Vietnam: Updates On Transfer Pricing In Vietnam

Remarkable changes on transfer pricing have been introduced for enterprises that have controlled transactions, with an effective date of 1 May 2017.

The changes under Decree 20/2017/ND-CP include ownership threshold, transfer pricing (TP) documentation requirements and exemption of enterprises. Decree 20's effective date was 1 May 2017.

The decree was issued to enhance tax administration on transfer pricing, and requires more complicated TP documentation and provides stricter rules on deductibility of related party expenses. It provides tax management guidance on transfer pricing in enterprises, and is for enterprises that have controlled transactions. The decree replaces Circular 66/2010/TT-BTC.

The changes

Under decree 20:

  • The ownership threshold increased to 25% from 20%.
  • Two entities with mutual transactions more than 50% of sales/purchases are no longer treated as related parties.
  • TP documentation is more complicated and includes a master dossier on global group information, a local dossier and country-by-country profit report. The documentation must be submitted by the annual tax return deadline (within 90 days after the fiscal year-end).
  • Dossier of identifying related-party transaction prices should be prepared by the deadline of the annual Corporate Income Tax (CIT) finalisation, and provided to the tax office within 15 working days from the date of the tax request.
  • More detailed guidance on benchmarks such as use of data sources, TP method selection, minimum numbers of comparable companies and other adjustment factors is provided.
  • The following entities are exempted from TP documentation:
  • Entities with revenue below VND50Billion and total value of related-party transaction below VND30Billion in a tax period
  • Entities concluding an Advanced Pricing Agreement (APA) and submitting annual APA reports
  • Entities with sales revenue below VND200Billion and achieving at least 5% for distribution, 10% for manufacturing and 15% for processing for ratios of earnings before interest and tax to revenue.
  • Tax payers that only have transactions with domestic related parties, the same tax rate and no entity entitled to tax incentives can be exempt from reporting information about these transactions.

Loan interest applicable to both related-party and third-party loans are capped at 20% earnings before interest, tax, depreciation and amortisation (EBITDA).

For services between related parties, the tax payer must prove the economic benefit and provide sufficient evidence (supporting documents such as a contract, invoice etc) on calculation method, proportion method and price policy of the group for services provided. The mark-up portion of third-party expenses recharged to Vietnam entities are not deductible for CIT purposes.

Decree 20 mainly affects companies with various related party transactions. Interest loans with related parties or with third parties are also under the administration of this decree, when capped at 20% of EBITDA. 


Companies must consider whether loan interest is deductible for CIT purposes. This may limit their business activities when they want to expand their business based on loans rather than capital. These transactions include the trading of goods/services, loan interest and so on between Vietnam companies and their related parties.

The decree requires more complicated TP documentation including the information on related parties which some entities might not be willing to provide. Companies should have sufficient and appropriate information/ documents for TP documentation to meet the requirements of this decree. Cost and time spent for requiring TP documentation will increase.

Where a country-by-country report is impossible to submit, a written explanation should be submitted to the tax office on a legal basis, along with specific provisions of the law that does not require provision of a country-by-country report.

Long-lasting conflicts between the tax office and companies have the potential to arise, based on which source of data for benchmarking the tax office uses to assess the appropriateness of TP dossier.

It should also be pointed out that TP documentation is required to be prepared within 90 days of the fiscal year-end. This is difficult for international companies that operate to differing fiscal years.

Since the 90-day requirement within which to prepare TP documentation is quite short, companies should identify related party transactions at the beginning of the year, and record these transactions into specific accounts which can be used later for the TP report. If country-by-country report is impossible to submit, an explanation must be available.

With the limitation of loan interest, entities need to consider their estimated EBITDA and decide relevant loans and interest accordingly.


Companies should identify whether they are required to prepare TP documentation under Decree 20. They should also check whether they can fully meet the reporting requirements, and are capable of handling the TP documentation themselves. If not, it's important to seek appropriate advice from recognised advisory companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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