

2019

loss in 2020

by industry

List of Figure

activities of the economy

in the period 2005-2021

period 2010-2021

investment of FDI

enterprises in the period 2016 - 2021

8 | Figure 4.2a Profits of some Lotte business segments in 41

Vietnam

the period 2004-2020

first 9 months of 2023

THANK YOU

After a research period, students completed the " Describe your understanding

of transfer pricing activities of MNES Analyze the impact of transfer pricing on the receiving country and the investing country.Attitudes and actions of The

Governments.Analyze case of Vietnam" project Students would like to express their sincere gratitude to their project guide Dr Tran Thi Mai Hoa has enthusiastically helped and guided her throughout the process of implementing this project

We wish her good health, happiness and success in her noble teaching career Thank you very much!

Group 16

STATUTORY DECLARATION

We hereby declare that the content of this thesis is the result of ours own research The results and data in the topic are honest and completely objective We take full responsibility for our promises

Hanoi, 10 November 2023

INTRODUCTION

Since opening up economic integration in 1986, Vietnam's economy has grown rapidly and in recent years has always been ranked by investors as one of the most attractive investment countries in the region Asia as well as around the world Participating in international organizations, especially becoming an official member of the WTO, has opened up many opportunities for cooperation and development for Vietnam, attracting more and more direct investment capital from foreign companies multinational company in the world However, along with the great benefits that these companies bring, many complex problems have also arisen, including multinational companies taking advantage of transfer pricing to avoid taxes with increasing scale and severity This situation has and continues to cause serious revenue losses to the State Budget, negatively affecting the investment environment of businesses

CHAPTER 1: THEORY OF MULTINATIONAL COMPANIES AND TRANSFER PRICING ISSUES OF MULTINATIONAL COMPANIES

1.1.Overview of Multinational companies:

1.1.1 Concept

International business relations were born when the country was opened, integrated, and economic exchanges Foreign investment is a form of international investment, born relatively later than other forms of international business but quickly developed, and multinational companies were established A multinational Company (MNC: Multinational Corporations or MNE: Multinational Enterprises) is understood

as a company that produces or provides services in at least two countries Large multinational companies often have a budget that exceeds the budget of many countries and can greatly affect the international relations and the economy of the nations

1.1.2 Basic characteristics of multinational companies:

Multinational companies have large scale, revenue and scope of activities Ownership of MNCS is a multi-host, multinational property, reflected in the

participation of many owners in different countries for the company's assets distributed

on a global scale These companies invest in many countries to take advantage of the advantages of the process of internationalization, local incentives and own intellectual property Traditionally, they come from developed and invested countries to other developing countries but now more and more companies choose to invest in

developing countries The link between businesses in MNC is aimed at the most important goal is to solve capital difficulties for businesses Therefore, after

establishing MNC, member companies developed faster, and property with ownership also increased quite quickly, from which the total assets also increased

significantly MNCS create great profitability and pioneering to achieve superior competitive advantage compared to competitors because they often own core and decisive factors for the production process as Investment capital, technological secrets, management skills and global operating networks Labor, MNCS often attracts a large number of workers in the country and other countries

Multinational companies are multidisciplinary companies Along with the development of MNCS, a regular trend is that they operate in many industries, many jobs and many fields such as finance, banking, insurance, and application research on science and technology

A typical example in Vietnam is FPT Group: not only operating in the fields of

telecommunications and software, this group also moves into the fields of real estate,

advertising, banking, securities, etc The increasingly close combination of related fields in production and business activities and the connection between scientific research and production have increased comparative advantages for multinational companies in expanding operating area and increase profits

Multinational companies have diverse organizational structures and capital ownership Regarding the organizational structure, it is formed according to the principles of voluntariness and consultation It should be emphasized that businesses that are members of MNCs all have independent legal entities, with the highest authority such as a council of members and a general meeting of shareholders MNC capital ownership is also very diverse First of all, the capital in the company is owned

by member companies, including both private capital and state capital Equity ownership in an MNC also depends on the degree of dependence of member

companies on the parent company

1.1.3 Classification of multinational companies

Multinational companies can be classified into three large groups according to the structure of production facilities as follows:

— A “horizontal” multinational company is a company that produces the same or similar products in other countries

For example: McDonald's Company

— A “vertical” multinational company is a company that has production facilities

in certain countries, producing products that are inputs for its production in several other countries

For example: the Adidas Company

— A “multi-dimensional” multinational company is a company with production facilities in different countries that cooperate both horizontally and vertically For example: Microsoft Company

1.2 Transfer Pricing Issues

1.2.1 Concept

Transfer pricing is understood as the implementation of a pricing policy for goods, services and assets transferred between group members across borders not at market prices to transfer income and profits from taxable countries high tax countries

to low tax countries, minimizing the taxes of multinational companies globally 1.2.2 Some signs to recognize transfer pricing:

Whether the subject performs transfer pricing or not is difficult to determine Because, if the valuation is too high or too low and locally increases tax revenue for a state, the competent authority should reassess the transfer price For example, determining low input purchase prices will lead to low costs and high pre-tax income, so corporate income tax may increase; or if the export price is set high, it will

also increase revenue and, as a result, also increase the amount of tax collected by the

state But this also means that the tax liability of the affiliated enterprise at the other end is likely to decrease because it has transferred part of its tax liability through price

to this affiliated enterprise This causes total taxes to decrease significantly

Besides, this behaviour can also be performed through transactions of affiliated entities Specifically, it is expressed in price agreements However this agreement is not enough to conclude that the subject has performed transfer pricing Because, if that contract has not been implemented in reality or there has not been a transfer of rights

to the transaction object, there is no basis to determine the transfer of benefits Thus,

we can consider transfer pricing completed when there is a transfer of the transaction object, regardless of whether the payment obligation has been completed or not The basis for considering transfer pricing behaviour is the transaction price We can evaluate whether a transaction has a transfer price or not when comparing the transaction price with the market price If the transaction price does not correspond to the market price, there is a high possibility to conclude that this transaction has been transfer pricing

In addition, we can also recognize transfer pricing through several signs For example, a business has suffered continuous losses for many years but revenue increased and production activities expanded Enterprises can declare losses for many

1.2.3.6 Transfer pricing through market domination

To penetrate the market and gain market share, FDI enterprises increase advertising and product promotion activities, causing these companies to declare the above costs at high prices, causing these companies to suffer losses In particular, for joint venture enterprises, multinational companies rely on their financial potential to carry out illegal transfer pricing, causing long-term double losses and taking over the management and control of the company ty Many businesses take advantage of preferential policies to reduce costs for advertising and promotion activities, so they have found ways to declare the parent company's branding costs

These are some basic transfer pricing forms of multinational companies, but certainly, these businesses also have many other forms of transfer pricing as their operating model still includes many intermediaries and activities Price movements are increasingly sophisticated

1.2.4 Motivation

1.2.4.1 External motor

First is the difference in corporate income tax rates When two countries have large differences in corporate income tax rates, to maximize profits, multinational companies will conduct transfer pricing to minimize the tax that these companies must pay submit When there is a difference in tax rates, the transfer pricing method that multinational companies often use is to raise the purchase price of raw materials, materials, and goods and set the selling price or export price at low prices at the import prices Subsidiaries located in countries with high corporate income tax rates By doing this, MNCs have transferred part of their profits from a country with a high corporate income tax rate to a country with a low corporate income tax rate, and thus the goal of profit maximization has been achieved successful implementation

Second, to preserve and develop initial investment capital, MNCs will invest in a country if they predict that in the future this country's currency will strengthen, meaning that the amount of investment capital will increase Their initial investment is preserved and developed, on the contrary, they will withdraw investment from a country if they predict that in the future the country's currency will weaken, meaning that their initial investment capital will be weakened they are reduced Based

14