Vietnam: 3 notable contents when selecting independent comparables in related-party transactions

According to the Decree No. 132/2020/NĐ-CP of Vietnam’s Government, when selecting independent comparables, it should be noted:

1. Selection of internal independent comparables is the selection of transactions between taxpayers and unrelated parties, ensuring the comparability that does not cause any difference causing material impacts on the level of price, the profit margin or the ratio of profit split between parties. In case where there is none of the internal independent comparables, the selection of comparables shall be subject to Point b and c of Clause 3 of Article 17 herein. Comparison between related party transactions and arm’s length transactions shall be made on the basis that each transaction is compared with each comparable product. In case where it is unlikely to make a product-based comparison, the aggregation of transactions must be based on the substance and the reality of business activities, and the application of the transfer pricing method under the provisions of Article 12, 13, 14 and 15 herein.

2. Financial and business data of comparables must be reliable so that they may be used for tax declaration and assessment purposes, and must conform to regulations on accounting, statistics and taxation. Time of execution of a transaction performed by an independent comparable must coincide with the time of execution of a related-party transaction by a taxpayer, or must fall within the same financial year as that of taxpayers, except for special cases in which it is necessary to expand the time frame of comparison under the provisions of Article 9 herein. Data must be properly formatted as the basis for comparing or calculating levels of prices at the transaction time or within the same tax period; the comparability analysis data on profit margin or profit distribution rate must be collected in three consecutive tax periods. Taxpayers shall round decimal values of ratios or comparative rates up to the nearest hundredth at their fractional parts. Where relative values derived from data released without associated absolute numbers and this rounding method is not used, the released data of which reference sources have already been cited shall be accepted.

3. The minimum number of independent comparables shall be selected after completion of the comparability analysis and adjustment of material differences as follows: One comparable which is selected if related-party transactions or taxpayers performing related-party transactions and independent comparables has no difference; three comparables which are selected in the event that there are certain differences existing in independent comparables and there are not sufficient information or data provided as the basis for eliminating all of the material differences, and five comparables which are selected only when there is any information or data used as the basis for eliminating most of the material differences existing in independent comparables.

View more details at the Decree No. 132/2020/NĐ-CP of Vietnam’s Government, effective from December 20, 2020.

Thuy Tram

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