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Vietnamese steel unit of Taiwan’s Formosa under scrutiny over systematic tax violations

Thursday, May 26, 2016, 22:00 GMT+7

The steel unit of Taiwan's Formosa Plastics Group in the north-central Vietnamese province of Ha Tinh has been placed under close scrutiny from anti-transfer pricing and tax evasion agencies, following a number of repeated tax violations.

The Hung Nghiep Formosa Ha Tinh Steel Co. Ltd. (Formosa) has been asked to pay back more than VND1.55 trillion (US$69.2 million) in tax refunds it had wrongly claimed, plus VND5.5 billion ($245.54 million) in back taxes.

Such a systematic violation of the tax rules has prompted tax authorities to keep a close watch on the company.

The steelmaker declared wrong HS codes for several material and equipment imports between 2010 and 2015 to avoid import duties and value-added taxes.

The avoidance has been detected and Formosa eventually had to pay VND5.5 billion in tax arrears, according to the General Department of Vietnam Customs.

In late February, tax authorities also discovered that Formosa had used 19,470 inappropriate receipts to claim tax refunds. The company then had to return the VND1.55 trillion it had been refunded.

With Formosa having made many false tax refund declarations prior to the latest violation in February, tax authorities will apply a stricter rule on the company, a tax official told Tuoi Tre (Youth) newspaper.

“Tax authorities will inspect refund declarations before giving money to Formosa, reversing the procedure the steelmaker used to enjoy,” he said.

A plant of Formosa Ha Tinh. Photo: Tuoi Tre

In the meantime, Formosa is also suspected of engaging in transfer pricing activities by manipulating the prices of its imported machinery and equipment.

“The company has imported certain machinery and equipment to be used as fixed assets for its steelmaking complex in Ha Tinh, but declared incorrect prices for the shipments,” Pham Tien Thanh, a top official from the Ha Tinh tax department, said.

“The steelmaker would declare the imports cost much higher than the real prices to enjoy bigger tax deduction for property depreciation,” Thanh said.

For instance, in October 2014, Formosa had a local forwarder, SAS Vung Ang Co. Ltd., import a batch of machinery from a foreign contractor. While the forwarder stated in the receipt that the shipment cost $348.65 million, the bill from the foreign supplier says the products were worth $1.42 million.

“This is a sign of transfer pricing, as the false import price would result in higher input cost, from which Formosa can report losses while the company actually operates with a gain,” Thanh explained.

The Ha Tinh unit of Formosa was licensed in 2008 with a registered capital of $2.7 billion. However, in eight years, the company has asked to have its business license amended 14 times, with the capital increased gradually.

The company asked to raise its capital to $7.8 billion in 2012, and $10.5 billion following the latest adjustment in June 2015.

According to tax inspectors, the repeated capital adjustments suggest that the firm had declared false values for its machinery and equipment imports via foreign contractors.

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