bài luận về hiện tượng chuyển giá (tiếng Anh)

Bài luận về hiện tượng chuyển giá, được viết bằng tiếng Anh nhằm giúp các bạn có cái nhìn mới mẻ hơn về hiện tượng chuyển giá trong điều kiện hội nhập toàn cầu, và ngày càng có nhiều công ty FDI đầu tư vào Việt Nam. Bài viết gồm 3 phần chính: lý thuyết, ví dụ và giải pháp. Hy vọng sẽ giúp ích cho các bạn

In discussion session about Vietnamese economy with affiliation at Global Investment Forum in 2015, the Minister of Ministry of Planning and Investment, Mr Bui QuangVinh, didn’t agree with a corporate leader’s opinion blaming Coca Cola for transfer pricing without any evidence.

Transfer pricing has appeared for a long time, but now it continues to emerge in Vietnam again It is likely to say that on the time being, transfer pricing is a hot topic in Vietnam lately

So, what is transfer pricing? How does it occur in Vietnam, especially in Coca Cola?

In order to make the problem clearer, our group has decided to choose the subject:

“Transfer pricing in Coca Cola” for our research However, this problem is quite new in Vietnam, it is not able to avoid mistakes in our report Therefore, we hope that you will help us find out and correct them Simultaneously, we also send our special thanks to Mrs Tran Thi Thu Hien, who guided us enthusiastically so that we can complete this research well!

Transfer pricing occurs due to rights to make decisions freely in business Subjects in the same corporation or link group have general benefits, so the difference of price doesn’t change the total benefit Changing price doesn’t change the total benefit, but it change the total tax obligation because the tax duty is moved from a high regulated place to the lower one and contrarily.

The nature of transfer pricing is a form of applying the price policy among sides having link relationship that does not follow normal exchange price in the market in order to minimize the number of payable tax belonging to all sides Transfer pricing will lead to the increase in the number of payable tax of links origin in this country, at the same time reduce the amount of payable in other countries, but after all sides reduce the quantity of payable tax

However, it is very difficult to determine if a subject doing transfer pricing because there are states failing to collect tax, as well as other states collecting

bigger number of tax In fact, international transactions are more worrisome than domestic ones because of the difference in tax policy among different countries.

In addition to ways of transfer pricing based on tax policy above, transfer pricing can be based on preferred policies among countries Income will be moved from subjects having lower preference to ones having more advantages about preference

1.2 Signs:

1.2.1 Suspicious signs:

Company measures and declares inaccurate revenue and costs, shows ongoing earnings losses for years as well as equity loss However, they continue to operate, and even expand investment and producing

Price of goods and services the company sells to linked trading units is lower than when they sell to independent ones

Price of purchasing raw materials, goods and services from foreign parent company are higher than purchasing from other independent units, which leads

to higher costs

Goods, services exported to foreign countries (mainly the ones that are output contracted through parent company) have a phenomenon of which their selling price and outsourcing price are lower than cost price This leads to continuously loss in production and business operations for many years To continue to operate, the company needs to use some form of financial aid, or loans without interest from parent company

Parent company allocates costs incurred overseas to its subsidiary several items such as advertising, marketing, researching and expanding market, interest expenses, copyright and some more, which actually must be paid by the parent company abroad

• Costs of goods and services are high:

Costs of goods and services (COGS) are part of business’ costs (including COGS, management costs, sales costs, and financial costs) However, through examination, COGS in the company are generated very high (over 90%, even higher than the selling price)

• Outsourcing process is done by other company:

Production capacity in the company is limited by machinery, equipment, production ground, the number of employees and many more, but they still sign contracts with foreign customers that exceed their production capacity With the reason of ensuring the volume of contracts they signed, these companies hire domestic firms to outsource their products After consideration, the price of this is almost equal or even higher than price signed with foreign companies However, rate of hiring domestic companies to outsourcing is very high (nearly 80% of production) and happened for many years

• Large advance payments from customer:

Balance on report of payables and receivables is large in some companies (prepaid expenses of customers) The advance payment amount

is very high, sometimes not stipulated in the contract It does not comply with any principles (such as based on the value of contract signed)

• Foreign loans:

After years of continuous losses, to ensure balance of business capital, the firm decides to sign foreign loans contracts These contracts are usually funded by the parent company or individual entrepreneur Many contracts

do not charge interest, not specify time of the loan This is to avoid paying withholding tax on loan interest

• Increasing legal capital:

After losing consecutively for years, some enterprises use the form of increasing legal capital, aim at expanding production scale and balance of capital on accounts

• Supporting outsourcing price:

To ensure balance and cope with management agencies, when parent companies abroad feel the loss is too big, they usually do not adjust the outsourcing price, but choose the solution of supporting the price to make

up cost of subsidiary companies

These are the enterprises specialized in manufacturing, processing goods to export Therefore, although the business continuously loses, incurs negligible tax liability (such as excise tax and personal income tax), but the tax that state budget must refund to the business (value-added tax of goods and services purchased) are great

1.3 Forms:

• Enhancing the value of contributed assets (venture investment):

Raising the value of contributed assets will make contributed capital

of parties that want to lift the value of capital contribution increase Therefore, both the domination of decisions related to operation of joint venture projects and profit divided will increase Moreover, this method makes the annual depreciation rate increase, so it also makes input costs rise and income tax payable reduce

• Enhancing the value of intangible assets (value of technology, brand name…):

Accurate valuation of intangible assets of investors is very difficult to confirm, evenwhen multinational companies (MNCs) show the certificate

of audit companies because its reliability is hard to confirm Therefore, they deliberately inflate the capital contribution by brand, recipes, technology transfer in order to increase its equity

• Importing raw materials from the foreign parent company, or from partner companies in joint venture with high prices:

This is a form of transferring profit abroad through the payment of imported goods Besides,this method makes costs increase, so that income

The parent companies often use consulting contractsor hire intermediaries Venture partners of these MNCs received experts or managers are forced to pay a very high cost (salary),whichhowever is resulted in low efficiency.

• In some cases, MNCs make the transfer prices through overseas training form:

Many firms select employees to study and practice in the parent company with the high cost

• Regulating the sale and purchase price of goods:

If import tariffs are high, parent companies will sell materials and goods with low price to avoid import tax payment In this case, they will strengthen the counseling, training, marketing support with high prices to offset or acquire products with low price In opposite situation, if imported goods have low tax rates, the MNCs sign import contracts at high prices in order to increase costs to avoid income tax payment

• Sponsoring business loans of parent companies:

In this way, the subsidiary generate capital structure and unreasonable capital such as using loans from parent company to finance fixed assets and long-term invested assets without increasing capital as well as equity to push costs of financing activities (foreign exchange costs, interest expenses ) higher Then, they transfer a part of profits in form of interests, costs of loan guarantee to avoid tax and foreign exchange losses in the future

• Through Bill Renewable Center:

Bill Renewable Center acts as an intermediary between the parent company and its subsidiaries Goods on invoice vouchers are sold from the company produces goods through Bill Renewable Center, then this center again sell to distribution companies by invoicing and enclosed documents This will help to reposition the currencies of both production units and the center But in fact, the goods are delivered directly from manufacturer

through distribution companies without through the Bill Renewable Center Therefore, the difference brings the amount of sales which is not taxed.

Transfer pricing allow MNCs to easily move profit or financial investment to their own country or foreign ones

If MNCs make a financial contribution by machines and equipment, they can easily modernize technology by liquidating backward equipment and out-of-date technology with high price for company in which they invest in foreign countries

• Negative:

If MNCs really do transfer pricing and be found out, they will suffer a big penalty, be dispossessed business license and their fame will be influenced Furthermore, they will be administered closely when they invest in other countries

1.4.2 For countries receiving investment:

• For economy:

Transfer pricing creates unfair competition environment between domestic firms and foreign ones The FDI firms that own dominant position makes domestic economy depend on foreign firms It also is one of the reasons that lead to trade deficit on facilities, materials, technology with high price while doing exportation with low price

• For government:

- Reduce revenue from tax

- Transfer pricing will break balance payments and economic plan of country receiving investment, so that if country receiving investment doesn’t control well, it will lead to depend on economy of parent country, and in long term, it will lead to depend on politic.

- Government of the country receiving investment will meet troubles in pushing domestic companies when doing macroeconomic policy if they face transfer pricing

• For domestic firms:

They will face lots of troubles when competing with MNCs If they don’t prepare well, they will be rejected and controlled

of not producing in parent country

• Negative:

If tax rate in countries receiving investment is less than parent country,

it will cause imbalance in the parent country‘s tax plans due to loss revenue from taxes Otherwise, they may face some problems about financial resources, because financial resources will flow into country receiving investment with low tax rate

2. Example of transfer pricing: Coca Cola Vietnam

2.1 Vietnamese context:

Transfer pricing was and is an alarming situation in Vietnam today While the developing countries have a lot of experience in fighting transfer pricing in MNCs, Vietnam still lacks experience in consulting this.

Transfer pricing in Vietnam are controlled by general regulations on tax inspections, however, general test method lacks necessary depth to identify the forms of transfer pricing Acts of transfer pricing violations are often sanctioned under the general provisions of Vietnam tax administration without separate regulations

Currently, the number of tax officials and auditors are very little, while the number of firms is a lot

The coordination between inspection, examination agencies and different levels, branches to exchange information, support professional, multisectoral coordination in the field of transfer pricing inspection, business losses many consecutive years is limited

Trade policy of border residents for enterprises that sell commodities temporarily imported for re-export are inadequate, and have large loopholes

MNCs’ information that tax agencies need to specify transfer pricing is usually a commercial secret or in other country This makes it difficult and sometimes impossible to get the information

Acts of transfer pricing has taken place not only in foreign direct invested enterprises (FIEs), but also between affiliated parties in inland Vietnam The reason for this phenomenon is because Vietnam still provides preferential policies

on corporate income tax (CIT) according to business activities and investment areas Taking advantage of these incentives, the domestic enterprises has established a number of subsidiary companies operating in the sectors or in geographical areas of preferential CIT, and sought to turn a pre-tax profit to the subsidiary companies to access tax incentives, or transferred pre-tax profit from profitable businesses to enterprises suffered losses to reconcile profit and loss in order to avoid CIT

The way of managing payments through banks are not tight enough This makes it difficult for tax and customs agencies to fight against the phenomenon in price fraud, transfer pricing.

The sanctions against tax fraud case are still not strong enough It reduces the effectiveness of inspection and examination activities

In reality, auditing in Vietnam is different from the world Auditing activities

in Vietnam is independent, so auditors only take professional responsibility on the work they done, they don’t have to be responsible for the audited figures whether

if they are real or fake

In 2012, 1500 firms were found to have signs of transfer pricing in Vietnam.Among them, “the Big Man” Coca Cola is one of the typical cases that makes the papers waste a lot of ink

2.2 Introduction to Coca Cola Vietnam:

• Name: Coca Cola Vietnam

• Headquarter: 485 Hanoi Street, LinhTrung Ward, Thu Duc District, Ho Chi Minh City, Vietnam

• Investment: 400 million USD in machines and factories

600.000 USD in education and society

• Average revenue per year: 38.5 million USD

• Employees: 1200 people In this period, Coca Cola used to recruit about

2000 agents It has more than 16000 workers that are created in related industries

• History of Coca Cola Viet Nam:

- 1960: the fist time Coca Cola was introduced in Viet Nam

- 2/1994: Coca-Cola starts long-term investment in Viet Nam

- 8/1995: the first joint venture of Coca Cola and Vinafiniex in the North of Viet Nam was established

- 9/1995: the next joint venture called “Coca Cola Chuong Duong Beverage Company”

- 1/1998: Coca-Cola signed contract with Da Nang Beverage Company

- 10/1998: Vietnamese government allows joint ventures to become 100% foreign investment Every joint ventures of Coca-Cola step by step become totally controlled and the fist company was Coca-Cola Chuong Duong.

- 3/8/1999: joint venture in Da Nang became the same situation

- 6/2001: with permission of Vietnamese government, all of their venture companies in Vietnam unified and were managed by Coca Cola Vietnam Headquarter was decided to be placed in Thu Duc District, Ho Chi Minh City

• Telephone number: (84.8) 896 3519 - 829 8787

• Fax : (84.8) 896 3516

• Website: http://www.cocacola.com.vn/

2.3 Signs:

(Resource: Ho Chi Minh department of taxation)

• Coca Cola Vietnam has never been declaring a profit since the establishment (2/1994), despite their revenue has been increasing each year:

- From the beginning to now, Coca-Cola Viet Nam has not had any year with profit even when their revenue is increasingevery single year In 2004, the revenue was 728 billion VNDs and the lost was

110 billion VNDs In 2006, the revenuejumped up to 1026 billion VNDs but the lost was more than twice the number of 2004

- In 2010, the revenue of Coca-Cola was 2529 billion VNDs but the total cost was 2717 billion VNDs, so it means that the lost was 188 billion VNDs Accumulated lost was combined to 3768 billion VNDs, exeed investment which was 2950 billion VNDs

- The least lost was in 2009 with 39 billion VNDs, the highest lost was in 2006 with 253 billion VNDs

• The losses are declared to due to the price of materials, which are mainly directedly imported from parent companyat a very high price:

- Mr Le Duy Minh, the manager of the tax office number 1, the “key” helped this company to consecutively notify lost is high price for additives from USA

- Averagely, the cost for additives contained more than 70% the cost

of goodssold, individually in 2006-2007 it took 80-85% In 2009, Coca Cola paid 1065 billion VNDs for this cost, and in 2010, the number was 1671 billion VNDs

• Coca Cola has been continuing to expand production and market share, building factories, despite they have been declaring losses every year:

- Despite of getting lost every year, the parent company decided to invest more than 300 million USD in Coca Cola Viet Nam in the next 3 years In late 2012, the chief manager office came to Viet Nam and declared investing more money in this company

- The owner believed in a safe improvement in Viet Nam with many years got lost

• Coca Cola Viet Nam operates mainly by loan capital:

- With the research of taxation office, Coca Cola’s equity was

“negative” 818 billion VNDs Everyone can realize that it is an unbelievable number for a foreign company operated in beverage industry

- More than this, Coca-Cola Viet Nam took short-term loans which are

2020 billion VNDs with the parent company while the other loans are 343 billion VNDs The debt with the parent company is more than six times the others loans

In Viet Nam, Coca-Cola has a huge market share with many products It is a big company with faith of consumers

In comparison with Chuong Duong Company, although they had small marketshare on beverage market, Chuong Duong got revenue at 422 billion VND but the profit before tax and dividend was 30 billion VNDs, so they spent 7.5 billion VNDs in corporate income tax