Vietnam: Market conditions may determine the levels of price of related-party transactions of parties

According to the Decree No. 132/2020/NĐ-CP of Vietnam’s Government, economic conditions of transactions and market conditions at the date and time of execution of these transactions may determine the levels of price, profit margins and profit split ratios of parties. To be specific:

- Several economic conditions under which these transactions are carried out, e.g. scale and size, geographic locations of the product manufacturing and consumption market, levels of market such as ordinary wholesale and retail, exclusive distribution; extent of competition of products sold on the market and relative competitive position of the buyer and seller; availability of substitute goods; levels of general supply and demand or location-specific supply and demand; consumer purchasing power; economic factors that may influence costs of production arising at the location of transaction, e.g. tax incentive policies; government regulations of the market; cost of production, land, labor and capital; business cycle and factors having positive influence upon the price, profit rate and profit distribution ratio of the taxpayer, e.g. features of positions, advantages and cost savings achieved depending on locations, local markets, labor forces and synergy and specialization functions centralized on the basis of contributions made by related parties involved in the creation of value;

- In case where taxpayers and comparables neither reside within the same country, territory nor supply goods and services for the same geographic market, the analysis of economic conditions includes analysis of comparability of markets where the taxpayer and comparables are residing with respect to comparative advantages, location-specific advantages influencing competitive factors such as costs of labor, raw materials, transportation, rent, training, subsidies, financial, tax incentive policies, infrastructure costs, market growth levels and advantageous features of market such as the large population and customer base with increased spending capacity and other comparative advantage features.

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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