What is a party tax authority in Vietnam? Is the data exchanged with counterparty tax authorities included in the management of transfer prices by tax authorities in Vietnam?

What is a party tax authority in Vietnam?

Based on Article 4 of Decree 132/2020/ND-CP, the definition of a party tax authority is as follows:

Definition of Terms

In addition to the terms already explained in the Tax Administration Law No. 38/2019/QH14 dated June 13, 2019, the following terms are understood as follows:

1. “Tax agreement” is an abbreviated term for the Agreement on Avoidance of Double Taxation and Prevention of Tax Evasion on Income or Asset Taxes signed between Vietnam and other countries, territories, including Protocols amending, supplementing the Agreements currently in force in Vietnam.

2. “Mutual Agreement of Competent Authorities” is an abbreviated term for the Agreements in effect between Competent Authorities of countries, territories that are parties to international tax treaties and require the automatic exchange of information on Country-by-Country Reports.

3. “International tax treaties”, “international tax agreements” are bilateral and multilateral agreements in the field of taxation.

4. “Party tax authority” means the Tax Authority of a country or territory that has signed a Tax Agreement with Vietnam.

5. “Independent comparable entities” are independent transactions between parties without affiliated relations or enterprises conducting independent transactions selected based on analysis, comparison, identifying comparable entities to determine prices, profit margins, profit allocation ratios to determine the tax obligation payable to the state budget of the taxpayer, ensuring conformity with the Tax Administration Law and Corporate Income Tax Law.

6. “Material differences” are differences in the factors forming the price that have an important or significant effect on the price level, profit margin, and profit allocation ratio of the parties involved in the transaction.

7. “Tax Authority's database” is information, data collected, constructed, and managed by the Tax Authority from various sources as prescribed in the Tax Administration Law No. 38/2019/QH14 dated June 13, 2019, including databases and information exchanges with tax administration authorities, competent authorities abroad.

8. “Independent transaction value range” is a set of values regarding price level, profit margin, or profit allocation ratio of independent comparable entities selected by the Tax Authority or the taxpayer based on the database stipulated in Article 17 of this Decree. The values within this set have equivalent reliability in comparison. When necessary, statistical probability methods are applied to determine the standard independent transactional value range and the median value that is representative, universal, popular to increase the reliability of the set of comparable entities.

9. “Standard independent transaction value range” is a set of values from the 35th percentile to the 75th percentile; the median of the standard independent transaction value range is the 50th percentile value according to the statistical probability function.

10. “Organization for submitting reports on behalf” is a term used to refer to an organization authorized by the ultimate parent company of the group to submit the Country-by-Country Report of the group to the Tax Authority.

Thus, according to the provisions, a party tax authority is the tax authority of a country or territory that has signed a Tax Agreement with Vietnam.

What is a party tax authority in Vietnam? Is the data exchanged with counterparty tax authorities included in the management of transfer prices by tax authorities in Vietnam? (Image from the Internet)

Is the data exchanged with counterparty tax authorities included in the management of transfer prices by tax authorities in Vietnam?

Based on Article 17 of Decree 132/2020/ND-CP, the provision is as follows:

Databases used in the declaration, determination, and management of transfer prices

1. The database used in the declaration, determination of transfer pricing by the taxpayer includes:

a) Commercial databases are financial and economic information and data collected, compiled, standardized, stored, updated, and provided by data business organizations through access-support tools, applications programmed to facilitate users in searching, accessing, and using financial, economic data of enterprises within and outside Vietnam by industry of business production, by geographical area, or other search criteria to serve the purpose of comparison, identifying similar entities in the declaration and management of transfer prices;

b) Information and data of enterprises publicly disclosed on the stock market;

c) Information and data published on domestic and international commodity and service exchanges;

d) Information published by ministries and central authorities at home or from other official sources.

2. The database used in the management of transfer prices by the Tax Authority includes:

a) The databases specified in clause 1 of this Article;

b) Information and data exchanged with counterparty tax authorities as stipulated in clause 7 of Article 4 of this Decree;

c) Information provided by domestic ministries and central authorities to the Tax Authority;

d) Databases of the Tax Authority in risk management.

3. Analysis, selection of independent comparable entities to analyze, determine the independent transaction range compliant with the principles of analysis, comparison, and transfer pricing determination methods prescribed in this Decree, prioritized in the order of selecting comparison data as follows:

a) Internal comparable entities of the taxpayer;

b) Comparable entities residing in the same country, territory as the taxpayer;

c) Entities in other countries within the region with similar industry conditions and economic development levels.

If selecting foreign comparable entities in other geographical markets, it is necessary to analyze the similarity and material differences both qualitatively and quantitatively as prescribed in Articles 9 and 10 of this Decree.

Thus, the data exchanged with counterparty tax authorities are included in the management of transfer prices by the Tax Authority.

How do the tax authorities exchange information with taxpayers and counterparty tax authorities in Vietnam?

Based on clause 5, Article 20 of Decree 132/2020/ND-CP, the Tax Authority exchanges information with taxpayers and partner tax authorities as follows:

- In cases involving risk management in tax administration regarding transfer pricing, if the Tax Authority deems it necessary to exchange information beforehand with the taxpayer about Appendix I attached to this Decree and the transfer pricing determination dossier of the taxpayer, the Tax Authority sends an official dispatch requesting a consultation with the taxpayer to exchange and provide preliminary information on the transfer pricing determination dossier as stipulated in this Decree;

- If the Tax Authority needs to communicate and exchange with the party tax authority regarding the Country-by-Country Report and other related information, this is carried out according to procedures on bilateral agreements and exchange of information under the relevant Tax Agreement.

In necessary cases, the Tax Authority notifies in writing to the taxpayer about the suspension of inspection, auditing to conduct information exchange with the party tax authority following tax law regulations.