The country’s tax authorities said they were looking for evidence of possible “price transferring” at foreign companies operating in Vietnam, after state media reported that many foreign firms have been illegally avoiding taxes for years.

“Many foreign-run companies, including Coca-Cola, KO +0.73 percent operating here have repeatedly reported losses, in some cases for many years, and we need to carefully find out whether they were involved in price transferring or not,” said Nguyen Quang Tien, deputy director of the department of taxation reform in Vietnam’s general Taxation Department.

The tax authorities will look at many foreign companies that have claimed losses and avoided high corporate tax bills to Vietnam, Tien told The Wall Street Journal. Vietnam currently applies a tax of 25 percent on corporate profits and the Ministry of Finance has said it is planning to reduce the rate to 23 percent in 2014.

Price transferring occurs when two related companies, such as a parent or subsidiary, establish prices for transactions between each other.

Companies in the beverage, garment, automobile, distribution, retail and wholesale sectors will be subject to possible tax inspection, he said. Tien also named PepsiCo Inc. PEP +0.33 percent as one of the companies that will be investigated.

A PepsiCo spokeswoman at its headquarters in Purchase, N.Y., said the company couldn’t comment on any ongoing investigations.

The official’s statement came out after state media outlets reported this week that Coca-Cola Co., PepsiCo and other foreign firms have been claiming losses for years and allegedly avoided corporate taxes even as they announced expansion plans.

Coca-Cola, which has invested $400 million in Vietnam since 2004 and recently announced plans to invest an additional $300 million over the next three years, said its regular losses were a result of the country’s high inflation and interest rates, as well as rising commodity costs. The losses aren’t unusual, it said, for a company that is expanding in a growing market as it invests more in production and distribution.

“Coca-Cola operates locally in every country where it does business, creating significant economic value for the local communities we proudly serve. This includes paying taxes, investing in new direct and indirect jobs, and creating new manufacturing and distribution infrastructure,” said My Nguyen, Coca-Cola’s public affairs and communications director in Vietnam. “We are a compliant taxpayer in every country we operate. We work closely with the government and conduct our business in an accurate and transparent manner.”

Adam R. Sitkoff, executive director of the American Chamber of Commerce in Hanoi, said that while Vietnamese authorities have the authority to investigate, they shouldn’t target only foreign firms because that could be seen as another attempt to restrict the operations of international companies in the country.

“Many AmCham members are finding it more difficult to conduct business here than in past years. government efforts to ‘manage’ business activity have caused numerous investors to rethink their business and expansion plans in Vietnam,” he said. “Given the current state of the economy, Vietnam should make every effort to entice foreign investment and resources.”

By Nguyen Pham Muoi - The Wall Streey Journal - December 14, 2012