An Overview of Transfer Pricing in Vietnam

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By: Dezan Shira & Associates
Editor: Steven Elsinga

Transfer pricing is a tax planning method where related companies enter into transactions among each other to shift funds, and thereby profits.

For instance, a parent company can extract funds from a subsidiary by having them issue a dividend, but the parent can also provide a service to subsidiary and charge it for the service. Dividends can only be issued after tax has been paid – after all, dividends are part of the profits.

Yet, tax is often levied on the receipt of dividends as well, resulting in what some term double taxation: first when the profits are earned (corporate income tax) and when the profits are distributed in the form of dividends.

However, when a parent charges a subsidiary for a service provided, or the provision of tangible goods, or the use of intellectual property, it counts as a cost for the subsidiary. This means its taxable income is lowered, reducing the amount of corporate income tax it has to pay. At the same time, the money reaches the parent without having to issue a dividend. The parent would still be taxed on the profit it makes on the transaction with the subsidiary, but it is less than in the case of a dividend issue, since now tax is only paid once.

The above example is just an illustration of a typical transfer pricing transaction. Transfer pricing does not just occur in a parent-subsidiary relationship, but covers a broader range of related parties.

Tax authorities, like in Vietnam only recognize transfer pricing transactions under certain conditions. One of these is that the price is set according the arms’ length principle. This principle, devised by the OECD, holds that the price should be determined as if the parties were not part of a group, or otherwise related. In other words, as if the company were “at arms’ length”. This is to avoid that funds are diverted by charging an artificially high price that an unrelated market party would never pay. Vietnam follows this principle.

Cross-border tax and DTAs

In a cross-border transaction, both the country where the business is domiciled and the country where the revenue was sourced, often maintain that they are entitled to tax the transaction. This results in the company being taxed twice: once in the source state, and once in the company’s home state.

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Since this is bad for international trade, countries sign Double Tax Avoidance Agreements to allocate which country gets to tax in what situation. This way, the right to tax revenue is divided between the two states, rather than them both taxing every transaction.

The careful use of transfer pricing between related parties in several countries can make a significant difference on a company’ global tax bill.

In recent years, countries have become wary of how elaborate transfer pricing arrangements and the use of tax havens has caused tax revenues to dwindle.

To combat the loss of revenue, governments around the world have stepped in to impose stricter regulations on transfer pricing. Vietnam is no different in this regard.

Transfer pricing regulations in Vietnam

Companies in Vietnam that have entered into transfer pricing transactions need to disclose this in their annual tax returns, 90 days after the end of the financial year. The tax return needs to show what transfer pricing transactions it has entered into, and the value of these contracts. As of 2014, companies need to also provide what the arms’ length price of the transaction would be, and explain the discrepancy with the actual transaction, if there is one.

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At any time, the Vietnamese tax bureau may also request a company to explain the price of transfer pricing contracts it has entered into. Such requests may include having to submit financial statements, copies of inter-company agreements, transfer pricing contracts and other relevant supporting documentation.

The company will usually have 30 days to reply to such a request. Foreign investors would therefore do well to carefully track and document transfer pricing transactions on an ongoing basis. This information needs to be in Vietnamese. The burden of proof is on the taxpayer to substantiate that the price in a transfer pricing contract is reasonable.

Recent years have also seen transfer pricing audits by a dedicated task force set up by the tax authorities.

If the Vietnamese tax authorities believe the transaction was not priced according to the arms’ length principle, they will adjust the value of the transaction and tax accordingly.

Apart from administrative fines and penalties, companies can be held criminally liable if found to be evading tax. The tax authorities also publish the details of companies that are not in compliance or show irregularities on their national and provincial websites.

At the same time, Vietnam has introduced Advanced Pricing Agreements (APA) in 2014. An APA is a binding agreement between the company and a tax authority as to how its transfer pricing arrangement will be taxed. Such an agreement can provide the investor with certainty as to how the tax authority will treat its operations, mitigating the risk of tax readjustments or penalties. Investors may also enter into APAs with Vietnam and other countries they operations in, provided those countries have a DTA with Vietnam.


Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email or visit

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