Transfer pricing of fdi enterprises in vietnam from 2011 to 2016,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY Foreign Languages Faculty -šš&›› - GRADUATION THESIS TRANSFER PRICING OF FDI ENTERPRISES IN VIETNAM FROM 2011 TO 2016 Student : Nguyen Thai Anh Class : ATCD – K16 Student ID : 16A7510191 Supervisor : Ms To Kim Ngoc (Assoc Prof Dr) Hanoi, May 2017 ACKNOWLEDGEMENTS First and foremost, I wish to extend my heartiest appreciation to all my lecturers in the Banking Academy of Vietnam, who have inspired me with knowledge of English as well as Banking and Finance throughout my four-year learning process I would like to convey my heartfelt thanks and special gratitude to my mentor, Ms To Kim Ngoc, Assoc Prof., for her great inspiration, constant guidance and support In spite of her busy schedules, she always found time to guide me through the thesis Last but not least, I would like to express my sincere thanks to my family and friends for their unconditional love and support It is their encouragements during my process of implementing this thesis that has played as spiritual foundation and given me the strength to fulfill this challenging task and make it such a success Due to limited time, my graduation thesis may not be free from certain shortcomings Thus, in order to improve my thesis, I am eager to receive feedbacks from the lecturers DECLARATION I declare that this thesis is the product of my own work and has not been previously submitted for my degree or examination in any other university All the sources I have used have been indicated and acknowledged by means of complete references Hanoi, May 17, 2017 Signature Nguyen Thai Anh LIST OF ABBREVIATIONS ALP Arm’s – Length Principle BCC Business co-operation contract BOT Build – operate – transfer BT Build transfer BTO Build – transfer – operate CIT Corporate Income Tax FDI Foreign Direct Investment IMF International monetary fund IRS Internal Revenue Service M&A Mergers and Acquisitions MNCs Multinational Corporations ODA Official Development Assistance OECD Organization for Economic Co-operation and Development WTO World Trade Organization LIST OF TABLES AND FIGURES Figure 2.1: Registered FDI and Disbursed FDI from 2011 to 2015 22 Figure 2.2: Number of new projects and increased capital projects from 2011 to 2015 22 Figure 2.3: Main investment fields from 2011 to 2015 24 Figure 2.4: Number of FDI enterprises operating in the period 2010 – 2015 27 Figure 2.5: Structure of FDI enterprises by sector in 2015 28 Table 2.1: Inspection Results of FDI Enterprises in 10 Localities in Early 2014 32 Figure 2.6: Revenue and Profit of Coca Cola Vietnam 2006 – 2014 41 TABLE OF CONTENTS ACKNOWLEDGEMENT DECLARATION LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES TABLE OF CONTENTS INTRODUCTION CHAPTER BACKGROUND OF TRANSFER PRICING IN FDI ENTERPRISES 1.1 THE BASICS OF FDI ENTERPRISES 1.1.1 Definition and features of FDI 1.1.2 Forms of FDI 1.2 TRANSFER PRICING IN FDI ENTERPRISES 1.2.1 Definition and classification of transfer pricing 1.2.2 Motivations for transfer pricing of FDI Enterprises 10 1.2.3 Transfer pricing process of FDI Enterprises 12 1.2.4 Consequences of transfer pricing 14 1.3 INTERNATIONAL EXPERIENCES OF ANTI-TRANSFER PRICING AND LESSONS FOR VIETNAM 15 1.3.1 International experiences of anti-transfer pricing 15 1.3.2 Lessons for Vietnam 19 CHAPTER I CONCLUSION 20 CHAPTER 21 TRANSFER PRICING SITUATION OF FDI ENTERPRISES IN VIETNAM 21 2.1 CURRENT INVESTMENT SITUATION OF FDI ENTERPRISES IN VIETNAM 21 2.1.1 FDI legal environment in Vietnam 21 2.1.2 Current investment situation of FDI Enterprises in Vietnam 21 2.1.3 Impacts of FDI Enterprises on the economy of Vietnam 28 2.2 TRANSFER PRICING STATE OF FDI ENTERPRISES IN VIETNAM 31 2.2.1 Scope of transfer pricing in Vietnam 31 2.2.2 Types of enterprises commonly using transfer pricing 33 2.2.3 Transfer pricing methods of FDI Enterprises in Vietnam 34 2.2.4 Analysis of typical transfer pricing cases in Vietnam 37 2.3 ANTI-TRANSFER PRICING IN VIETNAM AND EVALUATION 42 2.3.1 Anti-transfer pricing policies in Vietnam 42 2.3.2 Evaluation the efficiency of the applied solutions 45 CONCLUSION OF CHAPTER 47 CHAPTER 48 POLICY RECOMMENDATIONS TO LIMIT 48 TRANSFER PRICING VIOLATIONS OF FDI ENTERPRISES IN VIETNAM48 3.1 ORIENTATIONS TOWARD ANTI-TRANSFER PRICING IN VIETNAM 48 3.2 RECOMMENDATIONS TO LIMIT TRANSFER-PRICING ACTS OF FDI ENTERPRISES IN VIETNAM 49 3.2.1 Finalizing legal documents 49 3.2.2 Reforming tax and enhancing tax disciplines 51 3.2.4 Coordinating with interstate tax authorities 54 3.2.6 Completing the information system and data on taxpayers 55 3.2.7 Other recommendations 56 CONCLUSION OF CHAPTER 58 CONCLUSION 59 REFERENCES 60 INTRODUCTION Rationale for the Research Formed by international economic relations, the main flows of capital in Vietnam are divided into three types including official development assistance (including official development assistance (ODA) and other forms), sources Private loans (credit from commercial banks), and foreign direct investment (FDI) Each source has its own characteristics Even though ODA is a preferential source of funding, accessing ODA is not simple and contains political as well as economic aims of other governments For private loans, political constrain is not the factor to be concerned but their strict procedures and repayment terms as well as high interest rates Therefore, FDI has been considered as the most essential fund source in Vietnam’s economic growth thanks to its great contributions Entirely regulated by objective economic laws, the development of FDI in Vietnam under sufficient and suitable conditions has been suffering from a change in attitude – “against – accept – welcome” No sooner had FDI reached Vietnam than Vietnam’s socio-economic development started to boost up in a significantly rapid pace with more than 15,000 active FDI projects, which came along with 218.8 billion registered capital In addition, FDI also plays an important role in boosting budget revenue along with promoting Vietnam’s integration process into the world economy In case of a developing country like Vietnam, FDI can be regarded as a solution to overcome the shortage of capital, therefore contradiction between enormous demand for development and scarce financial resource can be solved Besides, following FDI are modern machines, high technologies and labor skills development However, beside the positive contributions, FDI has also been exposing various problems to the economy and therefore negatively affecting the growth’s sustainability Recently, Vietnam economy has seen a series of incidents that caused a social upheaval as well as a delay in the whole Vietnam’s development One of the most typical evidences that can be listed here is transfer-pricing issue Transfer pricing in any country is not an offense itself but it contains many illegal elements That of FDI is creating a situation called “real gain - fake loss” which led to pessimistic consequences like budget loss, unfair competition between domestic enterprises and negative impacts on the investment environment Moreover, not only does transfer pricing falsifies tax revenue sources but it also lead to disparity in business competition Even though transfer pricing bears a wide range of risks to the economy, it is difficult to deny the fact that transfer pricing is indispensable in an open economy because of its strong association with the growth of interest groups and the development of economic instruments Looking for effective tools to identify those factors is a complicated issue nevertheless; it is high time to find solutions for this to ensure the integration environment as well as equal and sustainable investment As a result, investment and business consultants need to have a clear overview about how transfer pricing can be legal or illegal together with comprehensive understanding of transfer pricing methods to protect the enterprises from the risks in detail to minimize the negative impacts to the whole economy in general In view of this problem, the research needs conducting to make objective assessments of the real situation of transfer pricing in Vietnam along with giving personal solutions For those reasons, the topic of “Transfer pricing of FDI enterprises in Vietnam from 2011 to 2016” has been chosen for the thesis Research Objectives The aim of this paper is to research the situation of FDI enterprises’ transfer pricing acts together with current solutions from the government to detect the shortcomings Then the thesis will give out some suitable and effective recommendations from personal standpoint Research Subject and Scope The study subject of this thesis is the FDI enterprises in Vietnam and their transferpricing phenomenon from 2011 to 2016 Within limitation scope, the thesis focus on events announced in the mass media as well as within the research limitation of permitted situation Research Methodology The data gathered for analysis in this dissertation can be divided into two, broad categories: the quantitative data and the qualitative data For the former, the research project required a large amount of detailed statistics covering a period of at least half a decade The bulk of the statistical data analyzed in this dissertation comes from General Statistics Office and Ministry of Plan and Investment At the national level, the data is sounds and can be used to make reliable analyses and to draw reasonable conclusions The combination of these quantitative data sources made for a rich set of data, which could allow the researcher to develop a clear picture of transfer pricing in Vietnam from 2011 to 2016 For the latter, alongside the quantitative data, the thesis is based upon the information acquired via qualitative research The qualitative supplements the statistics with a flavor of views and attitudes of various writers The qualitative data consists information from monitoring and analyzing written sources Additionally, the thesis uses mainly secondary research, which comes from prevalent information channels such as the Internet, domestic and foreign newspapers, journals, statistic reports, and annual reports The theoretical framework is abstracted from some books and public researchers All data were carefully selected, synthesized, and classified into appropriate section of this thesis Simultaneously, the thesis uses specific research methods such as general analysis, statistics, comparisons, logic, etc Research Structure In addition to the introduction and conclusion, the thesis consists of three chapters: Chapter – Background of transfer pricing in FDI Enterprises Chapter – The situations of transfer pricing in FDI Enterprises in Vietnam Chapter – Policy recommendations to limit transfer-pricing violations of FDI Enterprises in Vietnam 46 Secondly, attracting the attention of the public to take advantage of consumer’s power in transfer pricing After the legal documents aimed at speeding up the anti - transfer pricing was released, the media began to pay more attention to this issue through a series of post and program answering inquiries for businesses along with investigative reports on major transfer pricing questions This has attracted the attention of consumers, helping them to realize their importance in anti- transfer pricing work Especially after questioning the transfer pricing of Coca Cola, most consumers have officially boycott the product of this company Thirdly, adding a large source of revenue to the state budget Through inspection results of the tax authorities, the state budget has collected tens of trillion VND Fourthly, posing positive impacts on the initial quality of human resources in taxation After completing the training program between the Taxation Department and international organizations, tax officials have a clear awareness of transfer pricing as well as methods of inspecting transfer pricing 2.3.2.2 Limitations Firstly, the legal documents are still inadequate Although the State has made legal reforms in recent times, these legal documents are still overlapped and not specific The reasons related to transfer pricing control are not systematic, limiting the anti-transfer pricing ability of tax authorities Subsequently, the level of punishment for administrative violations in the field of taxation in cases of transfer pricing is still relatively light, which together with other tax-related violations, so they are not sufficiently deterrent to the subjects having transfer pricing behavior In addition, the application of regulations on methods of negotiating APA tax payable in Vietnam is not easy because the agreement between enterprises and tax authorities in price adjustment is difficult and feasible On the other hand, the APA is applied on a voluntary basis, so the tax office cannot force the business to so Secondly, the capacity of tax officials remains limited Under the increasingly sophisticated transfer pricing of enterprises, the tax officials’ ability to detect, inspect, 47 and handle is not high This is derived from the qualifications of the tax officials not developed adequately Tax professionals specializing in transfer pricing and well trained currently are not abundant, mainly from experience or training abroad shortly However, the practical experience of anti- transfer pricing of these officials is very limited Thirdly, the task of supplementing, updating and perfecting the anti- transferpricing database has not been paid enough attention The biggest obstacle the tax sector facing when cross checking data transnational issues is language and work customs The collection of this document is not only about working with tax authorities but also about income problems in the market The limitations on tax administration and implementation under these regulations and may derive from the following reasons Firstly, the law allows and enhances the autonomy of enterprises in tax self-assessment; however, enterprises in fact not obey the laws, making transfer-pricing identification extremely complex Moreover, the expertise in the transfer-pricing field of tax authorities in Vietnam is still limited In detail, the implementation process depends mostly on hard legal regulations, not flexibly complied with the global method of price valuation CONCLUSION OF CHAPTER Besides researching the current situation of FDI in Vietnam, the second chapter also focuses on the current situation of transfer pricing in FDI enterprises as well as evaluating the measures taken by state agencies to limit this phenomenon based on the achievements and drawbacks The content of the second chapter is an important premise for the solutions presented in the next chapter 48 CHAPTER POLICY RECOMMENDATIONS TO LIMIT TRANSFER PRICING VIOLATIONS OF FDI ENTERPRISES IN VIETNAM 3.1 ORIENTATIONS TOWARD ANTI-TRANSFER PRICING IN VIETNAM Despite the fact that anti- transfer- pricing may affect the ability to attract foreign direct investment both in quantity and quality in short term, this action in the end is able to improve the quality of FDI In detail, it can limit inefficient investors while enhancing the attraction of reputable investor; thus, leads to more positive and healthier investment environment It is the high time for the Government to be resolute and more drastic in implementing measures against transfer pricing to avoid losses when attracting FDI At present, the Ministry of Finance is implementing a comprehensive inspection program for FDI enterprises by comparing the input, output documents, and referring them to the prices on the world market The Ministry of Finance has made a written request to the Ministry of Foreign Affairs and Ministry of Industry and Trade to coordinate the trade offices, counsels, and foreign embassies to collect information related to anti transfer pricing Afterwards, the tax branch continues to promote human resources and focus on focal works against transfer pricing for FDI companies that have linked transactions, simultaneously, continuously make losses but still expands their business Restructuring enterprises have tendency to use transfer pricing to avoid tax; therefore, sanctioning measures, which charge higher penalties than current regulations, should come to be effective to ensure the strictness of law Finalizing the legal basis needs to follow one clear direction that is clearly defining the types of illegal transfer pricing both in qualitative and quantitative criteria Besides, it is necessary to establish a comprehensive information system along with setting up a system of norms and monitoring indicators to facilitate MNCs in Vietnam to apply legal transfer pricing methods The tax administration continues to accelerate anti transfer pricing process by researching and implementing APA method while strengthening international cooperation on tax administration In addition, an effective mechanism should be 49 developed to provide and share information related to the prices of consumer products globally as a basis for managing and handling transfer pricing Circular of tax valuation is going to be issued in order to synchronize the regulations on dealing with price transfer violations, thereby effectively supporting the tax authorities in the implementation of preventive measures Finally, cooperation between customs and tax authorities should be enhanced to promptly detect and handle transfer-pricing acts 3.2 RECOMMENDATIONS TO LIMIT TRANSFER-PRICING ACTS OF FDI ENTERPRISES IN VIETNAM 3.2.1 Finalizing legal documents In OECD countries, anti-transfer pricing regulations have been introduced since the 1980s while China has also taken anti-transfer measures since the 1990s However, in Vietnam, the law on transfer pricing has not been clearly defined Although anti-transfer pricing legislation has been regularly updated, it is not yet complete Nowadays transfer pricing is becoming more and more complex, requiring the legal documents on this issue to be tight and clear to minimize the consequences Therefore, the state should continue to build and finalize the legal framework on anti-transfer pricing in enterprises Currently, 66/2010 / TT-BTC is the basis to against this phenomenon The circular stipulates the method to counter transfer pricing, however, it does not provide data for tax authorities as a basis for comparison In order to measure, tax officers have to survey, test, and get data from market and other agencies concerned by themselves Therefore, the state should set up a specialized agency to carry out this operation to provide a database for tax officials to use as a basis for comparison to determine whether there is transfer pricing activity or not Strengthening the use of effective transfer pricing - anti tools in the world - the right to determine prices and negotiate prices in advance (called the Advance Pricing Agreement - APA) is essential This method is considered applying by more than 40 countries globally, whereby taxpayers and tax authorities agree on the method of determining prices and associated transactions for a fixed period However, APA is a complex and time-consuming process, so it is only suitable for large-scale enterprises with a stable business model In addition, the tax authority should be empowered to deal with transfer pricing; simultaneously, law provisions also need to be supplemented on 50 the adjustment of performed projects with losses passed owner’s equity Besides, it is advisable to reallocate deductible expenses for calculating taxable income, to ensure clarity and transparency associated with the actual cost in the market In addition, it is necessary to develop documents regulating the management and valuation of cases where investment projects contributing capital with assets, machinery, equipment and other special expenses, such as foreign management rent expense, loan-using expense from foreign organizations The application of any financial policy has its advantages and disadvantages, and the study to use policies to optimize tax administration is a frequent practice of the tax agency Derived from the actual situation of Vietnam and the limitations of APA in managing and enforcing anti transfer pricing in Vietnam, tax agencies should: Firstly, the APA should not be stereotyped and imposed on tax policies in Vietnam as long as we have not done but it is reasonable to have a proper road map and steps in applying APA in Vietnam Secondly, there needs to have a quick and detailed investigation to advise the government on the application of APA policies in Vietnam, including the need and ability to apply to businesses, staff training strategy, meeting the implementation requirements and implementation budget Thirdly, while there is not yet an optimal way to combat transfer pricing, tax authorities need to advise on the implementation of existing regulatory mechanisms Specifically, functional agencies should deploy and effectively use the custom value agreements and double taxation avoidance agreements that the State has signed with other countries to determine the prices of imported goods In addition, Vietnam needs to increase in investment to human resources for auditing, inspection, and supervision to combat the phenomenon of transfer pricing effectively Not only does transfer pricing results in loss of revenues for the state budget but also causes imbalances in trade that distort Vietnam’s market, bringing many disadvantages to the economy At present, Vietnam does not have enough sanctions to handle these violations; on the other hand, the authorities tend to rely on the enterprises’ self-consciousness in both adjusting and paying additional taxes like the case of Keangnam Vina for instance Such treatment is not reasonable when there is an equality 51 between fraudulent acts, tax evasion of domestic enterprises and transfer pricing behavior of FDI enterprises This is definitely dangerous if the violation takes place on a large scale with many sophisticated tricks Therefore, it is essential to regulate strict penalties to prevent violated FDI firms and deter the others not to violate Vietnam’s authorities can consult the penalties of some countries such as Australia where the government penalties 50% of avoidance tax; in India and Philippines fines are up to 300% and 50% respectively The law should also regulate a longer inspection period for transfer pricing than for a normal inspection period to accommodate the complex nature of this activity Besides, it also need to supplement the right to investigate the tax office to ensure the collection of information and the value of information when dealing with enterprises deliberately violating the law on transfer pricing; add provisions on the transaction information listing threshold to simplify the enterprise in declaration and reduce the pressure on human resources for tax authorities 3.2.2 Reforming tax and enhancing tax disciplines Tax reform and tax discipline are two main factors to control transfer pricing in businesses Therefore, the government should develop appropriate tax policies to ensure revenue sources while fostering revenues for long-term goals For businesses, tax policy must not only create favorable conditions but also increase the attractiveness of the business investment environment and attract international capital flows Although the Vietnamese government has gradually reduced the corporate income tax rate from 28% to 25%, and now 20%, the tax rate is still at high level for foreign businesses Thus, the government needs to adjust its tariffs accordingly The tax rate must stimulate exports while limiting the import of unnecessary goods such as outdated technology In addition, tax authorities should carry out the tax administration procedures strictly and suitably with the order and function of each department Besides, fines should be imposed on the right subjects strictly according to the provisions of law Improving the inspection and supervision of the accounting system is also essential to cope with transfer pricing in Vietnam Finally, the tax authorities need to promote propaganda to raise awareness of law observance in general and tax law in particular for businesses 52 In the short run, it can only transfer the right of investigation to tax authorities at the General Department In the long run, when the force of tax officials have been trained and fostered to meet the requirements of investigative functions, the right to investigate can be extended to the provincial tax authority The assignment of investigative powers transfer not only helps the tax authorities to well in anti- transfer pricing activities but also creates favorable conditions for effective tax administration in general At present, the Tax General Department sets up a tax administration team for transfer pricing activities Therefore, it is necessary to select and appoint professional servants to work in this group and then to set up a specialized tax administration department for the transfer pricing at some large tax departments; The remaining tax offices shall be assigned to an inspection or examination office acting as a general monitor for tax administration activities in this field Furthermore, it is justified to strengthen the organizational structure of the tax and state audit sector to strengthen the departmental capacity of transfer pricing-anti groups at the Ministry of Finance This should be conducted within vertical organizations in localities, especially in Hanoi and Ho Chi Minh City, as well as in some areas in need to strengthen training and fostering management profession in the field of transfer pricing Moreover, it is important to have a database and capacity to prove whether a company has made a transfer pricing or not Therefore, in addition to building antitransfer pricing databases, it is necessary to pay attention to investment in building professional and specialized staff working against transfer pricing at the General Department of Taxation as well as large tax authorities to be responsible for conducting anti-transfer pricing inspections nationwide This team must be well educated, knowledgeable about international taxation, regularly updated on tax issues, accessed to updated sources of information and databases 3.2.3 Inspecting transfer pricing suspected enterprises regularly The authorities, especially tax authorities should regularly inspect the internal transfer activities of FDI enterprises, thereby promptly detecting the violations in these enterprises and giving correcting measures Enterprises that make losses for years or more as well as having lower profit margins than their peers are the main targets 53 Moreover, the tax authorities should regularly monitor these businesses to reduce the incentives for price manipulation by these corporations on the market In order to regularly carry out inspections of FDI enterprises and give solutions timely, tax authorities may follow these suggestions Firstly, a database should be created to determine the transaction price In detail, authorities need to set up a database system containing all information of FDI enterprises so that the coordination control can become smooth These agencies gradually collect data in a variety of ways to suit their own purposes; consequently, the data of the agencies may be different and overlapping Therefore, in order to obtain a database as a source of data to compare the prices of transactions, tax authorities, licensing agencies and customs agencies should connect information to obtain an information system that assists in the overall tax administration process, risk analysis, and transfer pricing handling In need to follow a uniformity, price databases should be made available to the public for reference purpose Building a website that contains transactional price databases is seen as a viable approach to this problem In addition, the authorities should take measures to encourage businesses to use the banking system, reduce cash transactions, and increase market transparency A well-functioning banking system can provide macro-level information such as industry profit margins, operating costs, and revenue per sector, which are very accurate and useful to the regulators In some cases, regulatory authorities may establish an international economic intelligence system for multinational companies, so that timely reporting and detailed information can be provided when FDI enterprises invest in Vietnam market Moreover, these centers are also able to warn of unhealthy activities of companies, if they occur in other countries, which are considered as "Tax heaven" Secondly, it is high time to build up the industry's average gross margin ratio Currently, it is difficult for tax administrators to have data on the average return of occupations to apply when conducting tax inspections This is the main problem that tax authorities often encounter when considering the rate of return for a company because there is no clear legal basis for tax audits In fact, many businesses often report a prolonged loss or low profit margins that are even lower than bank interest rates while actually having higher gain However, during 54 the tax office’s inspection, there is hardly any legal basis or data of the sector profitability to compare so that tax authorities are not able to implement the guidelines in the circular Therefore, it is certainly necessary to build a compilation of the average profit margin for each industry on a yearly basis Afterwards, the General Department of Taxation and the General Statistics Office should work together to develop and disseminate this information to the tax authorities and businesses 3.2.4 Coordinating with interstate tax authorities Most countries have to face serious consequences due to transfer pricing To against this, Vietnam needs to sign agreements with other countries in the region as well as all over the world on anti-transfer pricing Besides, tax incentive restrict should be implemented systematically because FDI enterprises can take advantage of tax incentives to carry out transfer pricing behavior Instead, the state should use other incentives such as ensuring the quality of human resources to attract FDI Vietnam has recently signed double taxation treaties with more than 70 countries and territories One of the most important aspects of this agreement is that the tax authorities of these countries are responsible for providing each other with information for risk analysis and transfer pricing audits However, a country losing tax means another benefiting from this because most transfer pricing behaviors are conducted by profit regulating that makes profit move from high tax rate countries to lower ones In addition, the request to exchange information between countries meets various difficulties because every government tends to protect the interests of taxpayers in their country Besides, limited coordination of information supply between tax authorities also affects the process of determining market price Therefore, the effective of anti – transfer - pricing depends greatly on the coordination between tax authorities of countries 3.2.5 Improving the quality of human resources To make sure that transfer-pricing control operates effectively, human resources are no doubt one of the most essential factor In the end, the tax and customs sector should enhance the quality of human resources because the tax officers’ standard does not meet the requirement, especially in terms of practical experience Besides, well-trained tariff and customs officers specializing in price transfer are not available yet The tax and 55 customs departments need to consider establishing a tax administration department for transfer pricing, or integrating it with other tax administration functions appropriately Not only should the sector make up a plan to improve the management capacity of civil servants but tax officers and customs officers themselves also need to have a deeply understanding about the business sectors of FDI enterprises In addition, the bonus scheme for staff members working in these divisions should receive attention from the authorities, simultaneously severe forms of punishment need to be applied for officials that corrupt FDI businesses to claim bribes 3.2.6 Completing the information system and data on taxpayers It is necessary to establish database system and information on FDI enterprises in Vietnam's functional agencies in order to have a synchronous and smooth coordination in transfer pricing control In the coming time, the taxation sector, investment-licensing agencies, customs agencies, public security agencies, and banks need to strengthen database development and information linkages in order to have a secured information system for the process of tax administration in general and risk analysis, inspection, and handling of violations in transfer pricing among associated members in particular The important thing to to perfect the information system, data on taxpayers is as follows Additionally, expanding the sources of information by professional activities of functional sections in the tax offices, especially the tax intelligence department is also essential Moreover, the process of building e-government to ensure the automatic connection and exchange of information between tax offices and other State management agencies such as police and procurator needs to be speeded up Promoting human resource development also acquires the attention because the phenomenon of transfer pricing has been relatively common and increasingly sophisticated as well as difficult to detect Therefore, the tax sector should prepare to supplement the taxation staff having professional knowledge, foreign language, and computer skills to tax administration for transfer pricing at all levels Besides government should strengthening training for this team on transfer pricing management skills, including practical exercises; opening specialized training courses, equipping them with knowledge in sectorial economics Conferences and seminars for tax 56 departments should be held to exchange experiences in tax administration for transfer pricing activities from the countries achieving much success in tax administration for the transfer pricing Authorities need to supplement data and information systems on taxpayers with important supporting information and creating applications in order to serve the risk analysis and inspection of transfer pricing In addition to the separate database of the tax sector, the tax authorities should coordinate with the related agencies to build a common database, allowing enterprises to access and gather information for the purpose of developing the dossiers along with determining the transfer pricing and providing it to the tax office upon request Within the framework of current legislation on customer confidentiality, research should be conducted on the patterns of survey forms and questionnaires to request businesses to quickly report on their foreign partners This is also the information that should be gathered and documented to serve the management and inspection in the following years Expeditiously reviewing FDI enterprises and multi-branch and multi-sectorial economic corporations based on the existing data and information of the tax sector is essential to identify the focal points of the joint-venture enterprises for planning as well as defining the scope of conducting the examination and inspection according to the requirements of anti - transfer pricing 3.2.7 Other recommendations Firstly, the State should launch anti transfer pricing practice in some high-risk industries such as mechanics, manufacture etc to make the best use of human resources in localities throughout the country while avoiding the separate implementation of each tax department In fact, many groups have to be formed, causing resource overload because each locality has many FDI enterprises doing business in different industries The task of the General Department of Taxation is to organize statistics based on the classification of foreign enterprises operating in the locality In particular, the criteria might be categorized as business owner’s nationality, total losses or refunded amount etc Secondly, the tax authorities need to step up the propaganda work in order to win the consensus of the government, society and business community as well as raising 57 businesses’ awareness of law observance in general and tax law in particular Enterprises need to understand that they are obliged to contribute back to develop the infrastructure after the state has created all conditions for production and business activities Hardly does a country develop sustainably when new businesses’ brands are widely recognized all over the world In addition, the propaganda must actively target consumers to raise awareness and promote their power in dealing with transfer pricing businesses Thirdly, state agencies such as the tax office and customs should coordinate effectively in to improve the control of transfer pricing by improving the performance of each functional unit Fourthly, the state needs to increase investment to equip the conditions and means to track, store and connect the data in order to analyze and detect the transfer-pricing violations This contains the set of systems updating in the taxation fields of transnational companies in regional countries and in the world to facilitate the identification and combat to activities of transfer pricing Fifthly, in term of enterprises, there is a need for cooperation to provide agencies with information and evidence that enterprises in the same businesses and industry as well as competitors have been doing This is a necessary and useful way to protect the enterprise itself and domestic business community Moreover, businesses also have to put business ethics on the top 58 CONCLUSION OF CHAPTER Chapter outlines the direction of attracting FDI in Vietnam, thereby confirming the importance of anti-transfer pricing and provides some solutions and recommendations to relevant agencies to limit this phenomenon 59 CONCLUSION For a developing country like Vietnam, foreign capital, especially FDI, plays an important role in the socio-economic evolution However, along with enormous benefits offered by FDI, various international issues are in need of clarification Being considered as a form of sophisticated commercial fraud that has been applied in many corporations in many countries, MNCs’ transfer pricing phenomenon is one of the most serious problem Transfer pricing is the reason for various negative changes in capital structure as well as capital flow, creating an unfair competition among enterprises Not possessing enough financial resources to compete, domestic companies gradually weaken and may go bankrupt while multinational firms, on the other hand, manipulate the domestic market and control prices The corollaries on Vietnam’s macro economy are difficulties in macroeconomic planning process and domestic industry’s stagnant development Therefore, the government and related departments, especially the tax and customs authorities need to take steps in this issue by coordinating to prevent transfer-pricing phenomenon Thus, the use of FDI may become effective by salvaging available resources and avoiding waste to boost Vietnam’s economy REFERENCES PhD Ngo The Chi (2012), Ngan ngua hanh vi chuyen gia cac doanh nghiep o Viet Nam gop phan chong that thu thue Academy of Finance Phan Thi Thanh Duong (2006), Chong chuyen gia o Viet Nam University of Law Ho Chi Minh city PhD Phan Duy Minh (2013), Van de chuyen gia cua cac cong ty da quoc gia University of Economics Ho Chi Minh city Ministry of Finance (2012), Tham khao kinh nghiem quoc te ve quan ly thue Ha Noi Nguyen 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