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What is "Transaction Price"?

"Transaction price" - Decree No. 20/2017/ND-CP ("Decree 20") was issued on February 24, 2017, and took effect on May 1, 2017. Circular No. 41/2017/TT-BTC ("Circular 41") providing guidance on Decree 20 was issued on April 28, 2017, and also took effect on May 1, 2017.


Table of contents:

  1. Definitions of related parties.

  2. Methods for determining the related-party transaction price.

  3. Narrowing the range of standard independent transaction values.

  4. Expanding the scope of searching for comparable independent entities.

  5. Declaration of information on related-party transactions.

  6. Documentation for determining the related-party transaction price.

  7. Examination and inspection of related-party transaction prices.

  8. Advance pricing agreements ("APA" agreements) on methods for determining taxable prices.

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What is Transaction Price

Decree 20 and Circular 41, in general, are based on certain concepts and principles from the Organization for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines and the Base Erosion and Profit Shifting (BEPS) Action Plan.

On June 24, 2020, the Government issued Decree 68/2020/ND-CP ("Decree 68"), amending Article 3, Article 8 of Decree 20 concerning the relaxation of the interest expense deduction threshold. These new regulations took effect from the date of issuance. However, under certain conditions, the interest expense that is not deductible can be carried forward to the following tax years for a maximum period of 5 years.

On November 5, 2020, the Government issued Decree 132/2020/ND-CP ("Decree 132"), introducing new regulations on transfer pricing in Vietnam. Decree 132 came into effect on December 20, 2020, applicable to financial years from 2020 onwards, replacing Decree 20 and Decree 68.


Regulations on transfer pricing in Vietnam also apply to related-party transactions conducted within Vietnam


1. Definition of related parties

The mandatory ownership threshold to be considered a "related party" under Decree 132 remains at 25%. Decree 132 also introduces a new definition of related parties (Point l, Clause 2, Article 5 of Decree 132). Companies and certain individuals are considered related parties if they engage in the following transactions during the tax period:

  • Transfer or receipt of transfers of capital contributing at least 25% of the owner's capital contribution in the company; or

  • Borrowing or lending at least 10% of the owner's capital contribution at the time of the transaction.

2. Method for determining transfer pricing

The methods for determining transfer pricing are approved in a similar manner to the methods outlined by the OECD in the Guidelines for Determining Transfer Pricing for Multinational Enterprises and Tax Administrations. These methods include the comparable uncontrolled price method, the resale price method, the cost-plus method, the profit allocation method, and the comparable profit margin method.


3. Narrowing the standard interquartile range

Under Decree 132, the standard interquartile range is defined as the set of values from the 35th percentile to the 75th percentile (narrowed from the 25th percentile to the 75th percentile under Decree 20). This means that the first quartile is raised by 10%.


Therefore, taxpayers need to reassess their transfer pricing policies from the fiscal year 2020 onwards to ensure that profit margins fall within the standard interquartile range.


4. Expanding the scope of searching for comparable independent entities

Under Decree 132, taxpayers must select comparable independent entities within the same local market, locality, and within the country, and then expand the geographical scope of comparison to countries in the region with similar industry conditions and economic development levels.


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Transaction Price Determination

5. Declaration of information on related-party transactions

Companies engaged in related-party transactions are required to annually declare information on these transactions and the applied transfer pricing methods, as well as to self-determine the prices based on independent transactions. Decree 132 requires that the pricing methods do not reduce the company's tax obligations to the state budget, and this can be interpreted as adjustments for reductions not being accepted. Decree 132 introduces new declaration forms that require additional detailed information, including the separation of business results for related-party transactions and independent transactions.


Additionally, companies are required to declare information included in the National Profile and Global Profile. This can be understood as the information needs to be readily available when submitting the Declaration of Information on Related-Party Transactions to the tax authorities. The Declaration of Information on Related-Party Transactions must be submitted together with the annual corporate income tax return.


In accordance with Decree 132, the tax authorities have the right to use internal databases to determine the transaction value if a company does not comply with the requirements of Decree 132.


The company should only engage in transactions with related parties within the country that have the same corporate income tax rate, and none of the related parties should be eligible for tax incentives that exempt them from declaring the transfer pricing.


6. Documentation for determining the related-party transaction price

The file for determining the prices of related-party transactions must be prepared and updated by companies engaged in transactions with related parties. Decree 132 requires multinational companies to provide information on their business activities through the transfer pricing documentation at three levels, specifically the National File, the Global File, and the Country-by-Country Profit Report. The transfer pricing documentation must be prepared before the deadline for submitting the corporate income tax finalization statement.


If a company has an ultimate parent company in Vietnam and its global consolidated revenue during the tax period is VND 18,000 billion or more, the ultimate parent company in Vietnam is responsible for preparing and submitting the Country-by-Country Profit Report. According to Decree 132, the deadline for submitting the Country-by-Country Profit Report to the tax authority is no later than 12 months after the end of the fiscal year of the ultimate parent company. However, if the ultimate parent company is located abroad, the submission of the Country-by-Country Profit Report is not mandatory if the report is provided to the Vietnamese tax authority through automatic information exchange mechanisms. Nevertheless, a company still needs to submit the Country-by-Country Profit Report and related notification documents in certain specific cases.

According to Decree 132, a company is exempt from preparing transfer pricing documentation if it meets one of the following conditions:

  • Total revenue generated during the tax period is less than VND 50 billion, and the total value of all related-party transactions during the tax period is less than VND 30 billion.

  • The company has signed a prior agreement on transfer pricing method ("APA") and submits an annual report as required by APA regulations.

  • The company's revenue is less than VND 200 billion, and it engages in simple business activities while achieving a certain level of pre-interest and pre-corporate income tax profit margin on revenue in various fields, including distribution (from 5%), manufacturing (from 10%), processing (from 15%).

  • The taxpayer only engages in transactions with related parties who are corporate income taxpayers in Vietnam, applying the same corporate income tax rate as the taxpayer, and none of them are entitled to preferential corporate income tax rates during the tax period.

7. Examination and inspection of related-party transaction prices.

In recent years, there has been a significant increase in the number of transfer pricing audits and examinations, with increasingly complex methods being applied, and inquiries often focusing on the validity of independent comparables used in transfer pricing documentation. Most tax audits today will include a review of the taxpayer's compliance with transfer pricing.


The EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) limitation on deductibility of interest expenses has increased from 20% to 30% according to Decree 132.


This limitation applies to net interest expenses (specifically, after deducting interest income and deposit interest expenses) when calculating deductible expenses for tax purposes.


The portion of interest expenses that cannot be deducted can be carried forward to the subsequent tax years. Some types of loans are exempt from this limitation, including interest rates on Official Development Assistance (ODA) loans, government preferential loans, loans under national target programs, and loans for investment in programs or projects that implement state social welfare policies.

The regulations related to changes in interest calculation methods and limitations on deductions applied retroactively for the years 2017 and 2018, subject to certain conditions.


8. Advance pricing agreements ("APA" agreements) on methods for determining taxable prices.

Advance Pricing Agreements (APA) are available for companies to engage in unilateral, bilateral, or multilateral agreements with tax authorities. The General Department of Taxation is currently in negotiations with tax authorities of other countries to harmonize the entire content and conclude the first bilateral APA agreement for some companies with APA application requests.


9. How can RSM Vietnam support businesses?

Our services include:

  • Fulfilling compliance obligations (preparation of transfer pricing documentation, including national files, group files, and country-by-country profit reports, transfer pricing returns).

  • Preparing/reviewing documents and policies related to transfer pricing determinations.

  • Planning and restructuring related to transfer pricing.

  • Assisting in negotiations in cases where businesses are audited for transfer pricing determinations.

  • Keeping up-to-date with transfer pricing regulations in related party transactions.

For more information, you can also check out our Transfer Pricing Advisory Services.


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