Drafted version 03/10/2016
GOVERNMENT
SOCIALIST REPUBLIC OF VIETNAM
Independance - Liberty - Happiness
No:
/201.../NĐ-CP
Ha Noi, date
month
year 201...
DECREE
Guiding transfer pricing administration to combat transfer pricing
and loss of tax revenue to the state budget
Pursuant to the Law on Government Organisation dated 19 June 2015;
Pursuant to the Law on Tax Administration 78/2006/QH11 dated 29
November 2006 and its additional Law on Tax Administration 21/2012 dated 20
November 2012;
Pursuant to the Law on Corporate Income Tax 14/2008/QH12 dated 3
June 2008; Law supplementing several articles of Corporate Income Tax Law
32/2013/QH13 dated 19 June 2013; Law 71/2014/QH13 supplementing several
articles of Laws on taxes;
Pursuant to the Law on Accounting 88/2015/QH13 dated 20 November
2015;
Pursuant to the Law on Investment 67/2014/QH13 dated 26 November
2014;
Pursuant to the Law on Enterprises 68/2014/QH13 dated 26 November
2014;
Pursuant to the Agreements on avoidance of double taxation and
prevention of tax evasion with respect to taxes on income between Vietnam and
other countries/territories,
At the proposal of the Minister of Finance;
The Government issues the Decree on transfer pricing administration to
combat transfer pricing and loss of tax revenue to the State budget.
Chapter I
GENERAL PROVISIONS
Article 1. Governing scope
1. This Decree stipulates subjects; transfer pricing methods; the taxpayers’
obligation in declaring their transfer pricing; government agencies’
responsibilities in administering and carrying out tax audit and examination of
taxpayers with controlled transactions.
2. Controlled transactions subjected by this Decree's scope of application
include transactions between related parties conducting business with each other
as specified in Article 5 of this Decree, except transactions involving goods and
services governed by the price management legislation provided in the Law on
Price.
Article 2. Subjects of application
1. Organizations producing, trading goods and services (hereinafter
referred to as “the taxpayer”) that are subject to corporate income tax according
to the declaration method and have transactions with related parties as specified
in Article 5 of this Decree.
2. Tax authorities include the General Department of Taxation, Provincial
Tax Offices and District Tax Offices.
3. Other governmental bodies, organizations and individuals relating to
transfer pricing management, including tax authorities of nations and territories
with which Vietnam has Double Taxation Avoidance Treaty.
Article 3. Principles of application
1. The taxpayer having controlled transactions shall declare them; the
declaration shall include the elimination of factors distorting tax obligations
resulting from the relationship between the parties so that tax obligations in
controlled transactions are similar to that of comparable uncontrolled
transactions.
2. Tax authorities shall carry out the administration, examination and audit
of transfer pricing in controlled transactions based on the principle of arm’s
length and substance over form for the purposes of non-recognition of
controlled transactions resulting in tax revenue loss to the state budget and make
adjustments to determine tax obligations under this Decree.
Article 4. Interpretation of terms
1. “Tax treaty” is a short term of the Agreements on avoidance of double
taxation and prevention of tax evasion with respect to taxes on income between
Vietnam and other countries/territories (DTA) and Agreements amending,
supplementing Agreements applicable in Vietnam; “DTA partner(s)” means tax
authority (s) of country(s)/territory(s) that Vietnam has already signed DTAs
with.
2. “Controlled transactions” mean transactions between related parties in
the course of production, trading including purchasing, selling, exchanging,
leasing, renting, lending, borrowing, delivering or transferring goods or services
(including intra-group services; borrowing, lending services; financial services
and other financial instruments); purchasing, selling, exchanging, leasing,
renting, lending, borrowing, delivering or transferring property (intangible and
tangible property) or resources sharing (synergies; human resources sharing;
cost sharing among related parties).
3. "Uncontrolled transactions" are transactions between unrelated parties.
4. “Comparables” mean uncontrolled transactions or independent
enterprises selected based on comparability analysis to identify comparables for
determining price; profit margins; profit split ratio so that the amount of tax
payable to the state budget by the taxpayer is determined in line with the Law
on Tax Administration and Law on Corporate Income Tax.
5. "Material difference" is the difference in information or data materially
and significantly affecting price; profit margins; profit allocation proportion of
the taxpayer.
6. “Internal database of tax authorities” means information and data that
tax authorities develop and manage according to Articles 70 and 71 of the Law
on Tax Administration relating to determining the taxpayer's tax liabilities,
which are collected, analyzed, stored, updated and managed from various
sources, including database and information exchanged with foreign tax
authorities.
7. Principle of “Substance over form” is applied to identify the nature of
controlled transactions by comparing them with comparable uncontrolled
transactions, ensuring that controlled transactions reflect the nature of financial,
economic and commercial relations between independant parties and thereby
preventing the distortion of tax liabilities to the state budget. This principle
relies on the factual substance of the transactions between related parties to
eliminate factors resulting from the nature of controlled transactions regardless
of transaction form under contracts and agreements between related parties.
Identification of the nature of commercial, economic and financial relations
shall be based on arm’s length conduct between independent parties in
comparable circumstances.
8. “Arm's length range” is a range of figures on price, gross profit, net
profit or profit split ratio of independent comparables selected by tax authorities
and the taxpayer based on the databases as specified in Article 9 of this Decree.
9. “Benchmarking range” is a range of figures on price, gross profit, net
profit or profit split ratio of the independent comparables that are of high
representativeness, frequency and extensiveness, computed from the arm’s
length range to make comparison of, and evaluate the irrationality of price,
gross profit, net profit or profit split ratio in controlled transactions.
10. “The ultimate parent of the MNE group” (hereinafter referred to as
“the ultimate parent”) is a term applied to a legal entitiy which owns directly or
indirectly a sufficient interest in one or more other legal entities of such MNE
Group and is not owned by any other legal entities of such MNE group. The
ultimate parent’s consolidated financial statements are not consolidated into the
financial statements of any other legal entities worldwide.
Chapter II
SPECIFIC PROVISIONS
Article 5. Associated enterprises
"Associated enterprises" (below referred as "related parties") mean
parties having relations which belong to the following cases:
1. One party participates directly or indirectly in the management, control
or capital of the other party;
2. The parties are directly or indirectly subject to the management,
control or capital by another party;
3. The parties participate directly or indirectly in the management, control
or capital of another party.
Related parties subject to paragraphs 1, 2 and 3 mentioned above are
specified in detail as follows:
a) One enterprise directly or indirectly holds at least 25% of invested
capital of the owner of the other enterprise; or.
b) A third party directly or indirectly holds at least 25% of invested capital
of the owners of both enterprises; or
c) Both enterprises directly or indirectly hold at least 25% of invested
capital of the owner of a third party; or
d) One enterprise is the biggest shareholder regarding invested capital of
the owner of the other enterprise, directly or indirectly holding at least 10% of
investment capital of the owner of the other enterprise; or
e) One enterprise guarantees or gives to the other enterprise loans in any
form (including third party loans guaranteed by the related party and financial
transactions with similar nature) on the condition that such loans account for at
least 25% of invested capital of the owner of the borrowing enterprise and
account for over 50% of the total value of medium-term and long-term loans of
the borrowing enterprise; or
g) More than 30% of total members of the board of executive directors or
total members of the control board of one enterprise are appointed by the other
enterprise or one executive director or one member of the control board of one
enterprise who has power to decide on financial policies or business activities of
the other enterprise is appointed by the other enterprise; or
h) More than 30% of members of the board of directors or a member of the
board of directors who has power to decide on financial policies or business
activities of each of the two enterprises are appointed by the same third party: or
i) The two enterprises are managed or controlled in personnel, financial
and business affairs by individuals being members of a family who have
relations between husband and wife, parent and child (regardless of natural,
adopted children or children-in-law);
siblings of the same parent (regardless of natural or adoptive parent);
grandparent and grandchild of the same blood line; aunt or uncle and niece or
nephew of the same blood line; or
k) The business establishments have the relationship of head office and
resident establishment or are resident establishments of the same foreign
organization or individual; or
l) One enterprise manufactures or trades in products using intangible assets
and/or intellectual property rights of the other enterprise for which it has to
make a payment accounting for over 50% of the historical cost (or cost price) of
such products; or
m) Over 60% of the total value of raw materials, materials, supplies or
input products (excluding fixed asset depreciation expenses) used by one
enterprise for manufacturing or trading in output products are supplied by the
other enterprise; or
n) Over 60% of products (calculated for each kind of product) sold or of
sales and service provision by one enterprise is directly or indirectly controlled
by the other enterprise.
Article 6. Principle of comparability analysis
1. The principle of comparability analysis is applied as follows:
a) The comparability analysis shall follow the principles of arm’s length
and substance over form to accurately delineate the controlled transactions
before conducting the comparability analysis of independent comparables.
- Where no written terms exist or these are not in line with the arm’s
length principle, the controlled transactions shall be accurately delineated in
accordance with the business nature conducted by unrelated parties.
- Delineating the substance of transactions shall be based on gathering
factual information, evidence, and data about the transactions and risks assumed
by related parties.
b) The adjustment of material differences shall be applied to the
comparability factors for selecting reliable independent comparables and
making adjustments to the transfer prices in controlled transactions to determine
tax liabilities to combat tax loss to the state budget:
- The comparability factors include product characteristics; functions;
contractual terms and economic circumstances in which transactions take place.
The functional analysis shall reflect main functions in the relationship
between the use of assets, capital, expenses as well as assumption of risks
connected with the investment of such assets, capital and expenses and the
profitability associated with the transactions.
The analysis of economic circumstances shall include factors such as the
characteristics of the location specific advantages and cost savings attributable
to geographical factors, the local market and the centralization of functions to
create synergies; human resources sharing; cost sharing among related parties.
- The outcome of the analysis shall be the basis for adjustment of price,
profit margin or profit split ratio in line with the benchmarking range of
comparables selected as specified in Article 7 of this Decree.
2. Subjects of application of substance over form principle
The application of substance over form principle shall cover the
following cases:
a) Related parties earning revenues and income from engaging in
transactions with the taxpayer must have the title of, and control capability over
the risks of the property, goods, services, resources and the rights to create
income (shares, stocks and other financial instruments);
b) The taxpayer incurring the costs from engaging in transactions with
related parties must receive the benefits, economic value used to directly create
or contribute to creating revenue or adding value to the taxpayer’s operations;
c) The taxpayer incurring the costs which are not in line with the arm’s
length nature or do not contribute to creating revenue or adding value to the
taxpayer’s operations.
3. Process for conducting comparability analysis
The conduct of comparability analysis shall be applied as follows:
a) Accurately delineate the substance of the controlled transactions before
conducting the comparability analysis of independent comparables.
b) The conduct of comparability analysis, search for independent
comparables, shall be based on determination of years covered; analysis of
industry, market, economic circumstance; analysis of controlled transactions
and the taxpayer engaging in controlled transactions; database sources; transfer
pricing methods and adjustment of material differences.
The outcome of the analysis shall be the basis for adjustment of price,
profit margin or profit split ratio in line with the benchmarking range of selected
comparables to determine the taxpayer’s corporate income tax liabilities to
combat tax loss to the state budget
c) The conduct of comparability analysis, search for independent
comparables:
- Prioritize internal independent comparables of the taxpayer (these are
transactions between the taxpayer and unrelated parties), ensuring the
similarities in size, quantity and product characteristics, contractual terms and
functions.
- The comparison between associated and uncontrolled transactions shall
be made on the basis of each transaction by specific kind of product. However,
in case transactions cannot be separated based on each kind of product, the
aggregation of transactions shall be in line with the nature and practice of
business and apply transfer pricing methods as specified in Article 7 of this
Decree.
- Based on the selected transfer pricing method and independent
comparables, the adjustment shall be made to price, profit margin or profit split
ratio in line with the benchmarking range to determine the taxpayer’s corporate
income tax liabilities payable to combat tax loss to the state budget.
The outcome of comparability analysis shall ensure the similarity, and
there is no material difference affecting price, profit margin or profit split ratio,
between controlled and uncontrolled transactions. In case there are material
differences, the analysis shall be made to identify the materiality of these
differences and make adjustments to eliminate material differences based on
comparability factors materially affecting each of transfer pricing methods as
specified in Article 7 of this Decree.
- The minimum quantity of independent comparables selected after
comparability analysis and adjustment of material differences is as follows: 01
comparable in case there is no difference in the controlled transactions or
between the taxpayer engaging in controlled transaction and independent
comparables; 03 comparables in case there are differences between the taxpayer
and independent comparables but there are sufficient information and data for
eliminating all material differences; or 05 comparables in case there are only
information and data for eliminating most of material differences.
Benchmarking range shall be used to increase the reliability of the arm’s
length range.
- Data, vouchers, documents for comparability analysis shall be of the
same financial year as that of the taxpayer, except for cases where timing
extension needed as specified under this Point. Comparable data shall ensure the
reliability to be used for the purpose of tax declaration, calculation and
compliance with the regulations on tax, accounting and statistics.
Data of independent comparables shall be provided in appropriate format
to calculate price, profit margins, profit split ratio within a period of at least 3
consecutive fiscal years. For enterprises which have existed for less than 3 fiscal
years or carry out seasonal business activities which do not take place
throughout the year, such period may be a month, a quarter or a season as
appropriate.
With respect to relative figures of margins or ratios, the taxpayer shall
round such figures to the second digit following the decimal point. In case a
relative figure is disclosed with no absolute figures to comply with this
rounding principle, the disclosed figure shall be used.
- In case due to the unique or distinctive characteristics of controlled
transactions, the scope of comparability analysis shall be broaden in term of
industry, years covered and unique factors of controlled transactions.
The selection of independent comparables may be broaden to other subsectors of the national economy (according to the list of national economy
sectors promulgated by the competent state agency) which differ from the subsector of the taxpayer.
Timing of data and information of independent comparable may be
extended up to 03 (three) financial years prior to the time the controlled
transactions occurred.
The unique comparability factors of intangibles include the legal
ownership, the right to exploit and benefits, exclusive rights with respect to the
exploitation of intangibles. The analysis of intangibles shall be based on the
ownership; potential benefits from intangibles; geographical restrictions with
respect to the use, exploitation of rights in intangibles; rights, exclusivity and
non- exclusivity with respect to rights transferred; involvement of the transferee
in the development of intangibles and actual functions performed, ability to
control over risks of each related party based on the whole process of
development, enhancement, maintenance, protection and exploitation of
intangibles.
The scope of comparability analysis shall be broaden according to
principles of application as specified in Point b Paragraph 1 of this Article.
4. The Ministry of Finance guides the comparability analysis as specified
in this Article.
Article 7. Transfer pricing methods
The transfer pricing methods include:
- The comparable uncontrolled price method;
- The resale price method;
- The cost plus method;
- The transactional net margin method;
- The profit split method.
The selection of transfer pricing method to determine tax liabilities to be
paid to the state budget shall be based on substance of the method rather than
the name itself.
The most appropriate transfer pricing method is the one selected from the
5 methods mentioned above in line with the arm’s length principle and has
sufficient and the most reliable information, data and figures for comparability
analysis.
1. The comparable uncontrolled price method:
The comparable uncontrolled price method compares the unit price of
products in an uncontrolled transaction to the unit price of products in a
controlled transaction of the taxpayer.
a) Principle of application:
- The comparable uncontrolled price method is applied on the basis of
searching for reliable independent comparables; there is no material difference
between the unit price of products in the uncontrolled transaction and that in the
uncontrolled transaction or if there are any material differences, these shall be
eliminated.
- The priority comparability factors of this method are product
characteristics and contractual terms. The supplementary factors are economic
conditions and functions performed by the taxpayer
Comparability factors which materially affect the unit price of products
and need to be analyzed when using this method include: characteristics,
quality, trademark of products and size, value of transaction; contractual terms
on the provision and delivery of products: volume, time of delivery of products,
time of payment and other terms; distribution and sale rights of products,
services, properties affecting the economic value and the market in which the
transaction takes place and other factors affecting the unit price of products (if
any).
b) Calculation method:
- The unit price of products in a controlled transaction shall be adjusted to
that in an uncontrolled transaction or to the most appropriate point in the
benchmarking range of independent comparables as specified in this Degree.
- The adjusted unit price in the controlled transaction shall be the price
for tax calculation purposes, declaration and determination of corporate income
tax payable in order not to make loss of tax revenue to the state budget.
2. The resale price method
The resale price method is based on the selling price at which goods,
services, property are sold by an enterprise to an independent party for
determining the price at which these goods, services, property are bought from
the related party
a) Principle of application:
- The resale price method is applied on the basis of searching for reliable
independent comparables; there is no material difference in functions performed
and economic conditions materially affecting the gross margin or if there are
any material differences, these must be eliminated.
- The priority comparability factors of this method are functions
performed, assets used and risks assumed by the taxpayer and economic
conditions when controlled transactions occur. The supplementary factors are
product characteristics and contractual terms.
Comparability factors which materially affect the gross margin and need
to be analyzed when using this method are functions and economic conditions
including expenses reflecting the functions performed, assets used and risks
assumed by the taxpayer: commissionaire, limited risk distributor or full-fledge
distributor incurring expenses of advertisement, marketing, promotion;
economic conditions affecting production and business costs incurred at the
place where the transactions take place including: size and location of the
markets in which products are produced or sold; the extent of competition; time
and nature of transactions: wholesale, retail; accounting methods: components
of gross profit comprised of revenue (or net sales) and cost of goods sold of the
enterprise having controlled transactions and independent comparables should
apply the same accounting standards).
b) Calculation method
- The price at which goods, services, property are bought from a related
party is determined by subtracting (-) the gross profit derived by selected
comparables from the price at which goods, services, property are sold (net
sales) in the transactions with independent parties.
- The gross profit determined by independent comparables equals the
selling price (net sales) made by the taxpayer multiplying with (x) the gross
margin of selected independent comparables.
The resale price margin of the selected independent comparables shall be
the most appropriate point in the benchmarking range of the gross profit
margins for making adjustments in compliance with the principles specified in
this Decree.
- It is possible to subtract (-) other expenses included in the price: import
tax, customs charge, international insurance and freight... from the price at
which goods, services, property are bought from a related party.
- The adjusted purchase price in the controlled transaction shall be the
price for tax calculation purposes, declaration of expenses and determination of
corporate income tax payable in order not to make loss of tax revenue to the
state budget.
3. The cost plus method
The cost plus method is based on the cost (or cost price) of products
bought from independent parties for determining the selling price at which such
products are sold to related parties.
a) Principle of application
- The cost plus method is applied on the basis of searching for reliable
independent comparables; there is no material difference in functions performed
and conditions of transactions between independent comparables and the
taxpayer materially affecting the gross mark-up on costs or if there are any
material differences, these must be eliminated.
- The priority comparability factors of this method are functions
performed, assets used and risks assumed by the taxpayer and economic
conditions when controlled transactions occur. The supplementary factors are
product characteristics and contractual terms.
Comparability factors which materially affect the gross mark-up on costs
and need to be analyzed when using this method are functions and economic
conditions including expenses reflecting the functions performed and business
line in which the taxpayer operates: manufacturing; provision of services;
research and development; contractual terms: time of delivery of products,
quality control and storage expenses, payment conditions); accounting methods:
components of costs (or cost of goods sold) booked by the taxpayer should be
similar to that booked by independent comparables according to the same
accounting standards).
b) Calculation method
- The selling price or net sales in controlled transactions are determined
by adding (+) the cost (cost of goods sold) of products to the gross profit
derived by selected comparables.
- The gross profit determined by independent comparables equals the cost
(cost of goods sold) incurred by the taxpayer multiplying with (x) the gross
mark-up on costs of selected independent comparables.
The gross mark-up on costs of the selected independent comparables shall
be the most appropriate point in the benchmarking range of the gross mark-up
on costs for making adjustments in compliance with the principles specified in
this Decree.
- The adjusted selling price in the controlled transaction shall be the price
for tax calculation purposes, declaration of expenses and determination of
corporate income tax payable in order not to make loss of tax revenue to the
state budget.
4. The transactional net margin method
The transactional net margin method shall be based on the net profit
margins of selected independent comparables for determiningthat of the
taxpayer having controlled transactions where conditions of these transactions
are similar.
a) Principle of application
- The transactional net margin method is applied on the basis of searching
for reliable independent comparables; there is no material difference in
functions performed, assets used and risks assumed between independent
comparables and the taxpayer materially affecting the net profit margins or if
there are any material differences, these must be eliminated.
- The priority comparibility factors of this method are functions
performed, assets used and risks assumed by the taxpayer and economic
conditions when controlled transactions occur. The supplementary factors are
product characteristics and contractual terms.
Comparability factors which materially affect the net profit margins and
need to be analyzed when using this method are factors related to assets, capital,
expenses; actual control, decision-making based on that the taxpayer performs
its main functions; characteristics of the business lines, group of products and
stage of production or sale: finished products made from raw materials or from
semi-finished products; accounting methods and cost structure of products:
products in the period of accelerated depreciation compared to general
depreciation; economic conditions in which transactions take place: location of
business activities and markets in which products are sold.
Other factors which materially affect the net profit margins can be
identified from the fact-finding on related parties, including commercial or
financial relations that may not have been identified as a transaction by the
MNE: technical assistance, know-how sharing, use of seconded employees;
location specific advantages and cost savings thanks to geographical factors,
local market and the centralization of specialized functions, synergies.
- The application of this method shall be based on functions and the
nature of transactions to select the net profit before tax relative to sales, costs or
operating assets in line with the arm’s length principle.
It is possible to add (+) interest expenses or depreciations to net profit
before tax in order to determine the efficiency of production and business
activities of the taxpayer before making payment of these expenses.
b) Calculation method
- The net profit margins in controlled transactions are determined by
comparing with that of selected uncontrolled transactions, which then are used
to make adjustments, determine tax liabilities of controlled transactions.
- The net profit margins determined by independent comparables shall be
the most appropriate point in the benchmarking range of the net profit margins
for making adjustments, determination of corporate income tax payable in order
not to make loss of tax revenue to the state budget.
5. The profit split method
The profit split method is based on the profit earned from a combined
controlled transaction conducted by various related parties to determine an
appropriate profit for each of related parties in such a way that the independent
parties share profits in comparable uncontrolled transactions.
A combined controlled transaction conducted by various related parties
is a transaction of unique and distinctive character of the group or closely
interrelated and conducted simultaneously. A series of transaction may be
exclusive, hard to value intangibles and the entire process of development,
enhancement, maintenance, protection and exploitation among related parties; a
complex series of financial transactions relating to various financial markets
worldwide.
a) Principle of application
The profit split method is normally applied to the cases in which the
related parties jointly participate in researching into and developing new
products or developing products being exclusive intangible assets or in
transactions within the process of transitional production and business among
the related parties from the stage of materials to that of end-products for
circulation of products in association with the sole ownership or use of
intellectual property rights.
- The profit split method is applied on the basis of collecting reliable
independent comparables; determining the actual or expected total profit in line
with the arm’s length principle and there is no material difference in these
factors materially affecting the allocation profit ratio among related parties or if
there are any material differences, these must be eliminated.
- The priority comparibility factors of this method are product
characteristics, transactions and functions performed. The supporting factors are
contractual terms, product characteristics and economic conditions.
- The conduct of comparability analysis shall take into account the factors
which materially affect the net profit margins including: actual functions
performed, assets used and risks assumed; characteristics of the business lines,
group of products and stage of production or sale (e.g. finished products made
from raw materials or from semi-finished products); accounting methods and
cost structure of products (e.g. products in the period of accelerated depreciation
compared to general depreciation); the constituent elements of transactions
including revenues, expenses, assets or personnel of the related parties engaging
in the transaction which create revenue and income for the group and
comparability factors as specified in paragraph 4 of this Article.
b) Calculation method
- The taxpayer’s adjusted profit shall be allocated according to the
constituent elements of total profit (revenues, expenses, assets or personnel of
the related parties engaging in the transaction) or by functions performed each
of the related parties.
- Total profit is the actual profit or expected profit earned by related
parties in the transaction.
- The profit split ratio may include the ratio of basic profit allocation and
the ratio of residual profit allocation. The ratio of basic profit allocation is
determined from the independent comparables selected according to paragraphs
2, 3 and 4 of this Article. The ratio of residual profit allocation is determined on
the basis of the constituent elements of total profit: revenue, expenses, assets or
personnel of the related parties engaging in the transaction in line with the arm’s
length principle.
- The taxpayer’s adjusted profit is a basis for declaration of taxable
incomes, determination of corporate income tax payable in order not to make
loss of tax revenue to the state budget.
6. The Ministry of Finance guides the transfer pricing methods as
specified in this Article.
Article 8. Determination of expenses for tax purposes with respect to
specific transactions
1. Total interest expenses paid to related parties allowed to be deducted
for tax purposes do not exceed 20% of earnings before interest, taxes,
depreciation and amortization (EBITDA) of the taxpayer and do not exceed the
ratio of the group’s third party interest expense calculated based on EBITDA.
a) The taxpayer reports the ratio of total related party interest expenses
during the tax period of the taxpayer in Vietnam and the ratio of the group’s
total third party interest expense using the form number 01/NĐ-GCN as
specified by this Decree.
b) Related party interest expenses specified in this Article include:
- Related party interest expenses;
- Interest expenses paid to a commercial bank or an independent party
with the financing of the loan guaranteed, assured or committed by a related
party through its deposits in that commercial bank.
- Other financial expenses equivalent to interest expenses
2. Costs incurred in intra-group service are deducted where:
a) The rendered services are of commercial, financial and economic value
and used directly for the business activities of the taxpayer;
b) The intra-group services shall be considered as rendered where an
independent enterprise in comparable circumstances would have been willing to
pay for these services;
c) The payments are made based on the arm's length principle by which
the services rendered for other related parties' interests or value creation are not
allowed for deduction in the period when the taxpayer determines incomes
subject to corporate income tax;
d) The costs incurred in intra-group services are not allowed for
deduction for tax purposes include: duplication of services, shareholder
activities, incidental benefits and services provided to the taxpayer by a related
party acting as an intermediary which enters into any arrangements with third
parties to provide such services to the taxpayer.
e) The transfer pricing method and the principle to allocate the amount of
charge for intra-group services should be applied consistently in the whole
group with respect to the similar type of service.
g) Where intra-group services relate to the centers with specialized
functions and synergies, the taxpayer shall determine the total value created
from these functions, determine the amount of profit allocation appropriate to
the related parties' contributions after subtracting (-) the corresponding amount
of charge for the related party performing function of coordination and
provision of services in line with the arm's length principle.
3. Expenses incurred which do not satisfy with the arm’s length nature or
do not create revenues and added value to the taxpayer’s operations shall not be
deducted against taxable income, including:
a) Payment to related parties which do not have any business activities
related to the taxpayer’s;
b) Payment to related parties doing business with the taxpayer but the size
of asset, number of employees and functions of those related parties are
disproportionate to the value of transactions and the revenue received by them;
c) Payment to related parties which are unable to control risks over
property, goods and services provided to the taxpayers;
d) Payment to related parties which are resident of a country or territory
without corporate income tax.
Article 9. Databases used for declaration of transfer pricing and
administration of transfer pricing
1. Databases used for the pricing of controlled transactions made by
taxpayer include:
a) Commercial database of information providers
b) Information publicized or supplied to tax authorities by Ministries and
agencies
c) Information and data of the enterprises publicly listed on the securities
markets
d) Information, data published on the commodity exchanges, international
services
e) Other main sources of database
2. Databases used for administration of transfer pricing by tax authorities
a) Database on taxpayers under the management of tax authorities
b) Commercial database of information providers
c) Information, data exchanged with foreign tax authorities
d) Information publicized or supplied to tax authorities by Ministries and
agencies
e) Information and data of the enterprises publicly listed on the securities
markets
g) Information, data published on the commodity exchanges, international
services
h) Other main sources of database
2. The selection of comparables to arrive at the arm’s length range shall
comply with the principle of comparability analysis and the transfer pricing
methods as specified in this Decree according to the following priority order:
a) Internal comparables of the tested party;
b) Comparables residing in the same country, territory with the tested
party;
c) Comparables in the region with the similar level of economic growth
and conditions of industries.
Article 10. Obligations of taxpayer with respect to declaration of
transfer pricing
1. The taxpayer engaging in controlled transactions subject to this Decree
is obliged to declare and determine transfer prices in line with the arm’s length
principle; conduct comparablity analysis to arrive at a benchmarking range;
adjust transfer prices to the most appropriate point in the benchmarking range
but these adjustments do not reduce the corporate income tax liabilities to be
paid in Vietnam.
2. The taxpayer engaging in controlled transactions is obliged to declare
information related to controlled transactions including: information on related
parties, controlled transactions according to form No. 01/NĐ-GCN as specified
in this Decree and submit it together with the corporate income tax finalization
declaration.
Transfer pricing documentation includes Master file; Local file and
Country by Country Report in case that the ultimate parent is obliged to submit
this report to partner country under DTA signed with Vietnam. Transfer pricing
documentation shall be prepared before filing the annual corporate income tax
return and maintain, present upon the request of tax authorities. Data, vouchers
and documents used as grounds for comparability analysis, pricing must be of
clear sources so that they can be examined and verified by tax authorities.
3. Upon the request of tax authorities during the consultation phase as
specified in Article 11, 12 of this Decree, the taxpayer is obliged to provide
complete and accurate information in the transfer pricing documentation and is
responsible before the law with respect to that information. The time limit for
providing information in the transfer pricing documentation shall not exceed 15
working days from receipt of the request by tax authorities as shown in the
Minutes of the consultation meeting. Where the taxpayer has a good reason, the
deadline may be extended one time but not exceeding 15 days from the expiry
date.
4. Independent auditing agencies providing services of declaration of
transfer pricing and preparation of the transfer pricing documentation are
responsible for the implementation of auditing standards, professional ethics
standards of accounting, audit and compliance with the principles of
independent auditing activities. Independent auditing agencies representing
taxpayers prepare the transfer pricing documentation are responsible for
compliance with the regulations on transfer pricing management and taking
responsibility before law for consulting activities, preparing the transfer pricing
documentation for their clients, ensuring accurate and right amount of corporate
income tax payable in Vietnam corresponding to earnings, revenue and value
creation by the taxpayers.
5. The transfer pricing documentation and information, documents and
evidence supplied by the taxpayer to tax authorities are originals or copies in
compliance with the provisions of law. In case the taxpayer uses e-evidence, the
supply thereof shall comply with the Accounting Law and relevant guiding
documents regarding e-vouchers. Documents and vouchers in a foreign
language must be translated into Vietnamese under the provisions of the
Accounting Law and the accounting regime and the taxpayer shall take
responsibility for the contents of the translations.
The Ministry of Finance shall base on this Article and the provisions of
this Decree to give guidance for transfer pricing documentation.
Article 11. Exemption from the obligation to prepare transfer pricing
documentation
Taxpayers are obliged to declare the pricing of controlled transactions
according to Form No. 01 / ND-GCN but are exempt from the obligation to
prepare transfer pricing documentation in the following cases:
1. Where the taxpayer engages in transactions only with the related
parties in Vietnam and all of them apply the same tax rate of corporate income
tax, none of them is entitled to corporate income tax incentives, the taxpayer
shall be exempt from the obligation to prepare the transfer pricing
documentation.
2. Where a taxpayer has engaged in a controlled transaction but the total
revenue generated in the tax year does not exceed 50 billion VND and the total
value of the controlled transaction does not exceed 30 billion VND.
Article 12. Powers and responsibilities of tax authorities in the
administration of transfer pricing
Tax authorities shall carry out the responsibilities and powers under the
provisions of tax laws as stipulated in the legal documents on tax. For the
administration of transfer pricing, tax authorities have the following powers and
responsibilities:
1. Apply risk management in the tax management with respect to transfer
pricing as defined in the Tax Administration Law.
2. Impose tax assessment in relation to the pricing of controlled
transactions including prices; profit margin; profit split ratios to be used for tax
declaration and calculation, assessment of taxable incomes or amount of
payable income tax for the taxpayer having controlled transactions during the
tax period in the following cases:
a) The taxpayer fails to declare information about controlled transactions
as specified in this Decree;
b) The taxpayer violates regulations on preparation of the transfer pricing
documentation according to the provisions of this Decree;
c) The taxpayer fails to present the transfer pricing documentation as
required by tax authorities;
d) The taxpayer makes use of unlawful or invalid documents, data and
evidence or fail to specify the sources of documents, data and vouchers they
have used for determining prices, profit margins, profit split ratios applied to
controlled transactions;
e) The taxpayer is exempted from the obligation to prepare transfer pricing
documentation as specified in Article 11 of this Decree but violates the
regulations on transfer pricing in this Decree.
h) The taxpayer has used dishonest, untruthful information on uncontrolled
transactions to conduct comparability analysis, price controlled transactions.
3. Tax authorities shall base on the principle of comparability analysis,
principles and transfer pricing methods as specified in this Decree and declared
information on tax liabilities of the taxpayer having controlled transactions to
make tax assessment on the following principles:
a) In case the taxpayer has fully implemented the regime of accounting,
invoices and evidence: the adjustment of revenue, cost or taxable income for
determining tax liabilities shall follow the principle of comparability analysis,
transfer pricing methods and databases used in the administration of transfer
pricing as specified in this Decree;
b) Other cases: the assessment of tax shall be conducted on the basis of
internal database of tax authorities under regulations on tax assessment
applicable to enterprises which have not fully implemented the regime of
accounting, invoices and evidence or under regulations on handling of taxrelated violations.
4. Tax authorities are responsible for keeping confidential information
about the pricing of controlled transactions supplied by the taxpayer as specified
in this Decree. The supply of information to relevant state agencies,
organization must comply with the Paragraph 5 of this Article.
5. In case there are concerns about the mechanism, the transfer pricing
policy applied to the specialized industries or sectors, tax authorities shall
consult the related agencies, organizations and individuals, in particular:
a) Specialized management agencies, specialized organizations and
relevant industry associations.
b) Tax authorities are responsible for providing documentation,
information, data on the pricing of controlled transactions for specialized
agencies and organizations which are consulted. These agencies and
organizations are responsible for keeping confidential information under the
provisions of tax laws.
6. Tax authorities can exchange information with taxpayers and partner
tax authorities under the consultation procedure before, during and after the
audit, examination of transfer pricing as follows:
6.1. Where tax authorities find it necessary to discuss in advance with the
taxpayer through the application of risk management in the tax management
with respect to transfer pricing, they shall send a written request for consultation
meetings with taxpayers to exchange, provide in advance information about the
transfer pricing document of the taxpayer under the provisions of this Decree.
6.2. Where the tax authorities need to communicate, exchange
information with the partner tax authorities partners as defined in the article on
Mutual Agreement Procedure and Exchange of Information under the relevant
DTA, the time limit to exchange information between the two tax authorities
shall follow the provisions of that relevant DTA. In case of necessity, tax
authorities shall send written notice to the taxpayer about the temporary
suspension of audit, examination in order to exchange information with partner
tax authorities.
Article 13. The responsibility of the Ministries, agencies in the
administration of transfer pricing
1. The Ministry of Finance:
a) Take responsibility before the Government for performing the state
administration on transfer pricing under the provisions of this Decree;
b) Chair and coordinate with the Ministry of Information and
Communications to diffuse, propagate the state administration of transfer
pricing;
c) Conduct audit, examination of enterprises having controlled transactions
under the provisions of risk management in tax administration.
2. The State Bank:
a) Coordinate and provide for Ministry of Finance information on foreign
currency transactions with the foreign partners of the enterprises subject to
corporate income tax in Vietnam, who have signs of transfer mispricing, tax
avoidance and evasion upon tax authorities’ request;
b) Provide information, data on loans, interest payment to foreign
enterprises made by Vietnamese enterprises including data about the loan value,
loan limits, interest rate, term of interest payment and principal payment, the
actual disbursement, interest paid and other related information.
3. The Ministry of Planning and Investment:
a) In charge of developing a database on the system of national economic
sectors; provisions on the registration of business line; database on capital
structure at the time of grant and the time of adjustment, modification of
investment and business licenses of enterprises.
b) Coordinate, provide and exchange for tax authorities upon their request
information relating to investment projects when tax authorities carry out audit,
examination and identify the signs of transfer mispricing for the purpose of tax
avoidance and evasion.
4. The Ministry of Science and Technology:
a) In charge of developing databases related to the Contract of technology
transfer, trademark transfer, granting the right to use the trademark, the
registration dossier on intellectual property rights, industrial property rights and
the rights related to intangible assets
b) Develop regulations on technology transfer, intellectual property for the
purpose of transfer pricing management;
5. The Ministry of Information and Communications:
a) Develop regulations on the digital economy, including a database on
enterprises granted to do business in the area under its management.
b) Coordinate and exchange information on controlled transactions related
to digital upon the request of the Ministry of Finance.
6. The Ministry of Industry and Trade:
a) In charge of developing a database on franchising, database on traded
price of the commodities on the international commodity exchanges.
b) Provide information upon tax authorities’ request for the managenent of
transfer pricing;
7. People's Committees of the provinces and cities under the Central
Goverment:
a) Direct the Department of Planning and Investment and the related
departments and agencies to implement the provisions on the administration of
transfer pricing;
b) Direct the Department of Planning and Investment and the departments
and agency to develop database in the field of specialized sector management
for the purpose of transfer pricing management.
Chapter III
IMPLEMENTATION PROVISION
Article 14. Effectiveness of Implementation
This Decree shall be effective since ...
Article 15. Guidance, organization of implementation
The Ministry of Finance gives guidance, organizes the implementation of
this Decree and coordinate with state agencies, political organizations, political
- social organizations, social institutions and social – professional organizations
to propagandize, educate and mobilize people to implement and monitor the
implementation of this Decree.
Article 16. Responsibility for implementation
Ministers, Heads of ministerial-level agencies, Heads of governmental
agencies, Chairman of People's Committees of provinces and cities directly
under the Central Government and the organizations and individuals concerned
shall be responsible for implementing this Decree ./.