Vietnam: Transfer pricing rules are updated

Vietnam: Transfer pricing rules are updated

A new decree (No. 132/2020/NĐ-CP (5 November 2020)) revises the transfer pricing rules in Vietnam, and replaces earlier guidance.


The rules in the new decree are effective beginning 20 December 2020, and apply for the tax year 2020 and later.

Among the revisions in the new transfer pricing decree are the following:

  • Application of the transfer pricing rules in the decree applies to taxpayers paying corporate income tax and that have related-party transactions, and thus, this may imply that foreign contractors could also be subject to the application of the decree.
  • There is a new arm’s length range, and the decree defines the standard arm’s length range to be the 35th to 75th percentile value derived from at least five independent comparables (the lower bound of the arm’s length range is increased from the previously provided 25th percentile). In instances when the results fall outside the arm’s length range, the tax authority can make a transfer pricing adjustment to the median value of this range.

KPMG observation

Taxpayers need to re-evaluate their transfer pricing policies and positions for the tax year 2020 and, when necessary, align their benchmarking analyses to mitigate transfer pricing risks.

  • Use of commercial and public databases is a valid data source for performing benchmarking analysis by both taxpayers and tax authorities. The new decree allows the tax authority to use internal databases of the government (i.e., “secret comparable data”) in making a transfer pricing adjustment in instances when a taxpayer is deemed not fully compliant with the relevant requirements of the decree.
  • Enhanced requirements on country-by-country (CbC) reporting include:
    • For a Vietnamese ultimate parent company (with worldwide consolidated revenue in a fiscal year from VND 18,000 billion)—the CbC report must be filed within 12 months from the end of the applicable fiscal year.
    • For a Vietnamese taxpayer with a foreign ultimate parent company that is required to prepare a CbC report in its respective jurisdiction, or if the foreign ultimate parent company appoints another entity (“surrogate parent”) to file the CbC Report on its behalf in the Surrogate Parent’s country of residence—in principle, the Vietnamese tax authorities will obtain the CbC report from the respective overseas jurisdiction through the automatic exchange of information (AEOI) measures. However, local (domestic) filing, on request, is required if the CbC report cannot be exchanged because: (1) there is no competent authority agreement between Vietnam and the respective overseas jurisdiction; or (2) due to systematic failure of the exchange mechanism (e.g., suspension of the AEOI or the CbC report not automatically provided to Vietnam). Taxpayers that may be subject to local filing need to provide advance written notification to Vietnamese authorities, on or before the fiscal year end date of the ultimate parent company, in the following situations: (1) when there are multiple subsidiaries in Vietnam, the ultimate parent company delegates the local filing obligation to one entity; or (2) to provide information (name, tax code, jurisdiction) of the ultimate parent or the surrogate parent, if applicable.
  • The interest deductibility cap rules have been relaxed, and the changes include:
    • The cap is increased to 30% (from 20% under Decree 20) of total net operating profit before interest, tax, depreciation, and amortization.
    • The interest expense subject to the cap calculation is the net amount, i.e. interest expense after offsetting against interest income (from deposits and loans). The offset of interest income against interest expense was not addressed in the prior guidance.
    • Non-deductible interest expense can be carried forward for use in future years within a five-year limit, provided that the interest expense of the future years does not exceed the 30% cap.
    • Certain government assistance loans are exempt from this interest limitation rule.

KPMG observation

The question of interest and which amount is capitalized and not expensed, is not specifically addressed in Decree 132, and remains an area of uncertainty.

Other notable points

The definition of related parties is now broadened to include situations related to capital transfers and loans between enterprises and individuals that manage or control such enterprises or individuals under one of the prescribed relationships. This could imply that such transactions are now considered to be related-party transactions, and therefore, must conform with the arm’s length principle.

The decree implies that overseas related parties can be selected as the “tested party” for benchmarking purposes, depending on specific facts and circumstances of the parties involved and/ or nature of the related-party transactions.

The deadline for submitting the transfer pricing documentation at the request of the tax authority in the event of a tax or transfer pricing audit is not specified, and may mean that taxpayers must provide the transfer pricing documentation within several days upon request from the tax inspectors.

Taxpayer engaged in related-party transactions solely with domestic related parties can be exempt from preparing transfer pricing documentation if the following conditions are met: (1) the taxpayer and related parties have the same corporate income tax rates, and (2) none of the parties enjoys tax incentives.

Read a 2020 report [PDF 115 KB] prepared by the KPMG member firm in Vietnam

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