Tax administrations eye Adidas Vietnam

TN News

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Vietnam's tax authorities want to audit Adidas Vietnam Ltd Co., suspecting that the firm may have allocated its profits to partners abroad to evade paying corporate income tax in Vietnam.

The General Department of Taxations required the Ho Chi Minh City tax authority to make clear the relation between Adidas Co. in Vietnam and its parent company Adidas AG as well as other branches of the world's second-biggest sporting goods manufacturer, including Adidas Singapore and Adidas International Trading B.V. in the Netherlands.

The tax authorities said they will check commercial contracts that Adidas Vietnam, which entered the Vietnamese market in 2008, had signed with other parties to determine whether their transactions have been related, news website VnExpress reported Friday.

A related transaction is a transfer pricing scheme used by businesses with foreign investments. It allows companies in Vietnam to transact their provisions into other companies abroad in order to benefit from lower corporate income taxes.

Transfer pricing practices are not illegal per se. However, Vietnam tax administrations so far have been watching closely for potential tax evasion companies which employ the practice may be committing.

The government in April 2010 issued Circular 66 aimed at tightening controls over transfer pricing.

In accordance with the circular and the Vietnam's Law on Tax Administration, if Adidas Vietnam has been transferring prices with its partners, the tax authorities have all the right to assign taxes for the firm.

The check on its relation with other related parties will not negatively impact the company's profit margin, the General Department of Taxation were quoted as saying.

As of late last year, Adidas had 50 shops spread out through Vietnam's biggest cities. According to its annual report, the corporation earned profits of $3.87 billion in the first three quarters this year, up 7.6 percent over the same period last year.

Recently, another big-name foreign company, beverage giant Coca-Cola has faced scrutiny from local tax authorities.

A representative from the Inspection Department under the HCMC Department of Taxation told Tuoi Tre newspaper that Coca-Cola were currently being investigated to find out whether it had been implementing transfer pricing activities in Vietnam after it continued to post losses while simultaneously reporting higher sales in Vietnam.

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