Vietnam

General Overview of Transfer Pricing Regulations in The Vietnam

Transfer pricing rules

In FY 2020, the Government of Vietnam issued Decree No. 132/2020/ND-CP, setting out new rules on transfer pricing in Vietnam. The (“Decree 132”) replaced Decree No. 20/2017/ND-CP (“Decree 20”) issued in 2017. The Decree 132 takes effect from 20 December 2020, but applies for the financial year 2020.
This Decree deals with principles, methods, processes and procedures for determining prices of related-party transactions; obligations of a taxpayer in declaration and determination of the price of a related-party transaction, and tax declaration and payment; responsibilities of regulatory authorities for tax compliance management, check and audit for a taxpayer engaged in the transfer pricing.
The TP rules apply to Vietnamese taxpayers, including Vietnamese branches of foreign companies.
Taxpayers are required to maintain contemporaneous records, obtained and prepared at the time the related party transactions took place.
Decree 132 requires the TP Documentations to be prepared before the time of annual CIT finalization, and must be maintained and presented upon request from the tax authority. When facing TP inspection and audit, upon receipt of information request from the tax authority, the time limit for taxpayers to submit of TP Documentations shall be subject to regulations prescribed in the Law on Inspection.
Annual Disclosure Forms has to be filed along with the annual return disclosing the arm’s length value, related party transactions, method adopted and other details as prescribed.
The Vietnamese TP regulations provides a threshold for TP filing simplification, in which small and medium taxpayers who do not breach the said threshold conditions will be exempted from the preparation of TP Documentation report for the respective tax years.
There is no specific threshold prescribed for Master File. However, any taxpayer eligible for Local File is also expected to maintain Master File.
MNE groups with global consolidated revenue in the relevant tax period of VND 18,000 billion or more must prepare the CbCR. The CbCR must be submitted no later than 12 months from the financial year-end of the UPE.
There is a self-assessment regime, i.e. the burden of proof is on the taxpayer to confirm its TP meets the standard. Taxpayers must provide a full self-assessment of their profits calculated on an arm’s length basis.

How is the Vietnamese Transfer Pricing (TP) regime aligned with the principles of the OECD Transfer Pricing Guidelines (TPG) and the Base Erosion and Profit Shifting (BEPS) action plan?

The Vietnamese TP regime closely aligns with the principles outlined in the OECD Transfer Pricing Guidelines (TPG) and the Base Erosion and Profit Shifting (BEPS) action plan. The OECD document is utilized as a guidance document without imposing any legal implications in the Vietnamese context.

What is the priority order for selecting comparison data in the principle of comparability analysis and transfer pricing methods?

The priority order for selecting comparison data in the principle of comparability analysis and transfer pricing methods is as follows:

Internal comparables of taxpayers.
Resident comparables within the taxpayer's country or territory.
Comparables of other regional states in the same or similar sectoral conditions and economic growth levels.

What is the significance of the self-assessment regime in Vietnam's transfer pricing regulations?

The self-assessment regime in Vietnam places the responsibility on taxpayers to ensure compliance with transfer pricing (TP) regulations, specifically the arm's length principle. Taxpayers must confirm the arm's-length value of their transactions through the annual transfer pricing disclosure form filed with their tax returns, and they may need to make voluntary tax adjustments if necessary.

What are the key components of Transfer Pricing Documentation reports that Vietnamese taxpayers need to include?

The Transfer Pricing Documentation reports for Vietnamese taxpayers typically include details on related party/controlled transactions. These reports may encompass information such as the nature and terms of the transactions, the pricing methodology used, and the economic analysis justifying the transfer pricing policies. It is essential for taxpayers to provide a comprehensive overview of their intercompany transactions to ensure compliance with the four types of TP compliances in Vietnam, namely Annual Disclosure Form, Local file, Master file, and CbCR. Additionally, storing these documentation reports at the taxpayer's premises allows for a timely submission to tax authorities upon request, aligning with the mandated deadlines in accordance with Inspection Law during tax audits.

What conditions exempt a taxpayer from preparing transfer pricing documentation according to the TP regulation?

According to the TP regulation, a taxpayer is exempt from preparing transfer pricing documentation if they meet one of the following conditions:

The taxpayer has revenue below VND 50 billion and the total value of related-party transactions below VND 30 billion in a tax period.
The taxpayer concludes an advance pricing agreement (APA) and submits annual APA report(s).
The taxpayer has revenue below VND 200 billion, performs simple functions, and achieves specific ratios of earnings before interest and tax to revenue from various business categories (distribution - 5%, manufacturing - 10%, processing - 15%).
Taxpayers with only domestic related party transactions, where both the taxpayer and their related parties have the same tax rate, and none of the parties enjoys tax incentives.

Additionally, there is no specific threshold prescribed for the Master File; however, any taxpayer eligible for the Local File is also expected to maintain the Master File.

What are some specific factors that contribute to the increased number of transfer pricing audits in recent years?

The noticeable increase in transfer pricing audits in recent years may be attributed to various factors such as heightened scrutiny by tax authorities and a focus on taxpayers involved in related-party transactions. Taxpayers with negative or below-arm's-length-range operating results are particularly at risk. These audits often center around issues like the validity of chosen comparables in the Local File and fluctuations in profit margins over time. Additionally, intra-group transactions, especially involving royalties and management charges, are frequently subject to challenges by tax authorities.

How does the absence of local Vietnamese comparables impact the transfer pricing risk?

The absence of local Vietnamese comparables can significantly impact transfer pricing risk. Failure to consider local comparables may lead to the rejection of the comparable set, as tax authorities may question the relevance and appropriateness of the chosen comparables. Locating suitable local comparables might pose a substantial challenge, and not having them could result in an increased risk of transfer pricing disputes or audits. It underscores the importance of thorough research and consideration of local market conditions to mitigate such risks

What is the priority order for selecting comparison data under Vietnamese regulations for demonstrating an arm's length result in transfer pricing?

The priority order for selecting comparison data under Vietnamese regulations for demonstrating an arm's length result in transfer pricing is as follows:

Internal comparables of taxpayers;
Resident comparables residing within the taxpayer's country or territory;
Comparables of other regional states in the same or similar sectoral conditions and economic growth levels.

What percentile range is deemed acceptable according to the Vietnamese regulation when using the inter-percentile method for transfer pricing?

According to Vietnamese regulations, the use of the inter-percentile range of 35th percentile to the 75th percentile is considered acceptable when employing the inter-percentile method for transfer pricing.

In case a taxpayer does not fully comply with the relevant decree requirements, what approach may the tax authority take to alter transfer pricing results?

If a taxpayer is found not to fully comply with the relevant decree requirements, the tax authority may use internal government databases, often referred to as 'secret comparable data,' to alter transfer pricing results.

What are the two most commonly used methods in Vietnam for demonstrating an arm's length result in transfer pricing?

The two most commonly used methods in Vietnam for demonstrating an arm's length result in transfer pricing are the Comparable Profit Method (CPM) and the Comparable Price Method (CUP).

What is the purpose of an Advance Pricing Agreement (APA) in the context mentioned?

The purpose of an APA is to establish a written agreement between a taxpayer and the Ministry of Finance, governing the appropriate transfer pricing policy for a forward-looking period, aiming to prevent disputes and provide clarity on pricing arrangements.

How long is the validity period of an APA according to Circular 45/2021/TT-BTC?

The validity period of an APA, as per Circular 45, is for 3 years within the 5-year period mandated by the preceding regulations.

What options do taxpayers have in terms of entering into APAs with tax authorities?

Taxpayers have the option to enter into unilateral, bilateral, or multilateral APAs with tax authorities, providing flexibility in their approach to transfer pricing agreements.

What are the conditions for taxpayers to be exempted from the preparation obligation of Transfer Pricing (TP) documentation?

axpayers are exempted from TP documentation preparation if they only engage in transactions with related parties in Vietnam subject to Corporate Income Tax (CIT), both parties are subject to the same CIT rate, and neither party enjoys CIT incentives during the relevant tax period.

How are digital or electronic services and goods provided by non-resident providers taxed, and what is the applicable tax rate?

Digital or electronic services and goods provided by non-resident providers are subject to a 10% Value Added Tax. There is no separate Transfer Pricing (TP) impact on these digital transactions as long as they are at arm's length.

What is the significance of robust functional analyses in transfer pricing (TP) and how does it relate to taxpayer behavior?

Robust functional analyses play a crucial role in transfer pricing by detailing the assets, risks, and functions involved in intercompany transactions. Taxpayers need to provide comprehensive insights into their business operations to ensure accurate TP analysis. This transparency helps tax authorities understand the nature of transactions and promotes fair taxation.