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Vietnam: Country-by-country reporting part of expanded transfer pricing documentation guidelines

Vietnam: Country-by-country reporting

The Vietnamese government has approved a decree concerning transfer pricing documentation, and the decree introduces requirements for country-by-country (CbC) reporting and includes Master file and Local file requirements.


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Decree No. 20/2017/ND-CP (24 February 2017)—Quy định về quản lý thuế đối với doanh nghiệp có giao dịch liên kết—concerns the management of transfer pricing in Vietnam.

The decree is applicable from 1 May 2017, meaning that it will be effective from the 2017 financial year. The following discussion provides an overview of the documentation guidelines under the decree.

Contemporaneous transfer pricing documentation

The contemporaneous documentation requirement included in the decree includes measures for implementation of the documentation requirements, as provided under the Organisation for Economic Co-operation and Development (OECD) base erosion and profit shifting (BEPS) recommendations for BEPS Action 13. These requirements are more precise in comparison to the previous rules under Circular 66. 

The new decree specifies that a transfer pricing documentation package must include (1) a Master file, (2) a Local file, and (3) a country-by-country (CbC) report. Other requirements under the decree provide:

  • Taxpayers in Vietnam must submit a copy of their ultimate parent company’s CbC report when it is the ultimate parent company’s obligation to submit such CbC report to its respective foreign tax authority. 
  • The CbC reporting requirement applies for a Vietnamese corporate group having consolidated global revenue of VND18,000 billion (approximately €750 million) or more in the applicable tax period. 
  • The transfer pricing documentation package must be available in the Vietnamese language before taxpayers file their annual corporate income tax (CIT) returns.
  • In the event of a specific transfer pricing audit, taxpayers will have 15 business days in which to submit transfer pricing documentation package following the receipt of a written request from tax authorities. 
  • During the “consultation procedure” (prior to the audit), taxpayers will have 30 business days, on receiving a written request from the local tax authority, in which to submit their transfer pricing documentation package to the local tax authorities. The 30-day period may be extended once by an additional 15 business days when the taxpayer provides a reasonable explanation for the extension.

“Safe harbor” for transfer pricing documentation

Certain thresholds are provided that exempt multinational entities from the documentation requirements in Vietnam. The safe harbor exemption applies for taxpayers that satisfy the following.

  • Threshold of revenue and value of related-party transactions—The taxpayer’s annual revenue does not exceed VND50 billion (approximately U.S. $2.27 million) and the total value of the related-party transactions does not exceed VND30 billion (approximately U.S. $1.36 million)
  • Threshold of profit margin for taxpayers that perform “routine functions” and do not generate revenue or incur expenses from exploitation and use of intangibles—The taxpayer’s annual revenue does not exceed VND200 billion (approximately U.S. $9.08 million) and the ratio of net operating profit before interest and corporate income tax to net sales revenue (i.e., operating margin) exceeds: 
    • 5% for distributors
    • 10% for manufacturers
    • 15% for toll manufacturers

The safe harbor exemption is also available for taxpayers having an advance pricing agreement (APA) in place and that have submitted an annual APA report in accordance with the APA regulations. However, for those taxpayers’ related-party transactions not covered by the APA, the taxpayers must comply with the new transfer pricing documentation requirements (in other words, the safe harbor exemption does not apply).

Taxpayers that satisfy the requirements for the safe harbor exemption from the transfer pricing documentation rules still must comply with the mandatory disclosure form (as described below).

Mandatory disclosures – Form No. 01

The rules for mandatory disclosures about related-party transactions and transfer pricing information include a requirement that taxpayers provide for information about: (1) the transfer pricing methods applied; (2) the values and types of transactions; and (3) the country of residence of the related parties, among other information. This information must be reported within 90 days of the end of a financial year. 

A significant change to new Form No. 01 concerns “voluntary” transfer pricing adjustments regarding the operating results of taxpayers, with three forms provided for:

  • Taxpayers in manufacturing, trading and services sectors
  • Taxpayers in the banking sector
  • Taxpayers operating as securities companies or fund management companies for securities investment

Taxpayers that only engage in transactions with Vietnamese (domestic) related parties are exempt from making a disclosure on Form No. 01 under Section III (concerning information on the determination of transfer prices for related-party transactions) and Section IV (business result after determining the transfer prices in related-party transactions) when both entities are subject to the same rate of corporate income tax and none of the entities receives any corporate income tax incentive during the relevant tax period. However these taxpayers are still required on Form No. 01 to declare the basis for the exemption in Section I (concerning information about the related parties) and Section II (situations that are entitled to exemption from the disclosure obligation, provision of transfer pricing documentation).   

New principles and rules

A number of new principles and rules are introduced or enhanced with the decree. These include:  

  • The “substance over form principle” meaning that the transfer pricing analysis can go beyond the review of contractual arrangements to an analysis of the substance linked to value creation
  • Measures for the comparability of related-party transactions against independent transactions (the arm’s length requirement)
  • Consideration of “development, enhancement, maintenance, protection and exploitation” (DEMPE) functions with respect to intangibles.

The application of these principles will enable the tax authorities to disregard or re-characterize related-party transactions in instances when those transactions result in reduced tax revenue. 

Related-party transactions and non-deductible expenses

Related-party transactions that are inconsistent with the arm’s length principle or that do not contribute to generating revenue or add value to the production and business activities of the taxpayer will be considered to be non-deductible expenses. These include: 

  • Expenses paid to a related party that does not conduct any business activities relating to the taxpayer’s business activities
  • Expenses paid to a related party that conducts business activities, but that party’s scale of assets, number of employees and functions performed do not correspond with the value of business transactions and the income received by that party from the taxpayer
  • Expenses paid to a related party that does not have a right to and responsibility for the assets, goods, and services provided to taxpayer
  • Expenses paid to a related party that is a resident of a country or jurisdiction that does not apply corporate income tax, and that does not contribute to generating revenue or adds values to taxpayer’s business activities

Intra-group services fees

Taxpayers with service expenses must satisfy a number of conditions to be allowed a deduction for these expenses. In summary, taxpayers need to be able to prove that:

  • The service received had economic, financial, and commercial value and that the services directly benefit taxpayer’s business activities
  • The services were determined under similar conditions for which independent parties are willing to pay for such services
  • The service fee is calculated based on the arm’s length principle, with consistent transfer pricing methods being applied within the group
  • Sufficient supporting documents were maintained including contracts, invoices, and information about the calculation methods applied and factors used to determine the allocation ratio and pricing policy

Expenses for services considered to be “shareholders activities” or duplicative services may be disallowed. 

Interest deduction on intercompany loans

Total interest expenses incurred in the tax period, to be deductible, must not exceed 20% of a taxpayer’s net profit before interest, taxes, depreciation and amortization (EBITDA).

Secret comparables vs. commercial databases and public information or data

It is understood from the drafting process of the decree that the use of secret comparables was being considered for tax risk assessment purposes by the tax authority only, and that the use of commercial databases and public information was to prevail in situations of a proposed tax assessment during a transfer pricing audit.  However, the text of the new decree is not clear on this point. 

The decree states that the tax authority may use different sources of information—including commercial databases and publicly available data—as well as the tax authority’s own database and other information provided by ministerial bodies for the purposes of transfer pricing risk assessment and tax adjustment.

However, in transfer pricing audit cases when taxpayers fail to submit the required forms or the transfer pricing documentation within the statutory timeline, the tax authorities will have absolute authority to assess the transfer price and/or profits of the taxpayers based on the “secret comparables.”

Clearer bases for the tax authorities to make transfer pricing assessment

The decree clarifies the bases for which the tax authorities can make determinations of price or can apply a profit margin or profit split ratio or can impose taxable income or a tax amount. For instances, this authority applies if: 

  • The taxpayer does not declare, does not declare sufficiently, or does not submit Form No. 01.
  • The taxpayer does not provide sufficient information on its transfer pricing documentation in accordance with Form No. 02 (Local file) and Form No. 03 (Master file) or does not present transfer pricing documentation and data, document and source documents used as the basic of comparative analysis, or its determination of a transfer price with respect to a related-party transaction in its transfer pricing documentation when requested by the tax authorities within the permitted period of time.
  • The taxpayer uses dishonest and untruthful information of the independent transactions to perform comparability analysis and to determine the transfer prices of a related-party transaction or the taxpayer determines the price, or the basis of profit ratio or profit split ratio applied in the related-party transactions, using  documents and data that are illegal or improper or that originate from an unclear source.


For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Vietnam:

Thuy Duong Hoang | +84 439461600 |

Alvaro Flores | +84 838219266 |

Thuy Ha Dang | +84 838219266 |

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