Vietnam Transfer Pricing Rules to Multiply Reporting Duties

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing. 

By Lien Hoang

Oct. 17 — Vietnam is preparing transfer pricing regulations that would increase the amount of data companies must report on their internal transactions, but exempt more taxpayers from reports altogether.

A draft decree expected to take effect in early 2017 would require what accounting firm Deloitte called a “huge” amount of added paperwork. In the main file, companies would delineate their organizational structure, key business lines, past-year mergers or acquisitions, transfer pricing policy, group financial results, intangible assets and major intra-group agreements.

In a second file focused domestically, taxpayers would describe related parties, major competitors, local and overseas management teams, analysis for transfer pricing methods and reasons for extended losses.

The third file is the so-called “country-by-country” report, which the Organization for Economic Cooperation and Development is urging governments to adopt. The dossier categorizes a corporation’s taxes, staff, assets, transfer pricing activities and other figures, all based on each country where it operates.

“The above changes proposed by the GDT are sweeping and may have far-reaching consequences,” Deloitte said in a tax alert, referring to Vietnam’s General Department of Taxation. “Based on this draft, we can expect significant changes in transfer pricing documentation reports, providing a much wider volume of information as compared to the current regulations.”

The decree tweaks thresholds such that related parties are defined as those in which one party owns 25 percent of the other (currently 20 percent) or holds 30 percent of its board seats (currently 50 percent). By another measure, companies that sell at least 60 percent of their goods to another party are considered related to that party, up from 50 percent now.

Long Pham, tax director at accounting firm Grant Thornton, recommended taxpayers review their disclosure forms in light of this pending regulation, warning they’re still susceptible to transfer pricing adjustments even after audits have been completed. The adjustments would follow secret comparables in the tax authority’s database, Pham wrote in a client alert.

“It is no time to ‘wait and see’ anymore,” he wrote. “The Vietnamese government is taking a serious action to fight TP non-compliance.”

Thresholds for Compliance

Companies wouldn’t have to maintain transfer pricing documentation under the decree if their annual sales don’t exceed 50 billion Vietnamese dong ($2.2 million) and related-party transactions don’t exceed 30 billion dong. There also would be no documentation requirement for related parties if they are domestic and have the same tax rate.

It’s unclear when the government will finalize this decree, but one outstanding issue pits tax collectors against customs officials. Nguyen Hai Minh, a tax partner at accountancy Mazars, described a “conflict” in how each side calculates transfer prices.

“The customs really wish to higher the price (to collect more import duty) while the local tax department wishes to lower that price to collect more CIT of the subsidiary (higher profit),” Minh told Bloomberg BNA by e-mail, referring to corporate income tax.

The decree could make it harder for companies to make certain tax deductions, according to Deloitte. The proposal would allow interest payment write-offs from related parties if they’re worth no more than 20 percent of earnings before interest, tax, depreciation and amortization (EBITDA). Expenses cannot be claimed if paid to associated parties that:

  •  have no real business beyond holding assets;
  •  are based in jurisdictions with a tax rate below 15 percent; or
  •  lack meaningful control over earnings or property.

To contact the reporter on this story: Lien Hoang in Ho Chi Minh City at

To contact the editor on this story: Molly Moses at

Copyright © 2016 Tax Management Inc. All Rights Reserved.