Vietnam: When can the levels of price of related-party transactions of enterprises be adjusted?

According to the Decree No. 132/2020/NĐ-CP of Vietnam’s Government, adjustment of levels of price, profit margins, profit split ratios of taxpayers are specified as follows:

1. When successfully finding independent comparables of which levels of reliability comparison are similar, and which do not have difference, or have differences and acquire sufficient information and data used as the basis for eliminating all of material differences:

- If the level of price, profit margin and profit split ratio of a taxpayer fall within the arm’s length range of arm’s length transactions performed by similar independent comparables, the taxpayer shall not be required to adjust their level of price, profit margin and profit split ratio to determine the transfer price;

- Unless the price, profit margin and profit split ratio of the taxpayer fall within the arm’s length range of unrelated transactions performed by similar independent comparables, the taxpayer shall be obliged to determine values falling within the arm’s length range that reflect the highest level of comparability to a related party transaction in order to make adjustment to the price, profit rate and profit distribution ratio of the related party transaction in order to adjust the level of price, profit margin and profit split ratio of the related party transaction, but avoid any reduction in taxable income and tax obligations to the state budget of the taxpayer.

2. In case where there is only information or data used as the basis for eliminating most of the material differences of independent comparables, the selection of at least five independent comparables and the application of the standard arm’s length range must follow the instructions given in Appendix V hereto. The selection of values falling within the arm’s length range for the adjustment and redetermination of the level of price, profit margin or profit split ratio of a taxpayer shall be subject to the following requirements:

- If the level of price, profit margin or profit split ratio of the taxpayer is the value falling within the standard range of arm’s length transactions of similar independent comparables, the taxpayer shall be exempted from the requirement for adjustment of their level of price, profit margin and profit split ratio for the transfer pricing purpose;

- Unless the level of price, profit margin and profit split ratio of the taxpayer fall within the standard range of arm’s length transactions of similar independent comparables, the taxpayer shall be obliged to determine values falling within the standard arm’s length range that reflect the highest level of comparability to related party transactions in order to make adjustment to the level of price, profit margin and profit split ratio of a related party transaction, and determine taxable income and tax amount payable but avoid any reduction in tax obligations to the state budget;

- In case where the tax authority adjusts or fixes the level of price, profit margin or profit split ratio of a taxpayer, the adjusted or fixed value is the median falling within the standard arm’s length range.

3. On the basis of the transfer pricing method and independent comparables which are selected, the adjustment in the level of price, profit margin or profit ratio rate of a taxpayer shall be made in order to determine their corporate income tax obligations without causing any reduction in tax obligations to the state budget.

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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