Foreign direct investment (FDI) enterprises in Vietnam have reported cumulative losses nearing 1 quadrillion VND ($40 billion), raising serious concerns about tax evasion, market distortion, and unfair competition with local businesses.

Experts warn that transfer pricing strategies used by foreign firms could artificially inflate production costs, pushing domestic companies into a competitive disadvantage.

With over 50% of FDI firms declaring losses, despite continued business expansion, critics argue that many of these companies practice "fake losses, real profits" to minimize tax obligations while leveraging Vietnam’s infrastructure, workforce, and resources.

The impact of FDI losses on local businesses

Nguyen Cong Cuong, Vice Chairman of the Hanoi Association of Leading Manufacturing Enterprises (HAMI), acknowledges the positive contributions of FDI firms, including job creation, exports, and technology transfer.

However, he also warns about the risks of unchecked transfer pricing, which manipulates input costs and tax liabilities, putting local businesses under pressure.

"When FDI companies engage in transfer pricing, domestic production costs artificially rise, creating an uneven playing field where local enterprises struggle with higher expenses, supply chain disruptions, and restricted access to export markets," Cuong explained.

Additionally, while local firms strictly comply with tax regulations, some FDI companies exploit tax incentives but still find ways to minimize or completely evade corporate income tax payments.

Calls for tighter regulations on FDI tax compliance

Bui Quang Cuong, CEO of iViet Business Solutions, highlights the disproportionate advantages enjoyed by FDI companies:

Preferential tax policies

Larger capital reserves

Access to global supply chains

"Vietnamese businesses do not have the luxury of transfer pricing, so their actual operating costs remain higher. This makes them less competitive than their FDI counterparts," he said.

Nguyen Dinh Thang, Chairman of Hong Co Group, adds that some FDI firms report consistent losses while still expanding their operations, raising suspicions of financial manipulation. He warns that in joint ventures, local partners risk losing their stake when unable to match the capital increases imposed by foreign firms.

Proposed solutions: blacklisting loss-making FDI firms

While Vietnam has made efforts to curb transfer pricing, Nguyen Cong Cuong suggests stricter enforcement, including:

Targeted audits: Prioritizing inspections of FDI firms with high transfer pricing risks instead of broad, inefficient investigations.

Blacklist system: FDI firms reporting continuous losses for 3–5 years while still expanding should be placed on a government watchlist for stricter oversight.

Standardized pricing database: Establishing a benchmark for internal transactions, preventing FDI firms from overpricing or underpricing goods to avoid taxes.

Enhanced auditing capacity: Strengthening Vietnam’s financial audit workforce to effectively analyze multinational corporations’ financial reports.

Global cooperation: Joining OECD’s global tax initiatives to implement tougher anti-tax evasion measures.

Thang also advocates for cutting tax incentives for firms that repeatedly report losses while recommending blockchain-based financial reporting for improved transparency and accountability.

Meanwhile, Cuong suggests reforming corporate tax policies so that FDI companies find no financial benefit in transfer pricing, thus encouraging compliance.

"If we implement fair and effective tax policies, Vietnam can increase tax revenue, create a level playing field, and even attract more responsible foreign investors," Cuong concluded.

Binh Minh