New decrees on transfer pricing
The Vietnamese Government recently issued 2 decrees on TP: Decree 132/2020/ND-CP (Decree 132) dated 5 November 2020 which replaces Decree 20 and is valid for the fiscal year 2020 and Decree No. 126/2020/ND-CP (Decree 126) dated 19 October 2020.
The fundamental TP regulations on the principles and methods for declaring and determining taxable prices in related-party transactions, esp. on deductible expenses and the cap on loan interest cost deduction remain unchanged. Decree 132 implements the following notable changes:
–> Changing the acceptable arm’s-length range
The acceptable arm’s-length range is now defined as from the 35th percentile to the 75th percentile. This was previously for the 25th to the 75th percentile.
–> Strengthening inter-countries exchange: based on the international cooperation on taxation between tax authorities (TA), Decree 132 strengthens this regime with the automatic exchange of information on Country by Country Reporting (CbCR) with foreign TAs based on Multilateral Competent Authority Agreements (MCAA) which Vietnam has not joined up to now
–> Obligations to file the CbCR (Country by Country Reporting):
> If the taxpayer is the ultimate parent company (UPC) registered in Vietnam and has a global consolidated revenue of 18k billion VND (around 800 MioUSD) or more in the tax period, a CbCR must be submitted to the tax authority within 12 months after the end date of the fiscal year of the UPC.
> If the Vietnamese taxpayer has a foreign UPC then they must submit a CbCR according to the regulations of the country of residence,
– where the MCAA – Automatic Exchange of Information (AEOI) exists and is applicable, the local taxpayer is not required to submit a CbCR.
– the Vietnamese taxpayer is obliged to submit a CbCR to TA in the following cases:
* The country where the UPC resides has not signed an MCAA – AEOI with Vietnam at the deadline of submitting a CbCR.
* The country where the UPC resides has signed the MCAA but has suspended the AEOI or is not automatically provided to Vietnam.
> If a multinational corporation has more than one taxpayer in Vietnam, and the taxpayer is designated by the multinational corporation to submit a CbCR, then it is obliged to submit the CbCR along with the written notice of designation to the TA before or at the end of the fiscal year of the UPC.
It is noted that Vietnam is preparing for the era of AEOI, even if it has not yet been implemented
Decree 126 details the Law on Tax Administration. It recognises the commercial database provided by data business organisations and has a more specific definition on the permitted sources to be used by both taxpayers and TA.
As Decree 132 takes effect from 20 December 2020 but applies for the fiscal year 2020, taxpayers must re-evaluate their TP strategy for 2020.
For full update on recently introduced legislations and cases in 13 countries please see WTS Global Transfer Pricing Newsletter #1 2021