As CIT finalization approaches, we highlight the existing Transfer Pricing compliance requirements for Vietnam taxpayers, under Decrees 132 and 126, and Law No. 38:
When does Transfer Pricing (TP) apply?
- When a Vietnam company or local subsidiary of a foreign company has intra-group transactions (goods, services, loans or royalty transactions) with its related parties.
- Corporate related parties are defined broadly in Vietnam, by ownership (a party directly or indirectly holds 25% of another party or two parties with common ownership, or at least 10% of a joint stock company).
- Of note, now individuals (we well as corporates) may be related parties of the company, if the company incurs capital transfers equal to 25% of its owner’s equity or more and/or lending or borrowing to 10% of its owner’s equity with its executive personnel or their immediate family.
What TP compliance is required?
(i) TP Disclosure form
If a taxpayer has related party transactions, TP disclosure forms are required to be submitted annually, with the CIT return (a penalty applying for late submission):
- TP Form No. 01 (information on related party transactions); and
- Where thresholds for TP documentation are met (see discussion below), additional TP Form No. 02 [local file (Vietnam)], TP Form No. 03 [master file (ultimate parent level)] or TP Form No. 04 [county-by-country report (global)] are to be submitted.
(ii) TP Documentation
TP documentation must be prepared on meeting thresholds, as described below, based on Vietnam regulations (which guides on methods; formats and penalties for failure to submit, late submission or incorrect disclosures):
- Local and Master files: are required for all taxpayers except for companies which are exempt from TP documentation preparation where one of the following conditions is met:
- has revenue < VND 50 B and total value of related-party transactions < VND 30 B in a tax period; or
- concludes an advance pricing agreement (APA) and submits APA report(s); or
- has revenue < VND 200 B, performs simple functions, and achieves EBIT for the business: distribution (5%), manufacturing (10%), processing (15%); or
- taxpayer has only domestic related party transactions, taxpayer and related party has the same tax rate, and neither party enjoys tax incentives.
In preparing TP documentation, taxpayers are reminded of the need to assess the availability
and validity of local comparables, and prepare a rationale for fluctuating profits. Intragroup
management services and royalties may attract greater scrutiny.
Submission required in a timely manner on request (TP audit) or 30 days (pre-audit).
- Country-by-country reports: are required where a Global group (that the Vietnam entity is part of) has global consolidated revenue ≥ VND 18M and the Vietnam entity is determined to prepare or submit the country-by-country reports. It must be submitted within 12 months from the Ultimate Parent Entity financial year-end.
(iii) Additional requirements
- Taxpayers are reminded that a cap on interest expense deductibility of 30% EBITDA applies for corporate income tax purposes. Contemporaneous records (prepared when the transactions are set-up), should be maintained. Taxpayers may carry forward net loan interest expense not deductible under the cap, for a subsequent five years.
- Payment and/or collection of Foreign Contractor Tax (i.e. withholding tax) on behalf of related parties.
There has been a recent announcement under Circular 12/2022/TT-NHNN, tightening loan
conditions in Vietnam.
We will shortly issue an update on this circular. If you have any questions about your related party arrangements, compliance or other transfer pricing issues, please contact us on: christine.schwarzl@dfdl.com or lan.hua@dfdl.com.
