Coca-Cola’s Tax Lawsuit: Transfer Pricing Risk Consideration for Business in Vietnam

Vietnam’s tax authority is intensifying scrutiny of related-party transactions, as seen in the recent Coca-Cola case. Learn how shifting transfer pricing regulations, country-by-country Reporting (CbCR) exchanges, and deeper audit reviews will shape compliance obligations for multinationals.

On November 27, the Ho Chi Minh City People’s Court rejected Coca-Cola Vietnam’s lawsuit against the Tax Department and upheld the Tax Department’s full tax assessment. 

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The decision on tax administration penalties confirmed more than VND 821.4 billion (US$31.1 million) in back taxes and penalties after tax officers reviewed the company’s operations from 2007 to 2015. The Tax Department also reduced Coca-Cola’s declared losses by over VND 762 billion (US$28.9 million) and ordered the company to pay more than VND 471 billion (US$17.9 million) in additional taxes.

The decision carries broader implications for multinational businesses in Vietnam. It shows that tax authorities now pursue transfer pricing (TP) risks more aggressively, especially when long-term losses raise concerns about base erosion. The ruling marks a shift toward stricter oversight and a more assertive enforcement cycle.

Companies with substantial related-party transactions now face higher audit intensity and must reassess the economic substance over form and defensibility of their TP positions. Investors and businesses operating in Vietnam need to reassess their TP positions and ensure that economic substance, profitability, and intragroup pricing structures stay aligned.

See also: Vietnam’s Tax and Transfer Pricing Compliance

What the Coca-Cola case reveals about Vietnam’s TP enforcement priorities

The Coca-Cola ruling highlights the enforcement themes that now shape Vietnam’s TP landscape. Coca-Cola Vietnam reported losses for many years despite steady revenue growth, especially before 2013. The company also relied heavily on intragroup transactions, with imported flavoring and concentrate accounting for more than 70 percent of its cost of goods sold. The patterns raised questions about misaligned profitability and the sustainability of declared losses after they exceeded the company’s initial investment capital.

Tax authorities examined these issues as indicators of base-erosion risk. Their assessment aligned with risk signals highlighted in recent Deloitte analysis and the General Department of Taxation’s 2024 inspection plans. These plans target enterprises with high-value related-party transactions, consecutive losses, or unusually low tax contributions relative to revenue. Coca-Cola’s transaction structure and long-term performance placed the company squarely within these risk categories.

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The case shows that authorities focus more heavily on transactions with high value or strategic importance, especially when pricing diverges from market expectations.

For multinationals operating in Vietnam, the message is clear: tax authorities now expect intragroup pricing to reflect economic substance and local value creation. Companies that depend on large cross-border purchases of materials, services, or intangibles will face more detailed reviews of their TP positions.

Escalating transfer pricing risk landscape in Vietnam

TP risks continue to rise in Vietnam as tax authorities strengthen audit efforts and broaden their focus on high-risk enterprises. Data from recent inspections show that TP audits generate tax arrears 3.5 times higher than regular audits.

This gap reflects the authorities’ heightened scrutiny of companies with persistent losses, thin margins that fall outside industry norms, and heavy reliance on high-value related-party transactions. Businesses that pay substantial service fees or royalties to offshore affiliates or import large volumes of intangibles and specialized materials now appear more frequently on audit lists.

Vietnam TP rules draw heavily on the OECD Transfer Pricing Guidelines, yet interpretation gaps still emerge. Taxpayers often apply pricing methods and comparability analyses from a commercial or group-wide perspective, while tax authorities evaluate these methods through a domestic enforcement lens.

Differences in how each side views functions, risks, asset ownership, and market conditions continue to create disputes. These differences lead to adjustments when profitability does not align with the economic substance that authorities expect to see in Vietnam.

As a result, companies face deeper transactional reviews that may reshape their pricing models, reporting positions, and forward tax planning. Businesses now need to treat TP as a core compliance priority rather than as an issue addressed only at annual filing.

Regulatory updates reshaping transfer pricing compliance

Vietnam’s recent regulatory changes show a strong push toward greater transparency and more structured transfer pricing oversight.

CbCR Multilateral Competent Authority Agreement

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The country’s decision to join the CbCR Multilateral Competent Authority Agreement (MCAA) significantly reshapes how tax authorities access and exchange information. As of mid-February 2025, Vietnam had activated exchange relationships with 29 jurisdictions, giving tax authorities broader visibility into global profit allocations and intragroup transactions.

This development strengthens their ability to detect inconsistencies between local filings and group-level data.

Decree No. 20/2025/ND-CP

The release of Decree No. 20/2025/ND-CP, which amends Decree 132, adds another layer of scrutiny. The updated rules refine the definition of related-party relationships, especially for credit institutions. This change affects interest deductibility tests and highlights the need for multinational groups to reassess intragroup financing structures.

The decree also introduces new TP declaration forms for the tax year 2024 onwards and requires taxpayers to update their compliance processes. In addition, the State Bank of Vietnam (SBV) now has broader authority to share information with tax authorities, thereby enhancing the government’s ability to evaluate financial transactions and related-party lending.

These reforms collectively lay the foundation for data-driven, analytics-based TP enforcement. Authorities can combine CbCR information, enhanced domestic reporting, and sector-level risk models to detect unusual profit patterns more efficiently.

Common transfer pricing pain points for businesses in Vietnam

Documentation quality

Many companies face persistent challenges in managing TP compliance in Vietnam. Deloitte’s 2024–2025 insights show that documentation quality remains a major weakness. Businesses often struggle to prepare complete and timely transfer pricing files, and many do not provide sufficient evidence to justify exemptions from documentation requirements. These gaps increase the risk of adjustments during audits.

Peer comparability

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Comparability analyses also create friction. Taxpayers and tax authorities frequently disagree on the selection of transfer pricing methods, the choice of comparable companies, and the adjustments needed to reflect local market conditions.

Differences in how each side interprets profitability benchmarks often lead to disputes, especially for companies operating in competitive or low-margin industries.

Explanation for high-valued intragroup transactions

Intragroup transactions with high values or complex structures draw the most scrutiny. Authorities now pay more attention to asset purchases, service fees, royalty payments, cost allocations, and financial transactions.

Authorities increasingly require clear, contemporaneous evidence that intragroup payments deliver genuine economic value. Companies that cannot demonstrate substance or a commercial rationale for these payments face a higher risk of reassessment.

These pain points show that transfer pricing disputes in Vietnam often arise less from technical rules than from gaps in documentation, economic analysis, and evidence of substance. Addressing these areas proactively reduces audit exposure and helps prevent prolonged disputes.

Strategic recommendations for strengthening TP risk management

Companies need a structured approach to manage rising TP risks in Vietnam. Strong preparation begins well before an audit. Businesses should monitor related-party transactions throughout the year, keep documentation up to date, and review high-risk items such as service fees, royalty payments, intragroup financing, and globally allocated costs, which are classified as high-risk in transfer pricing assessments.

Early identification of potential issues gives management more time to correct pricing mismatches and gather supporting evidence.

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Enhancing internal audit and risk management

During audits, companies benefit from a coordinated response strategy. A clear explanation framework helps tax teams address questions consistently and present the economic rationale behind each transaction. Cross-departmental alignment is essential, as tax authorities often request operational, financial, and technical details. Clear, verifiable evidence supporting each transaction materially strengthens audit defensibility.

After audits conclude, businesses should evaluate the results and integrate key lessons into future TP policies. Adjustments may require updates to benchmarking analyses, documentation practices, or intragroup pricing models. If disagreements remain, companies should prepare an appeal strategy that includes legal, economic, tax, and operational considerations.

Multinationals with complex structures should also consider using advance pricing agreements (APAs) to gain certainty. APAs offer a structured way to resolve challenging issues, like royalty rates or cross-border service fees, before they trigger disputes. This approach reduces audit risk and helps companies maintain predictable tax outcomes in Vietnam’s increasingly rigorous enforcement environment.

“Historically, there had been limited progress on APA applications, and several multinational groups awaited decisions from the Vietnamese tax authorities. However, from 1 July 2025, Decree No. 122/2025/ND-CP empowers the Ministry of Finance and the Tax Department to sign off APAs in most cases. This change is expected to accelerate the APA process and improve the likelihood of a timely conclusion compared to previous years.” – Doan Thi Yen Luy, Assistant Manager for Tax, Dezan Shira & Associates

Outlook: A more transparent and enforcement-intensive TP environment

Strengthened regulatory coordination and data transparency

Vietnam is moving toward a more transparent and coordinated transfer pricing (TP) environment. Tax authorities are reinforcing domestic TP regulations while expanding cross-border cooperation through Country-by-Country Reporting (CbCR) exchanges. Together, these measures provide tax officials with deeper visibility into multinational profit allocation and support more informed audit selection and risk assessment.

Enhanced analytical capacity and benchmarking tools

Related Reading

Vietnam Tax Compliance in 2025: What Newcomers Should Do?

Official Letter No. 175/TCT-CNTT, issued by the General Department of Taxation on January 13, 2025, marks a notable step in strengthening Vietnam’s analytical capacity in line with international practices. The letter highlights improvements in tax authorities’ access to commercial benchmarking databases, supported by targeted training on platforms such as Orbis and TP Catalyst.

As multinational groups widely use these tools, the upgraded capabilities are expected to narrow the information gap between taxpayers and tax authorities during transfer pricing reviews.

Implications for audit intensity and compliance strategy

These developments point to a more assertive and data-driven transfer pricing audit cycle, consistent with the enforcement trajectory illustrated by the Coca-Cola case. A proactive and forward-looking compliance strategy will be increasingly crucial for businesses seeking to withstand deeper scrutiny and maintain more predictable tax outcomes in Vietnam.

Interaction with the Global Minimum Tax

In parallel, Vietnam is among the jurisdictions prioritizing the implementation of the Global Minimum Tax (GMT) starting in 2024. Under Pillar Two, large multinational enterprises are required to maintain a minimum effective tax rate of 15 percent. This shift directly affects transfer pricing strategies, as profit allocation across jurisdictions now influences not only arm’s-length compliance but also a group’s potential exposure to top-up tax under the GMT framework.

See also: Global Minimum Tax Implementation in Vietnam: Decree 236

(With input from Doan Thi Yen Luy)

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