Vietnam's tax authorities to take closer look at foreign retailers

The General Department of Taxation has asked local tax authorities to inspect foreign retailers operating in Vietnam to see if they are transfer pricing or shifting profits to avoid tax.

Tax authorities will audit corporate, value added and personal income tax paid by these retailers between 2012 and 2016.

The department will also monitor the use of brand names in the form of franchising or ownership transfer among foreign retailers.

Transfer pricing is not illegal per se, but it is a gray area that tax agencies keep a close eye on. Abuse of the practice is often very difficult to prove, especially when it involves multinational corporations with a complex network of internal buyers and suppliers.

Vietnam’s retail market grew 10.2 percent last year with total sales reaching VND2,670 trillion ($117.6 billion), according to the General Statistics Office.

The country, recently ranked by A.T. Kearney among the world's top 30 retail markets with the best opportunities, has seen many foreign arrivials.

BigC supermarket chain, MM Mega Market (previously Metro Vietnam), electronics chain Nguyen Kim and Aeon Vietnam are several of the major foreign retailers operating in the country.

In 2015 retail giant Central, run by Thailand's third-richest family, the Chirathivats, made headlines with its $200 million purchase of a 49 percent stake in electronics retailer Nguyen Kim, via its subsidiary Power Buy. Then in 2016, Central and Nguyen Kim acquired Vietnam's biggest foreign-owned supermarket chain Big C.

Vietnam's tax authorities last year gave Big C Vietnam a tax bill of VND2 trillion ($88 million) for its capital gains tax obligations after its former French owner Casino Group sold its stake to Central for 1 billion euros ($1.14 billion).

In 2015, authorities also collected VND1.9 trillion ($85.6 million) in tax arrears from the $700-million acquisition of Metro Vietnam.

German-retailer Metro Cash & Carry, before being sold to Thailand’s TCC International Land, was accused of falsely reporting losses for 12 years in Vietnam and failing to pay tax bills worth $23 million, according to the General Department of Taxation.