Beverage giant Coca-Cola is under suspicion of using inter-company payments to avoid taxes in Vietnam, even though tax officials admitted that such violations, if any, are hard to prove, a new report says.
It is not normal for Coca-Cola Vietnam to keep reporting higher sales in Vietnam since 1994 without paying any income tax, according to the report on Tuoi Tre newspaper Saturday.
Le Duy Minh, a senior inspector at the Ho Chi Minh City Tax Department, said the company continued to post losses, claiming that it had to buy ingredients from the parent company at very high prices. The cost for imported ingredients alone accounted for 70 to 85 percent of the company's total outlay, he said.
Coca-Cola Vietnam insisted that it did not break any law and the ingredients were expensive because they involved intellectual property, Minh told the newspaper.
"The HCMC Tax Department has ranked Coca-Cola first in the transfer pricing suspicion list for six or seven years now," he said. "Its financial reports have been checked carefully. But it is difficult to prove fraud, more difficult than other firms, because there is no similar company in the same industry to compare it to, since the ingredients are exclusively supplied by the parent company."
According to the department, Coca-Cola Vietnam reported revenues of VND728 billion and a total loss of VND110 billion in 2004. In 2010, revenues soared to VND2.53 trillion (US$121.5 million) but losses also ballooned, to VND188 billion ($9 million).
Tuoi Tre said the company has rejected all accusations of fraud. External Relations Director Nguyen Khoa My said to protect its market share from increased competition, Coca-Cola Vietnam had to spend more money on marketing. Production costs also increased due to higher prices for materials, electricity and sugar, he said.
Coca-Cola, whose products in Vietnam include Coca-Cola, Coke Light, Fanta and Sprite, last month released a statement saying the company plans to invest $300 million in Vietnam over the next three years. Chairman Muhtar Kent said Vietnam is "an important growth market in Asia Pacific."
Reuters on December 6 reported politicians are beginning to target practices to reduce tax payments used by multinational corporations. One of the practices, which have been used by giants including Google and Microsoft, is parking intellectual property in tax havens and charging affiliates big fees to use it.
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