Vietnam: Transfer Pricing Update

The Vietnamese tax authorities are paying special attention to Transfer Pricing compliance, especially to identifying deficiencies in ascertaining related party transactions. They must be reported with every CIT finalization, also in case not reaching the threshold for the requirement of having a Transfer Pricing documentation. No Transfer Pricing documentation must be provided if the enterprise has:

sales in the tax year below VND 50 billion (around USD 2.2 million); or
a value of related-party transactions in the tax year not exceeding VND 30 billion (around USD 1.3 million)

If the related party transactions are not identified carefully, the threshold of not exceeding VND 30 billion might be used incorrectly.

The Transfer Pricing documentation must be present at the enterprise at the time of filing the CIT finalization but will not be filed to the Vietnamese tax authorities. During a regular tax audit, the Vietnamese tax authorities will usually request receipt of the Transfer Pricing documentation, which must be presented promptly.

If, during the tax audit, the Vietnamese tax authorities see that the report on the related party transactions is missing important transactions, a Transfer Pricing audit will probably follow.

This is particularly the case if the correction in identifying the related party transaction will cause the sum to exceed the threshold. In this case, the enterprise normally cannot present the Transfer Pricing documentation because it was wrongly assumed that it had not exceeded the threshold.

Decree 132/2020/ND-CP (Decree 132) is effective beginning with the tax year 2020. It broadens the definition of related parties that includes:
Parties that are directly or indirectly involved in the management, control, or capital contribution of the other party. This includes especially these cases:
A party holds directly or indirectly at least 25% of the equity in the other party.
A third party holds directly or indirectly at least 25% of the equity in each of the parties.
A party holding the greatest ownership interest but at least 10% in a joint stock company.
A party granting or guaranteeing a loan in any form if the loan(s) equals at least 25% of the equity of the borrowing party and constitutes more than 50% of the total mediumand long-term debts of the borrowing party.
A party appoints members of the executive board of the other party with certain powers or exceeding 50% of the members.
Both parties are managed or controlled by members of the same family.
Loans or certain transfers of equity with executive managers or controllers or their family members.
Both parties are under the effective control of the same person.
The party is de facto managed or controlled by the other party.

For the financial year 2020, the definition of the related party transactions should be checked early before a possible audit, so that either the Transfer Pricing documentation can be made or adjusted before the audit. It should be avoided that the enterprise wrongly assumes that no Transfer Pricing documentation is required.

Decree 132 also changed the benchmarking requirements. The requirements now are very detailed and emphasize the importance of using internal comparables along with those from Vietnam and – if they are not available – the region. Priority must be given to data from economic sub-sectors with the closest similarities.

If the Transfer Pricing documentation has not been provided according to the benchmarking requirements or is missing because of the incorrect identification of the related party transaction, the Vietnamese tax authorities will fix the amount of CIT payable according to its considerations. If not prepared well, the taxpayer will have a very weak position here.

For comments or discussion, please contact our Transfer Pricing team at:

For a full update on recently introduced Transfer Pricing legislations and cases in 15 countries, please see: WTS Global Transfer Pricing Newsletter #3/2021


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