What are the methods for determination of profit margins of taxpayers with those of independent comparables in Vietnam?

What are the methods for determination of profit margins of taxpayers with those of independent comparables in Vietnam?

Pursuant to Clause 3, Article 14 of the Decree 132/2020/NĐ-CP stipulating methods for determination of profit margins of taxpayers with those of independent comparables in Vietnam as follows:

3. Calculation method:

The profit-comparison method shall use the gross or net profit margins of selected arm’s length comparables for comparison for identifying the corresponding gross or net profit margins of taxpayers. Selection of profit margins, including gross profit margins or net profit margins based on sales, costs or assets shall depend on the nature and economic conditions of transactions; functions of taxpayers and accounting or bookkeeping methods of related parties. The bases for determination of the profit margin, including accounting data of taxpayers on sales, costs or assets shall not be controlled or decided by related parties.

a) Method for comparing the gross profit to sales (the resale price method):

The purchase price (cost) of a good, service or asset sold by a related party equals (=) the resale price (net sales) of that good, service or asset resold to an unrelated party minus (-) the gross profit divided by the selling price (net sales) of a taxpayer less (-) certain other costs included in the purchase price, such as import duties, customs dues, insurance costs or international transit costs (if any).

The gross profit to the selling price (net sales) of a taxpayer determined by comparing it with that of independent comparables shall equal (=) the selling price (net sales) of the taxpayer multiplied (x) by the gross profit relative to the selling price (net sales) of the selected independent comparables.

The gross profit to the selling price (net sales) of independent comparables shall be calculated as the value falling within the standard arm’s length range of the ratio of the gross profit to the selling price (net sales) of the independent comparables which are selected for adjustments made according to the principles herein stipulated.

The purchase price (or cost) which is adjusted to independent comparables is the taxable price or the cost for tax declaration for determination of corporate income tax obligations of taxpayers.

b) Method for comparing the gross profit to sales (the resale price method):

The selling price (or net sales) of a good, service or asset sold to a related party shall be calculated as the arm’s length cost thereof plus (+) the gross profit to the cost of a taxpayer.

The gross profit to the cost of a taxpayer which is determined based on independent comparables equals (=) the cost paid by a taxpayer multiplied (x) by the ratio of the gross profit to the cost of the selected independent comparables.

The ratio of the gross profit to the cost of the selected independent comparables is defined as the value falling within the standard arm’s length range of the ratio of the gross profit to the cost of the independent comparables which are selected for adjustments made according to the principles herein stipulated.

The selling price to a related party (or net sales) which is adjusted to independent comparables is the taxable price or the cost for tax declaration for determination of corporate income tax obligations of taxpayers.

c) Net profit margin comparison method:

The net profit margin existing before the interest and corporate income tax to sales, costs or assets of a taxpayer engaged in the transfer pricing are deducted shall be adjusted to the ratio of net profit existing before the interest is taken away to sales, costs or assets of the selected independent comparables, based on which tax obligations of a taxpayer is adjusted or determined.

Net profit excludes the difference between sales and costs of financial activities.

The selected net profit margin is the value within the standard arm’s length range of the net profit margin of independent comparables which are selected for adjustment to or determination of taxable income and tax obligations of a taxpayer according to the principles herein stipulated.

Indicators of the net profit margin existing before the loan interest and corporate income tax are taken away shall be computed under the provisions of legislation on accounting, tax administration and corporate income tax.

What are regulations of the results of determination of profit margins of taxpayers with those of independent comparables in Vietnam?

Pursuant to Clause 4, Article 14 of the Decree 132/2020/NĐ-CP stipulating results for determination of profit margins of taxpayers with those of independent comparables in Vietnam as follows:

4. The results of determination of the adjusted profit margin of a taxpayer are the basis for the determination of the taxable income and the corporate income tax payable without causing any reduction in the taxpayer’s corporate income tax obligations to the state budget.

Best regards!