Tax avoidance tricks through transfer pricing and linked transactions
In the article "Anormal signs when businesses continuously report losses" previously published, Lao Dong Newspaper pointed out many alarming figures when a series of businesses reported long-term losses. In the overall picture of the operations of businesses, one can see a paradox: While more than half of businesses - including domestic and FDI businesses - continuously report losses, many of them still maintain stable operations, even expanding in scale and increasing their presence in the market.
Data analysis in the summary report, analysis of the 2023 financial statements of foreign-invested enterprises announced by the Ministry of Finance at the beginning of 2025 shows that out of 28,918 FDI enterprises with financial statement data, up to 16,300 enterprises reported losses, accounting for more than 56%. Thus, for every 2 FDI enterprises operating in production and business in Vietnam, 1 enterprise reported a loss.
Especially, the number of FDI enterprises with accumulated losses recorded in the same period was more than 18,100 enterprises, an increase of 15%. And the accumulated loss in 2023 of FDI enterprises reached more than 908,200 billion VND, an increase of 20% compared to the previous year.
And if analyzed according to data summarizing the financial situation of foreign-invested enterprises by locality, it also shows that the scale of loss of enterprises has increased over the years.
Thanh Hoa has 122 enterprises with a total equity of 90,283 billion VND, total accumulated losses as of the end of 2023 reached 116,453 billion VND, an increase of 27.8% compared to the previous year. In Ha Tinh, 55 enterprises with equity of 131,433 billion VND but accumulated losses reached 28,700 billion VND. Some other localities, although the scale of enterprises is not large, the accumulated losses are still noteworthy, such as Ninh Binh, in 2023 with 78 enterprises, equity of 17,568 billion VND, accumulated losses of 4,640 billion VND; Quang Binh (old) has 11 enterprises, equity of 6,491 billion VND, accumulated losses of 1,040 billion VND...
Notably, despite the high rate of loss-making enterprises, Vietnam continues to be an attractive destination for investment capital flows. Many FDI enterprises not only do not narrow down their operations but also increase capital, expand production, and increase their long-term presence in the domestic market. This paradox raises big questions about the nature of losses, as well as about the level of truthful reflection of business results in the current context.
To clarify this issue further, we can cite the case of Coca-Cola Vietnam being retroactively taxed and fined 821 billion VND by the Tax Department. The incident attracted attention when the tax authorities conducted inspections and discovered many unusual signs in financial statements for the period 2007 - 2015. Despite steady revenue growth and large market share, this business continuously reported losses for many years, with accumulated losses of more than 3,700 billion VND, exceeding initial investment capital. The reality of "expanding business but still suffering prolonged losses" has raised suspicions about transfer pricing to evade corporate income tax.
According to the inspection conclusion, Coca-Cola Vietnam has related transactions with the parent company and units in the same group, in which the purchase of raw materials, flavorings and concentrates at unusually high prices is prominent. Raw material costs account for 70-85% of the production cost, causing profits in Vietnam to be "worn out", leading to businesses almost not having to pay corporate income tax for many years. Tax authorities believe that this is a sign of transfer pricing through manipulation of related transaction prices to reduce taxable profits in Vietnam.
The Coca-Cola story is not an isolated case, but a typical example of a transfer pricing model to evade taxes that has been and is existing in many foreign-invested enterprises. The common point that is easily noticeable is large revenue, large market share, continuous expansion of production and business activities but prolonged loss reports, no or very few corporate income tax obligations arising.
Through linked transactions such as purchasing raw materials, franchising, paying management fees, internal loan interest or technology transfer, actual profits are "shifted" to legal entities in countries and territories with lower tax rates. The consequence is that the national budget receiving investment loses revenue, while the competitive environment is distorted, causing disadvantages for domestic enterprises that are unable to implement complex transfer pricing structures.
From the case of Coca-Cola, it can be seen that transfer pricing is not only a technical tax issue, but also a major challenge for state management in the context of deep integration. Identifying, proving and handling transfer pricing behavior requires tax authorities to have international comparison data, linked transaction analysis capacity and a strong enough legal framework. More importantly, this is also a warning about the need to tighten tax discipline, ensuring the principle of "profitable business must pay taxes", thereby creating a fair, transparent and sustainable investment environment.
Loopholes in policy
Besides market factors, the root cause lies in the "vagues" in policies and the implementation organization stage. This is the space where "tax evasion" acts have conditions to form and operate. Identifying these gaps correctly is of key significance, not only to handle specific violations, but also to improve the management framework, ensure tax discipline and fairness in the business environment.
Referring to legal loopholes, Assoc. Prof. Dr. Ngo Tri Long - former Director of the Institute of Price Market Research (Ministry of Finance) - said: "The loophole that businesses often take advantage of lies in 2 layers. First, the legal framework and sanctions are not tight enough in some technical points; second, the enforcement capacity, including data, tools and coordination between management agencies... has not separated the nature of transactions.
He cited that in 2024 alone, the inspection and examination work of the Tax sector reduced losses by 43,587 billion VND and proposed handling of 62,726 billion VND, showing that the room for "thinning taxable profits" is still significant.
Analyzing in more depth the legal "loopholes" and policy design, Mr. Long said that the most obvious risks arise in the group of related transactions and capital costs, when businesses can design a borrowing - guarantee structure through related parties in the direction of "thin capital - thick debt", pushing borrowing interest costs up to erode profits.
Although these loopholes have been "corrected" by Decree 20/2025/ND-CP, amending and supplementing a number of articles of Decree No. 132/2020/ND-CP dated November 5, 2020 of the Government regulating tax management for businesses with linked transactions, there are still no detailed regulations to help identify and handle tax evasion tricks, especially with multi-layered financial structures.
Another "gray area" lies in internal services and intangible assets such as management fees, brands, software. This is a group of costs that are difficult to price according to market principles, easily "upgraded" by general service contracts, difficult to prove the benefits received. If there is no standard of comparison and standard of records, businesses can legalize large fees but the actual efficiency is not commensurate.
Mr. Long also emphasized the risks in optimizing tax incentives and allocating profits within the group. Businesses can transfer profits to legal entities or areas that are enjoying incentives, while "neglecting losses" at the high taxable stage and "pushing profits" to the preferential stage. This is a sophisticated form of "thin taxable profit" that is difficult to handle if data is lacking according to the value chain.
In addition, digital commerce and cross-border transactions are expanding faster than the management framework, causing a portion of profits generated in Vietnam to "flow" out through platforms, digital services, advertising, while the mechanism for determining taxable status, tracking cash flow and information exchange has not kept up.
Increase inter-sectoral coordination, soon build a data system according to the value chain
Assoc. Prof. Dr. Ngo Tri Long also said that the key issue is the lack of reliable comparative data by industry - function - risk. To combat transfer pricing, there must be a benchmark (profit margin, reasonable cost ratio) deep enough for each industry segment; otherwise, businesses can easily argue that "loss is objective".
Another bottleneck is that international information exchange has not been maximized. Vietnam has participated in transparency mechanisms according to OECD standards (Organization for Economic Cooperation and Development) and activated the exchange of international profit statements (CbCR) with many partners, but still needs infrastructure and procedures to turn these data into timely "testing evidence".
Along with that, the inter-agency coordination of Tax - Customs - Planning and Investment - Banking is not tight enough in the direction of "one risk profile", allowing businesses to take advantage of the "difference" between the value of customs tax calculation, internal transfer price, payment cash flow and financial statements for legalization.
From the above gaps, Mr. Long proposed a group of tasks "high priority, done immediately". The focus is on standardizing and tightening the conditions for deducting internal service fees and loan interest according to the principle of having benefits received, having evidence and having prices according to the market.
At the same time, synchronously implement the amendments of Decree 20/2025 to cover up the "circumvention" structures of linkage relationships and loan interest costs. In parallel, it is necessary to upgrade risk management with big data, use electronic invoice data, customs declarations, bank transactions and financial statements to build "risk maps" by industry, setting warning thresholds for groups of businesses that have been losing for many years but have increased revenue and profit margins far from industry average.
He also emphasized the requirement to build industry-based profit benchmarks and publish reference bands in the form of warning bands, not rigid settings, in order to reduce "objective loopholes" controversy and increase forecasting for compliance businesses.
Finally, it is to expand dispute prevention tools such as APA (a mechanism for prior agreement on the method of determining taxable prices) and an early consultation mechanism for businesses to "go straight", while tax authorities reduce the burden of repeated inspections, focus resources on high-risk groups, in order to avoid tax loss.
Signs of tax evasion behavior
Data analysis in the Summary Report, analysis of the 2023 financial statements of foreign-invested enterprises announced by the Ministry of Finance at the beginning of 2025 shows that there are two groups of common tax evasion tricks, including transfer pricing, linked transactions and maintaining low profits or prolonged loss reports. The common point of these forms is that they reduce tax obligations to be paid, while many enterprises still maintain stable operations, even expand production and business.
Talking to Lao Dong Newspaper, Assoc. Prof. Dr. Phan Huu Nghi (photo) - Deputy Director of the Institute of Banking and Finance (National Economics University) said that the most noticeable sign of tax evasion behavior is the phenomenon of businesses "still doing business, still growing strong" but "continuously reporting losses". This is the starting point to raise the issue of tax risks, because in reality, determining transfer pricing or tax evasion behavior cannot be based on intuition, but needs to be based on a data system and overall analysis.
According to him, businesses reporting long-term losses often do not appear individually but are accompanied by many other signs such as internal debt between businesses in the same ecosystem, internal loans replacing bank loans, or purchase and sale transactions with unusually high or low prices compared to the market. When placing these factors in the overall production and business operations, it can be seen that the signs of profit have been "thinned" or moved away from the place where tax obligations arise.
Regarding transfer pricing and linked transactions, this is a common tax evasion technique in the operations of multinational corporations, especially in the context that the production - trade chain is increasingly organized according to a cross-border model.
In essence, this is not an act considered to be a violation of the law, but to take advantage of tax policy differences between countries to optimize tax obligations. This mechanism only arises when businesses have a multi-layer, multi-level structure, with parent companies, subsidiaries and intermediary legal entities.
The first condition for the appearance of transfer pricing is the existence of related legal entities.
The second condition is the difference in tax rates between countries or between stages in the production - business chain. When these two conditions coexist, businesses can design transaction flows in the most beneficial direction for the entire group.
In that model, businesses located in "tax havens" - where tax rates are very low or almost zero - often act as intermediaries. They buy products from manufacturing units at prices close to cost, then resell them to consumer markets at higher prices. The added value is mainly recorded in intermediaries, while manufacturing enterprises only record very low profits or even losses.
Not only stopping at the commercial stage, transfer pricing can also take place right from the investment stage. Businesses can borrow capital from parent companies or affiliated units instead of borrowing from banks, thereby increasing financial costs. In addition, increasing the value of investment assets, especially intangible assets, or registering project scale higher than reality are also common ways to adjust taxable profits. In the production stage, transfer pricing is also shown through buying raw materials at high prices from affiliated parties, or disproportionate internal cost allocation. At that time, even if revenue increases, the profit recorded is still low.
According to Assoc. Prof. Dr. Phan Huu Nghi, precisely because transfer pricing can take place in many different stages - from investment, production to trade - identification and processing always requires high professional qualifications, deep understanding of finance - accounting, as well as a data system strong enough to compare and evaluate. This is also the reason why linkage transaction management is always one of the biggest challenges for tax authorities today.
Tax authorities also face difficulties in checking related transactions
Talking to Lao Dong Newspaper, the Inspection Board (Tax Department, Ministry of Finance) said that the process of inspecting and examining taxes for businesses with related transactions shows many systemic difficulties, stemming from the specific organizational and operating characteristics of multinational corporations.
First of all, the parent company - subsidiary company structure with a wide network of legal entities in many countries makes verifying the nature of transactions and the value of linked services complicated. In many cases, internal transactions are designed through many intermediary layers, making it difficult for tax authorities to determine which are real economic transactions and which are profit-regulating transactions.
Another major obstacle is the lack of a comparative database for specific industries. Determining independent market prices or the profit margin of independent businesses as a basis for comparison faces many limitations, especially in the fields of technology, component manufacturing, specialized services or industries with specific business models. When there is not enough reliable reference data, applying linked transaction pricing methods according to regulations becomes difficult.
Comparing service costs provided by parent companies abroad also creates many obstacles. Explanatory documents are often prepared in foreign languages, unconsistent in accounting standards, and the content describing services is still general, lacking quantitative basis, making it difficult for tax authorities to assess the necessity, rationality and actual value of these costs.
Chung Giang
