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Update on transferpricing issue in Vietnam

Update on transferpricing issue in Vietnam

Update on transferpricing issue in Vietnam

Let us review some events related to to transferpricing-avoidance activities of Vietnam Tax Authority up to today:

  • On December 19, 2005, the Ministry of Finance issued Circular 117/2005/TT-BTC to guide on the determination of market prices in business transactions between associated parties (this circular is effective from 2006 to 2009).
  • On April 22, 2010, the Ministry of Finance issued Circular 66/2010/TT-BTC to guide on the determination of market prices in business transactions between associated parties (this circular replaced Circular 117/2005/TT-BTC and takes effect from 2010 onwards).
  • On February 15, 2012, the Team of tax administration on transfer pricing activities was established by the General Department of Taxation.
  • On May 21, 2012, the Ministry of Finance issued Decision 1250/QD-BTC to approve the action program to control the transfer pricing activities in the period of 2012-2015.
  • On December 20, 2013, the Ministry of Finance issued Circular 201/2013/TT-BTC to guide on the application of Advance Pricing Agreements (APA) in tax administration.
  • [Latest news] On July 29, 2015, the Ministry of Finance issued consecutively 02 Decisions: Decision 1484/QD-BTC on the establishment of Transfer Pricing Inspection Department of the Inspection Department – General Department of Taxation and Decision 1483/QD-BTC on the establishment of Transfer Pricing Inspection Department of the provincial Tax Department level, including Hanoi, Binh Duong, Dong Nai and Ho Chi Minh City. Soon after, on September 01, 2015, the General Department of Taxation also issued consecutively 02 Decision 1574/QD-TCT and 1575/QD-TCT specified in detail functions and tasks of these Transfer Pricing Inspection Departments.

Documents system mentioned above is considered as the tool, the legal basis for the combat of transfer pricing activities of Tax Authority. And the issuance of Decision 1250/QD-BTC aproving action program to control transfer prices, as well as the establishment of Transfer Pricing Inspection Departments and the specific provisions on the functions, tasks of these departments at both the General Department of Taxation and provincial Tax Department level shows the determination of Ministry of Finance in this combat.

The actual implementation.

The fact that in recent years, the Ministry of Finance has directed Tax Authority at all hierarchies to focus inspection on enterprises with signs of associated transactions or transfer pricing, on Foreign Direct Investment enterprises, on enterprises operating for many years but not inspected, on enterprises enjoying CIT incentives... The Tax Authority was initially successful with this orientation. According to statistics of the General Department of Taxation, in only 09 months of 2013, the Tax Authority has been inspected and checked for 1,223 loss enterprises and enterprises with signs of transfer pricing, collected arrears, penalized, claimed 481 billion VND and reduced loss of 1,697 billion VND.

Our recommendation

Under the provisions of Circular 117 and Circular 66, enterprises incurring transactions with associated parties are required:

  • Annually, filing declaration of the associated transactions information enclosed with CIT finalization declaration.
  • Preparing and storing the dossier of market prices determination (under the guidance of Circular 66) for the annual declaration to present to the Tax Authority upon request. Under the provisions, enterprises must present this dossier within 30 working days since the Tax Authority requests.

Without these above dossiers, when taxpayers are inspected on transfer prices with associated transaction, the Tax Authority may impose a fixed tax amount, and penalizes late payment for detected taxes (if any) (interest on late payment of 0.05%/day, equivalent to 18.25%/year).

To minimize this risk, we recommend the Company to pay attention to the above points.

Should the Company need support in this issue, we are willing to provide the related services as following:

  • Review and analysis of Transfer Pricing risks and and opportunities
  • Supporting and consulting to prepare the dossier of market prices determination
  • Tax audit defense
  • Advance pricing agreement
  • Completion of the procedures requested from the authorities
  • Planning and complying Transfer Pricing
  • Due Diligence
  • Analysis of supply chain