Causing Loss to the State Budget Through Transfer Pricing Activities

There are many loopholes that create conditions for FDI enterprises to take advantage of for profit, especially because Vietnam does not have a truly strong enough sanction to suppress violations. Regulations on penalties for violations are generally light, not enough to deter, the maximum penalty according to Decree 117/2009/ND-CP on administrative penalties in the environmental field is only 500 million VND and if according to Decree 81/2006/ND-CP, the penalty is even only 70 million VND. Meanwhile, to build, maintain and operate a waste and wastewater treatment line, FDI enterprises have to spend up to billions of VND. Doing a simple calculation, it can be seen that for FDI enterprises, paying fines turns out to be more beneficial and economical than not having to pay fines for environmental violations. Therefore, many FDI enterprises still “happily” accept to pay fines for environmental violations every year instead of having to spend money to maintain the operation of waste and wastewater treatment systems according to Vietnam’s permitted standards. If the environmental damage of FDI enterprises is not resolved promptly but continues, it will certainly leave serious long-term consequences for the health and lives of the people as well as the overall development of the country.

3.2.4. Causing loss of revenue to the state budget through transfer pricing activities

Recently, a hot issue that has received special attention from the public and the authorities of Vietnam is the issue of transfer pricing of FDI enterprises. Transfer pricing can be understood as the implementation of price policies for goods, services and assets transferred between members of a group across borders not at market prices in order to minimize the amount of tax.

of multinational companies worldwide 23. The phenomenon of transfer pricing of FDI enterprises is not a phenomenon unique to Vietnam, but in fact it has appeared in the world for a long time. The problem is how states and countries respond to this phenomenon. In Vietnam, in the past few years, with the improvement of management effectiveness as well as the synchronization and gradual improvement of the economic management mechanism, Vietnamese authorities have discovered more and more signs of transfer pricing in FDI enterprises. The method of transfer pricing used by FDI enterprises in Vietnam is to falsely declare the import price of raw materials, technological lines, machinery and equipment from the parent company abroad higher than its actual value, and at the same time resell goods produced in Vietnam to the parent company at a low price. With this method, FDI enterprises not only "avoid" corporate income tax but also receive a refund of value added tax. In addition, some FDI enterprises often take advantage of the difference in corporate income tax rates between countries to export goods to countries and territories with lower corporate income tax rates than Vietnam. In addition, parent companies often rely on preferential policies between regions in Vietnam to conduct mergers, dissolutions, and transfers of production and business locations from one region to another to take advantage of corporate income tax exemptions. However, the transfer pricing behavior of FDI enterprises is increasingly sophisticated, making it difficult for management agencies and authorities to detect and detect in a timely manner. Even in developed countries in the world - countries with relatively complete and strict management mechanisms, scientific and progressive, the detection and presentation of convincing evidence of

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23 Quoted from http://www.hcmulaw.edu.vn/hcmulaw/index.php?option=com_content&view=article&catid= 104:ctc20062&id=361:ccgovn&Itemid=109.

Transfer pricing behavior of FDI enterprises is not easy, if not to say it also takes a lot of time and effort. For example, the US authorities with experience and advanced tools also took several years to find evidence that a company transferred 2 billion USD for a pharmaceutical product. In fact, the circumvention of the law to transfer pricing by many foreign-invested enterprises in the past is an act of tax evasion to increase profits, thus causing hundreds of billions of VND in tax losses for the Vietnamese State, directly affecting the state budget revenue. Therefore, to limit the transfer pricing situation of FDI enterprises, after granting investment licenses, it is probably necessary to have a mechanism to closely monitor and review FDI enterprises when foreign investors officially implement projects in Vietnam.

The above are some of the basic negative impacts on the Vietnamese economy and society that foreign direct investment activities bring. In addition, there are some other negative impacts such as: FDI can cause a deficit in the balance of payments, foreign investors take advantage of the weak management situation of Vietnam to commit trade fraud, tax evasion, fraud, etc.

3.3. Summary

After 2 decades of attracting and licensing foreign investment in Vietnam, Vietnam has attracted hundreds of billions of dollars in foreign direct investment for the country's socio-economic development. In the context of a developing country, this is a relatively large and important source of capital for Vietnam. However, looking at it comprehensively, with the characteristics of a source of foreign investment capital, FDI capital invested in Vietnam has, on the one hand, brought certain benefits to foreign investors - the capital source, the investment subject - and on the other hand, created multi-faceted impacts on Vietnam's socio-economic development.

investment-receiving countries. In particular, for Vietnam, the positive aspects are very noteworthy, but at the same time, the negative aspects that have emerged are not few and not serious. Therefore, the question is how Vietnam must promote the positive aspects, limit and prevent the negative aspects in foreign direct investment activities to improve the efficiency of using FDI capital, contributing towards completing the socio-economic development goals of the country.

CONCLUDE

1. Some characteristics of changes in FDI capital structure in Vietnam from 1988 to 2008

Over the past 20 years, FDI has gradually integrated and become an indispensable flow in the Vietnamese economy and society. Also over those 20 years, FDI has created its own history of integration and development, and the history it has created is also extremely rich, vivid, full of topicality, imbued with the breath of the times.

Looking back at the 20-year operation of FDI capital in Vietnam, it is easy to see that FDI capital flowing into Vietnam is not a constant but a variable that is always changing. That change is reflected in both the value and structure of capital sources. In terms of changing capital structure, it can be seen that FDI flows have some notable characteristics as follows:

Firstly, in the past 20 years, FDI capital in Vietnam has had remarkable changes, however, those changes have generally taken place relatively slowly; at the same time, there have been few breakthrough and turning point changes. This is clearly shown in the changes of FDI capital in terms of economic sector structure, territorial structure, investment form structure and investment partner structure. From the perspective of economic sector structure, it is the concentration of FDI capital in the industrial - construction sector and the service sector. From the perspective of territorial structure, it is the concentration of FDI capital in favorable regions such as the Southeast, the Red River Delta and some provinces and cities such as Ho Chi Minh City, Hanoi, Binh Duong, Ba Ria - Vung Tau,

Dong Nai,... From the perspective of investment structure, it is the concentration of FDI capital in investment forms that are favored by investors such as 100% foreign capital and joint ventures. From the perspective of investment partners, it is the dominance of FDI capital supply from Asia and some countries from Asia such as: Taiwan, Korea, Japan, Singapore,...

There are many reasons for the slow change in FDI capital structure in Vietnam and these reasons come from both sides: from foreign investors and from the host country Vietnam. On the side of foreign investors, the profit factor is always considered by foreign investors as the top goal when choosing an investment location. And the locations that satisfy investors' expectations will be chosen by investors for production and business investment. In Vietnam, the strengths in natural resources and labor are often the most attractive factors for investors. Therefore, investors choosing Vietnam are often investors who focus on production and business activities, or economic sectors that need to make the most of these advantages. At the same time, when deciding to invest in Vietnam, investors will choose locations and investment forms that are convenient for implementing, organizing and managing their production and business activities. Therefore, for a long time, it can be seen that foreign investors tend to focus more on investing in production and business in some economic sectors, some territories and through certain forms of investment, making the change in the structure of FDI capital in Vietnam in the past 20 years basically slow. However, the main cause of the above situation is probably from the host country Vietnam, which is basically the investment environment that Vietnam creates for foreign investors. Although it cannot be denied

It is recognized that the Vietnamese Government has made efforts to create a highly attractive investment environment, however, compared to many other countries, Vietnam's investment attractiveness is still quite far behind. This is reflected in the legal corridor system, administrative procedures, infrastructure, socio-economic development level, labor quality and management level of Vietnam, which still have many limitations and the process of overcoming these limitations is generally slow. Therefore, Vietnam's investment environment has not created breakthroughs in attracting FDI capital from foreign investors.

Second, observing the changes in FDI capital sources over time, it can be seen that the changes in FDI capital flows in Vietnam are often affected by fluctuations in the world economic situation, especially deeply affected by economic crises, regional and global economic recessions of a cyclical nature. The economy is a continuous flow, constantly changing and fluctuating; if it progresses in a good direction, going up, the economy grows, on the contrary, if it progresses in a bad direction, going down, the economy declines, even recessions, crises. Economic crises and recessions can occur on a small scale such as in an economy or can also occur on a larger scale such as in an economic region or globally. But regardless of the scale, it generally causes negative impacts on the economies in the affected region to varying degrees depending on the potential and "resistance" of each economy. The nature of FDI capital is capital originating from outside, more specifically from foreign investors. Foreign investors - those who directly participate in economic activities and are an indispensable component of the economic flow, face crises and

Economic recession, they themselves cannot avoid direct and indirect impacts, cannot avoid certain difficulties, even in many cases many investors have to face the risk of loss, bankruptcy. This makes the FDI capital they provide to the economies also affected, if not to say decreased, and possibly decreased seriously, creating scarcity, tension in FDI capital in the international capital market. The supply of FDI capital is reduced, while the demand for FDI in countries is still very large, sometimes even higher than normal due to the requirement to quickly bring the country's economy out of recession, crisis, FDI capital flows into countries, so it is difficult to avoid being shared, affected at different levels. In Vietnam, the impact was particularly evident through the Asian financial and monetary crisis in 1997 and the global economic crisis in 2008. Looking back at the development of FDI flows into Vietnam over the past 20 years, it can be seen that before the economic crises occurred, FDI flows into Vietnam were on the rise and set records in FDI attraction in 1996 and 2008 with total registered capital of 10,164.1 million USD and 71,726 million USD, respectively. However, when the Asian financial and monetary crisis occurred in 1997 and the global economic crisis broke out in late 2008 with a large scale and serious consequences, FDI flows into Vietnam reversed and went down. The decline in FDI inflows to Vietnam during the crisis and recession has only gradually improved along with the gradual recovery and escape from the crisis of the national, regional and world economies.

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