Decree No. 20/2017/ND-CP (“Decree 20”) guiding tax management on transfer pricing (TP)

On 24th February 2017, the Government issued Decree No. 20/2017/ND-CP guiding tax management for enterprises which have related party transactions. There are some changes in Decree 20 compared with Circular No. 66/2010/TT-BTC issued by the Ministry of Finance.

  1. Principles

The tax authority shall manage, check, and inspect prices of related party transactions performed by taxpayers based on arm’s-length transaction and substance-over-form principles.

  1. Related parties

The threshold of investment capital of the owner increases from 20% to 25%.

In the past, two parties are considered to be related parties in case the value of purchases or sales made to each other accounts for 50% or more of the total value of purchases or sales. Under Decree 20, such related party relationship has been removed.

  1. Comparable analysis,

In case related party transactions are unique and it is unlikely to find an independent comparable transaction, the scope expansion in comparable analysis will be carried out in terms of industry, geographical market, and time.

Expanded time to collect data/figures from independent comparable transaction/company shall be restricted to one financial year in comparison with the financial year of taxpayers in case the pricing method stipulated by Clause 2, Article 7 of Decree 20 is used.

  1. Determination of taxable expense in some specific cases for enterprises engaged in particular related party transactions

The total deductible interest expense incurred during the tax period shall not exceed 20% of net profit before tax, interest, and depreciation expense (EBITDA).

  1. Rights and responsibilities of tax payers in declaration and determination of price of related party transactions

Tax payers have responsibility for archiving and providing transfer pricing (TP) documentation, which includes:

  • Local report with required contents in Form No. 2
  • Group information report with required contents in Form No. 3
  • Report on the international profitability results of the Ultimate Parent Company based on Form No. 4

(Ultimate Parent Company is a legal entity which has direct or indirect ownership of other entities in a multi- nations-corporation. The Ultimate Parent Company is not owned by any other legal entity, and its consolidation financial statements would not be consolidated in any other legal company’s financial statement in the world)

  1. Exemption from preparation and declaration of TP documentation

(i) Exemption from preparation of declaration on Section III and IV under Form No. 01 (partial exemption)

–           In case taxpayers have transactions only with related parties subject to Corporate Income Tax (CIT) in Vietnam.

–             A Taxpayer and its related parties apply the same CIT rate and enjoy no CIT incentive.

(ii) Exemption from preparation of TP report (submit Form No. 01 only)

–           Taxpayers have revenue less than VND 50 billion and the value of its related party transactions is less than VND 30 billion.

–             Taxpayers have signed an Advance Pricing Agreement (APA) and submitted annual APA report.

–          Taxpayers perform simple business function, create no revenue and expenses from exploitation and usage of intangible assets, and have revenue less than VND 200 billion and achieve a ratio of earnings before interest and tax to revenue at least 5% for distribution function, 10% for manufacturing, and 15% for processing.

  1. Rights of tax authorities in TP management

The tax authority shall have the right to impose prices, profit margins, profit allocation ratio used to declare tax, the assessable income or corporate income tax in following cases:

  • Taxpayers fail to declare or declare insufficient information of related party transactions or do not submit Form No. 01 as stipulated in Decree 20.
  • Taxpayers provide insufficient information in relation to TP documentation as stipulated in Form. No 02 and Form No. 03 or do not present TP documentation and data, evidences and documents used as the basis of comparability analysis.
  • Taxpayers use unreliable and impractical information to perform comparable analysis, to declare prices in related party transactions or rely on illegal or invalid document, data and evidences or fail to specify the sources used to determine prices, profitability ratios or profit allocation percentages applied to related party transactions.
  • Taxpayers have breaching behavior to the regulation of transfer pricing.
  1. Effect

This Decree will be effective from 01 May 2017.


Official Letter No. 658/TCT-CS about license fee

On 28th February 2017, the General Department of Taxation issued Official Letter No. 658/TCT-CS about license fee for representative office.

For representative offices performing business operation activity, the offices shall pay license fee. On the contrary, representative offices not performing business operation activity do not need to pay license fee as regulated.