What are the 03 cases where taxpayers are exempt from transfer pricing declaration and documentation requirement in Vietnam?

What are the 03 cases where taxpayers are exempt from transfer pricing declaration and documentation requirement in Vietnam?

Based on the provisions of Article 19 of Decree 132/2020/ND-CP, there are three scenarios where taxpayers are exempt from transfer pricing declaration and documentation as follows:

Case 1: Taxpayers are exempt from declaring transfer pricing determinants under Sections III and IV of Appendix I issued with the Decree. They are also exempt from preparing transfer pricing documentation if transactions are only with affiliated entities subject to corporate income tax in Vietnam, applying the same corporate income tax rate as the taxpayer and where no party is enjoying corporate income tax incentives in the tax period. However, the basis for exemption must be declared in Sections I and II of Appendix I issued with the Decree.

Case 2: Taxpayers have the responsibility to declare the determination of transfer prices according to Appendix I issued with this Decree but are exempt from preparing transfer pricing documentation in the following cases:

- Taxpayers have transactions with affiliated entities but have generated less than 50 billion dong in total revenue and less than 30 billion dong in total value of all affiliated transactions during the tax period;

- Taxpayers have entered into an Advance Pricing Agreement and submit annual reports according to legal provisions on Advance Pricing Agreements. For transactions not covered by the Advance Pricing Agreement, taxpayers must declare transfer pricing determinants according to the provisions in Article 18 of Decree 132/2020/ND-CP;

- Taxpayers conduct business with simple functions, without revenue or expenses from exploiting intangible assets, with revenue below 200 billion dong, applying a net profit ratio excluding interest expenses and corporate income tax (excluding differences in financial activity revenue and expenses) on net revenue, covering areas as follows:

 + Distribution: 5% or more; + Manufacturing: 10% or more; + Processing: 15% or more.

Taxpayers tracking and separately accounting for revenue and expenses by each area should apply the net profit ratio excluding interest expenses and corporate income tax on net revenue accordingly.

Taxpayers tracking and separately accounting for revenue but not expenses for each business area must allocate expenses according to the revenue ratio of each area to apply the net profit ratio excluding interest expenses and corporate income tax on net revenue accordingly.

Taxpayers not tracking and separately accounting for both revenue and expenses of each operational business area to determine the net profit ratio excluding interest expenses and corporate income tax accordingly must apply the highest sector's net profit ratio excluding interest expenses and corporate income tax on net revenue.

Taxpayers not applying the specified net profit ratio in this point must prepare transfer pricing documentation according to regulations.

Case 3: Where taxpayers are exempt from transfer pricing declaration and documentation per Clauses 1 and 2 of this Article, the determination of total deductible interest expenses when determining taxable corporate income of enterprises with affiliated transactions is implemented according to Clause 3 of Article 16 of Decree 132/2020/ND-CP.

What are the 03 cases where taxpayers are exempt from transfer pricing declaration and documentation requirement in Vietnam? (Image from the Internet)

When is transfer pricing documentation prepared in Vietnam?

Based on the provisions of Clause 6 of Article 18 of Decree 132/2020/ND-CP as follows:

Rights and Obligations of the Taxpayer in Declaring and Determining Transfer Prices

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6. Transfer pricing documentation must be prepared before the annual corporate income tax finalization declaration and must be maintained and presented upon the tax authority’s request for information provision. When tax authorities conduct audits or inspections, the period for providing transfer pricing documentation shall be in accordance with the Inspection Law from the date of receipt of the information request.

Transfer pricing documentation and information, documents, and evidence provided to the tax authority shall comply with tax management laws. Data, evidence, and documents used as the basis for analysis, comparison, and determination of transfer prices must clearly state the original source. Where data from independent comparable objects is accounting data, taxpayers are responsible for retaining and providing it to the tax authority in soft copies, in spreadsheet format.

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Thus, according to the above regulation, transfer pricing documentation is prepared before the time of the annual corporate income tax finalization declaration.

What are responsibilities for taxpayers have in retaining and providing transfer pricing documentation in Vietnam?

Based on the provisions of Clause 4 of Article 18 of Decree 132/2020/ND-CP, taxpayers have the responsibility to retain and provide transfer pricing documentation, including:

- Taxpayers must retain and provide transfer pricing documentation which consists of information, documents, data, and evidence including:

+ Information on the affiliated relationship and affiliated transactions according to Appendix I issued with Decree 132/2020/ND-CP;

+ The local file is information concerning affiliated transactions, policies, and methods of pricing for affiliated transactions prepared and retaind at the taxpayer's headquarters as detailed in the information content, documents prescribed in Appendix II issued with Decree 132/2020/ND-CP;

+ The master file containing information on the multinational group’s business activities, pricing policies, and functional allocation across the group's value chain according to the content list, documents prescribed in Appendix III issued with Decree 132/2020/ND-CP;

+ The ultimate parent company’s Country-by-Country report as per the regulation in Clause 5 of this Article and Appendix IV issued with Decree 132/2020/ND-CP.