More foreign firms report profits, tax authority says

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The Ho Chi Minh City tax authority said 1,342 foreign-invested companies reported profits last year, an 8 percent jump compared to the number in 2009.

After tax officials increased inspections of businesses reporting losses, many managed to turn things around and began to pay taxes, said Nguyen Trong Hanh, deputy director of the city's tax department, according to a Tuoi Tre story, published Wednesday.

Despite these modest gains, 44.86 percent of FDI companies were still in the red, he noted.

Hanh said his department has strengthened its supervision of companies suspected of engaging in transfer pricing to evade taxes. He believed the efforts have started paying off but added that local tax officials still need to learn more from other countries when dealing with transfer pricing practice.

Transfer pricing refers to paper transactions between members of the same company that allow for allocating profits to lower-tax countries. It is not illegal to conduct such income shifting activities unless tax avoidance is involved.

Local tax officials said some companies have actually expanded their operations, despite reported losses.

In an interview with Tuoi Tre, Le Thi Thu Huong, deputy director of the HCMC tax department, said some local companies appear to be abusing transfer pricing.

She said that at least 15 out of the 197 domestic firms that reported losses in 2010 were under suspicion.

Local business owners employ different methods of cheating tax officials.

One way to do so is to set up several companies, at the same time, and then manipulate profits and losses in order to pay the smallest tax bill at the end, Huong said.

Tax officials will take a closer look at such companies to make sure that these illegal practices come to an end, she said. 

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