Hanoi (VNS/VNA) - The Government’s recently-issued Decree132/2020/ND-CP would help prevent transfer pricing and limit thincapitalisation to develop a healthy investment market, Deputy Director of theGeneral Department of Taxation Dang Ngoc Minh said.

Minh spoke at a press conference on November 9 to introduce new points of thedecree dated November 5 about tax management for enterprises with related-partytransactions, saying the interest expense deduction limit was raised from 20 percentto 30 percent – the highest ratio recommended by the Organisation for EconomicCooperation and Development.

Increasing the cap to 30 percent would help enterprises have more capital forinvestment in the context that most firms in Vietnam were thinly-capitalisedwith the level of debt much greater than equity capital, he said.

Minh said that the Decree 132 did not differentiate foreign-invested companiesand domestic companies in fighting transfer pricing to ensure fairness andtransparency.

“This regulation does not mean to cause more difficulties for enterprisesbecause any companies, foreign-invested or domestic, could use the transferpricing method.”

The Ministry of Finance’s statistics showed that there were about 16,500enterprises with related-party relations, 8,000 of which had related-partytransactions and 70 percent were foreign-invested.

According to Nguyen Thu Huong from international non-governmental organisationOxfam in Vietnam, it was necessary to terminate corporate income tax (CIT)incentives and reductions to minimise transfer pricing.

The preferential value was estimated at about seven percent of the total CITrevenue annually, a considerable sum, Huong said. However, she pointed thatthere was an unfairness because the preferential tax mostly applied to FDIcompanies.

Preferential CIT policies to encourage investment led to a race to the bottomamong localities in the country and among countries in the region, which wasnot only causing losses to budget revenue but also creating loopholes fortransfer pricing, Huong said.

Deputy Director of the finance ministry’s Department of State Budget NguyenMinh Tan said that transfer pricing often occurred when there were taxincentives.

However, tax incentives were an important factor to attract foreign investmentin the context of a global production shift triggered by the COVID-19 pandemic,Tan said.

Vietnam was regarded as an attractive destination for investment but not theonly choice, Tan said, adding that it was necessary at the same time to offertax incentives to attract investment and to fight transfer pricing.

Decree 132 implemented regulations which were appropriate to internationalpractices and the condition of Vietnam to enhance the prevention againsttransfer pricing, Tan stressed.

The tax watchdog inspected 263 enterprises with related-party transactions inthe first 10 months of this year, collecting more than 525 billion VND (22.6million USD) in fines and arrears, reducing losses by more than 9 trillion VND and increasing taxable income by 4.19 trillion VND.

Last year, 597 enterprises with related party transactions were inspected tocollect 1.1 trillion VND in fines, reducing losses by 5.8 trillion VND andincreasing taxable income by 5.9 trillion VND./.