Pho 24 brand was transferred to Viet Thai International Joint Stock Company at a price of $20 million but the transaction was not listed for tax agencies. Photo diaoconline.vn

HCM CITY (Biz Hub) — HCM City People's Committee has petitioned the Ministry of Finance to create mechanisms and policies to manage capital transfers and the franchising of businesses.

According to document No 6450 issued on December 5, the committee suggested that capital transfers be required to set up value added bills so that businesses pay value added taxes and business income taxes according to regulations. Firms that receive capital from other organisations without legal bills would not have its business income taxes reduced.

Meanwhile, businesses that transfer capital to other businesses will need to show payment receipts. If they can not show receipts, tax agencies will have the right to set the price and the cost of the transfer, based upon regulations in laws on tax management.

Businesses which only perform procedures to change lists of their shareholders must show transfer bills with capital transferred firms and must list the personal income tax and personal tax deductions for individuals who transfer the capital.

For organisations without bills and for individuals without any documents showing tax payments after transfers, enterprises which individuals transfer capital to will be in charge of listing the taxes and paying taxes, instead of those organizations and persons who perform the transfers.

The proposal was made after a recent investigation showed that capital transfers were carried out in different ways which tax agencies could not examine and properly control, according to Customs Newspaper.

Specifically, a contract listed for tax agencies showed that selling prices were the same as the cost, not generating profits and, thus, not having to pay taxes. Intel Asia Holding Limited company, for example, transferred capital to another company in the same corporation with the selling price being equivalent to US$100 million. The transfer did not generate any earnings.

Further, there were contracts with high values, which still generated small profits. For instance, Masan Consumer Corporation transferred its capital to Vietnam Growth Capital Pte. Ltd at a price of more than VND1,061.8 billion ($50.56 million). Compared with its cost of VND1,061.6 billion ($50.55 million), the earning were only VND246 million ($11,714) and the business income tax was VND61 million ($2,904).

The committee also discovered that capital transfers generating profits were not listed for tax agencies, such as in the case of Pho 24 Commerce and Service Joint Stock Company. According to some local newspapers, Pho 24 brand was transferred to Viet Thai International Joint Stock Company at a price of $20 million, while its first investment capital was only VND1 billion ($47,600).

After that, Viet Thai company sold 50 per cent of its shares of Pho 24 to Jollibee, the largest fast food chain in the Philippines, at a price of $25 million. However, after the investigation by the HCM City Department of Tax, the company registered to change the name of the legal representative, while names of members and the rate of capital contribution still remained. At the moment, the department has asked Pho 24 to explain this.

These different ways of capital transfers and a lack of cooperative mechanisms between tax agencies and licensing providers has led to tax losses for the state budget. — VNS