Inspections against transfer pricing to be increased

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HÀ NỘI — Inspections against transfer pricing will be increased as per a proposal by the Ministry of Finance in the context that more than half of foreign direct investment (FDI) enterprises reported losses.

According to the ministry’s recent report to the Prime Minister analysing financial reports of FDI companies, among a total of 25,054 FDI enterprises in Việt Nam as of the end of 2019, 22,603 had reported adequate data for analysis.

Statistics showed that FDI enterprises had a total revenue of VNĐ7.1 quadrillion in 2019, VNĐ720 billion higher than the previous year, with a total pretax profit of VNĐ387 trillion.

In 2019, 9,494 enterprises, or 45 per cent, reported profits worth around VNĐ518.5 trillion in total, representing an increase of 18 per cent against the previous year.

The top destinations for FDI were HCM City, Hà Nội, Thái Nguyên, Bắc Ninh, Bình Dương and Đồng Nai.

The group of FDI companies from Europe had the highest profitability while those from the Republic of Korea, Japan, Singapore, Taiwan and the British Virgin Islands had reasonable profitability.

Meanwhile, Hong Kong and China, which were in the top 10 biggest FDI investors in Việt Nam, had low profitability.

According to the Ministry of Finance, Samsung Electronics Việt Nam (SEV Bắc Ninh) and Samsung Electronics Thái Nguyên (SEV Thái Nguyên) were the two largest enterprises among 967 operating in electronics with efficient operation in Việt Nam.

SEV Bắc Ninh and SEV Thái Nguyên accounted for 48 per cent of the total revenue of FDI enterprises in the electronics industry. They reported a total pre-tax profit of VNĐ85.918 trillion.

At the other end, 12,455 FDI enterprises, or 55 per cent, reported losses worth VND131.445 trillion in 2019.

The problem was that the revenue of loss-making FDI enterprises in 2019 increased by 12.7 per cent against the previous year to VNĐ846.8 trillion.

Taiwan-invested Hưng Nghiệp Formosa Hà Tĩnh Steel Company, with had estimated assets of VNĐ286.8 trillion, reported an aggregated loss worth about VNĐ25.38 trillion in 2019.

In 2019, Formosa Hà Tĩnh reported a revenue of VNĐ72 trillion, a loss of more than VNĐ11.5 trillion which was more than four times higher than 2018. The company paid a modest sum of VNĐ51.6 billion to the State budget in 2019.

Sectors with FDI enterprises reporting increasing loss were steel and iron production, oil and gas, petrochemical production, telecommunications and software.

Notably, the finance ministry’s report showed that 14,822 FDI enterprises reported aggregated losses for many years with a total loss worth about VNĐ520.7 trillion.

Besides positive impacts of FDI brought, the ministry said that there were problems.

The ministry said that the FDI inflow mainly focused on Southeastern and Red River Delta provinces while the northern mountainous and Central Highlands provinces were not very attractive to FDI, which demonstrated that the Government’s policies to encourage the investment flow into difficult areas did not work as effectively as expected.

In addition, the capital efficiency of FDI enterprises remained low. FDI enterprises’ contribution to the State budget was not commensurate with the incentives they enjoyed with a majority of FDI enterprises reporting losses over many consecutive years.

Transfer pricing also occurred in some firms which reported losses for many years, but kept expanding production and business with increasing revenue.

In order to attract high-quality FDI flow, the finance ministry proposed incentive policies based on investment scale and location should be revised.

It was also necessary to improve the legal system and the coordination mechanism among local and central authorities in licensing and managing FDI projects.

The inspection against transfer pricing should also be increased, the ministry said.

The latest updates of the Ministry of Planning and Investment showed that Việt Nam attracted $28.5 billion worth of FDI from January 1 to December 20, a drop of 25 per cent against 2019. — VNS

Aviation industry forecast to face a hard year in 2021

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HÀ NỘI — Despite a recovery in the final months of this year, the aviation industry is forecast to face further difficulties in 2021.

The recent recovery was thanks to a complete restoration of domestic routes and the continued good performance of freight transport.

As of November, the total number of flights decreased by 23 per cent compared to the same period last year but strongly recovered from a decrease of 92 per cent in April.

The most effective route was HCM City - Hà Nội with 540 flights per week, reaching an occupancy rate of about 90 per cent.

However, commenting on the prospects of the aviation industry, Mirae Asset Securities Vietnam Co (MASVN) believes 2021 will still be a difficult year for the industry as it has no room for further recovery until international flights are reopened.

MASVN explained the current low fares are helping push up the demand for air travel on domestic routes. However, airlines can’t further cut the fares as they are too low. If airlines continue to reduce fares, it will be difficult to make profits.

"In the context of a fiercely competitive domestic market, we believe that the business situation of Vietnamese airlines will hardly improve further until the international routes are reopened," MASVN experts toldvietnamfinance.vn.

With only domestic routes operating, the competition in the aviation industry next year will be fiercer. All aircraft are now converging on domestic routes to improve cash flow. Meanwhile, Vietjet Air has received 11 new aircraft, bringing the total number of aircraft in operation to 88. Bamboo Airways reduced two A320s but received four small aircraft E195, bringing its fleet to 26.

In addition, the aviation industry also has to compete against other transportation means like passenger cars and trains which have also applied fare discounts from 15 per cent to 50 per cent.

MASVN experts estimated it would take about four months to vaccinate 30 per cent of the US population and it was the minimum rate required to fight the COVID-19 pandemic. For other countries less developed than the US, the time to hit 30 per cent will be longer.

"International flights are likely to reopen as soon as the pandemic is repelled and the transport of international passengers will begin to recover gradually from that time. However, we expect the recovery rate will be slow, caused by isolation rules and restricted tourism demands in the wake of difficulties due to the pandemic,” the experts said. — VNS

Germany’s Bavaria state seeks to expand trade ties with Việt Nam

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BERLIN — An online workshop on opportunities brought by the EU-Việt Nam Free Trade Agreement (EVFTA) for industrial enterprises in Germany’s Bavaria state was held by the Bavarian Industry Association (VBW) and the Bavarian Metalworking and Electrical Associations (Bayme VBM) on Wednesday.

Addressing the event, Sam Pieters, an official in charge of trade affairs from the Office of the European Commission in Germany, informed participants of the advantages of the EVFTA for companies, including tariff preferences and provisions that make it easier for European companies to enter the Vietnamese market.

Meanwhile, Frauke Schmitz-Bauerdick, Country Director of Germany Trade and Invest (GTAI) in Việt Nam, spoke about the effects of the COVID-19 pandemic on the Vietnamese economy.

Growth drivers in Việt Nam will be public investment in infrastructure and energy, domestic private consumption and supply chain diversification, she said.

Gunter Veit, CEO of VEIT - a business from Bavaria that has been operating successfully in Việt Nam since 1994, shared his firm’s business experience in Việt Nam, and how to look for business partners in the country.

Participants all agreed that EVFTA is bringing positive effects for businesses in Europe and Việt Nam.

VBW CEO Bertram Brossardt said Việt Nam has become an increasingly attractive investment destination for businesses in Bavaria, even though the country is not currently the state's most important partner.

The EVFTA will open up new market access opportunities for businesses of both sides, he stressed, adding that with this agreement, Bavaria's businesses will have an opportunity to seek a better position in a developing market like Việt Nam.

According to statistics from VBW, Việt Nam - a dynamically developing market - currently ranks 39th among the most important trade partners of Bavaria, with trade turnover in 2019 reaching over 1.57 billion euros (US$1.84 billion).

Bavaria exported to Việt Nam goods worth more than 430 million euros, mainly machinery, data processing equipment, electronics, and optics, while it spent 1.14 billion euros on importing Vietnamese goods, mostly leather and textile products. — VNS

Customs all set to make risk management transparent

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HCM CITY — A circular on new regulations for customs risk management will come into effect on January 1 next year to helping businesses comply with regulations and clear customs more easily.

Hồ Ngọc Phan, deputy head of the General Department of Customs’ risk management department, told a conference on October 28 that risk management has been developing quickly in recent years.

According to customs statistics, the volume of goods that need to be inspected physically dropped to 5.08 per cent last month (September) from 9.68 per cent in 2014.

In 2019 the Ministry of Finance sent Circular 81 with updates on policies on risk management procedures followed by customs to strike a balance between administration and easy trade.

Customs issued a decision in August this year to guide implementation of the policies.

Bùi Thái Quang, deputy head of the risk management department, said Circular 81 mandates changes such as the publication of risk management criteria used to evaluate business’ compliance with customs regulations (which used to be kept confidential) to help them avoid errors.

It introduced a wider categorisation system for business applicants and a new, more detailed system for categorising levels of compliance, and also adds new levels of risks, he said.

Nguyễn Minh Thảo, head of the business environment and competitiveness department at the Central Institute for Economic Management, said customs’ pioneering of a risk management mechanism could cause other sectors to do the same, improving Việt Nam’s investment climate.

Đặng Vũ Thành, deputy chairman of the Việt Nam Logistics Business Association, said Circular 81 modernises customs, the information gathered to evaluate compliance is being made more transparent, and businesses going through customs could receive help to be more compliant.

Alistair Gall, a senior expert in trade facilitation for the USAID Trade Facilitation Programme, said Circular 81 helps improve customs’ capabilities such as in dealing with transactions, declarations and businesses that are deemed as high risks.

But for it to be effective, businesses need to co-operate and voluntarily comply, he added. — VNS

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