Vietnam to Implement Landmark Transfer Pricing Update in Convergence with BEPS

Posted by Reading Time: 6 minutes

By: Dezan Shira & Associates
Editor: Maxfield Brown

Following a general trend of convergence with Base Erosion Profit Shifting (BEPS) guidelines within the Association of South East Asian Nations (ASEAN), Vietnam has introduced groundbreaking transfer pricing rules with significant implications for companies conducting related party transactions. Announced February 24, changes outlined under Decree No.20/2017/ND-CP are set to become effective May 1, replacing previously standing guidance stipulated in Circular No. 66/2010/TT-BTC. 

Broadly speaking, transfer pricing (TP) rules focus on the monitoring and regulation of transactions between entities deemed to be related to one another, through the ownership of one company by the other. Often, TP regulations are used to prevent companies from utilizing inflated or deflated transaction costs as means of minimizing tax exposure.

For foreign companies choosing to incorporate subsidiaries in Vietnam, the many benefits that these corporate profiles afford often come with the added cost of exposure to TP regulation and compliance. However, with a firm understanding of regulations, it will be possible to understand the law and to ensure compliance effectively. 

Given the rapidly changing nature of transfer pricing regulation in Vietnam, it is of utmost importance that investors employ stringent monitoring of Vietnamese legislation and direct questions to the Ministry of Finance or professional service firms operating within the country. 

DZS RELATED: Transfer Pricing Services from Dezan Shira & Associates

Related party transactions defined

Pursuant to Article 5.1(a) and (b) of the soon to be implemented transfer pricing decree, company transactions will subject to TP compliance if they are conducted with parties that the company in question participates in the control of, or is controlled by. 

Article 5.2 of the decree stipulates that any of the following is to constitute a form of control and thus may be used as a means of tagging transactions between entities for TP reporting and compliance:

  • Ownership of at least 25 percent of a company’s charter capital by the other company*
  • Both companies own at least 25 percent of the charter capital in a third company
  • Both companies have at least 50 percent
  • Ownership of the largest block of charter capital and, directly or indirectly, at least 10 percent of the total shares of the enterprise 
  • Companies controlled by the same parent company 
  • Operations controlled by the same family or extended family

*Note: the ownership threshold has been increased under Decree 20 from its previous rate of 25 percent. 

TP compliance: understanding requisite documentation

When transactions of a company have been conducted with parties that meet any of the requirements outlined above, the company will be required to undergo a heightened degree of scrutiny, prescribed under Decree 20, to ascertain if their transactions are in fact being conducted in a manner consistent with prevailing market pricing. While Vietnam has lagged in TP monitoring and enforcement in the past, the increasing emphasis on transfer pricing issues, evidenced by prioritization and rapid passage of  Decree 20 in 2017, makes the likelihood of enforcement a significant possibility in the near future. 

Pursuant to article 10.3 of decree 20, companies will be required to submit information related to all related entities operating within the country as part of annual compliance. In addition to this, and in accordance with BEPS guidelines recommended by the OECD under “Action 13: Guidance on Implementation of Transfer Pricing Documentation and Country-by-Country Reporting“, Vietnam has implemented a three-tired system of reporting for those conducting transactions with related entities. Outlined in the appendices of Decree 20, all of which are to be further defined by the Ministry of Finance, companies will be required to maintain information in the following areas: 

  • A “national profile” containing material transactions of the local taxpayer (Appendix 2)
  • A profile of the “global corporation” containing standardized information for all members of the Multinational Enterprise (MNE) (Appendix 3)
  • A country-by-country report containing information relating to the global assets and transactions of the MNE (Appendix 4)

Filing deadlines: All documentation should be completed and submitted before submission of a company’s annual tax return. 

Note: Decree 20 diverges from previous TP regulation employed in Vietnam in the depth of information that is required as part of the compliance process. For example, companies complying with TP reporting requirements stipulated in Appendix 1 will find that requirements to segment profits and losses by related party transactions to be a significant departure from previous guidance. 

TP compliance: qualifying for exemptions

While the majority of companies will be required to comply with TP reporting requirements in the event that their transactions are with entities deemed to be related, any of the following circumstances outlined under Article 11 will allow companies to claim exemption from providing information required in appendix 1:

  • When total revenue in a tax period is below VND 50 billion and related party transactions are below VND 30 billion. 
  • When the company in question has signed an agreement predetermining the method of determining related party transaction values 
  •  When total revenue is below VND 200 billion and the company and achieves industry specific profit margin targets assigned as follows:  distribution (5 percent), production (10 percent), processing (15 percent).
Related Link Icon-VB RELATED: An Overview of Transfer Pricing in Vietnam
Methods for calculating fair market transaction value

One of the most contentious issues between TP regulators and companies alike relates to the calculation of a transaction’s prevailing market value. While methods of calculation can differ and may require added company compliance, sourcing of information for these calculations is often the area where companies and governments can find themselves at true odds. For companies, the lack of transparent access to government sourcing of transaction data can present a degree of uncertainty that is difficult to mitigate. Furthermore, without a clear picture of government sourcing, it can become difficult accurately respond to government inquiries effectively.  To this end, Decree 20 provides the following guidance on the sourcing of information related to TP issues.

Permitted sourcing for company’s fair market pricing

Outlined in Article 9.1, Decree 20 sets out the following list of sourcing options that companies may use to determine the prevailing value of their transactions: 

  • Commercial databases organized by business information providers
  • Information that is publically available on the stock market 
  • Information that is publically available on commodities exchanges
  • Information that is publically available through government databases

Permitted sourcing utilized by officials in TP investigations

Pursuant to Article 9.2 of Decree 20, government bodies are permitted to utilize the following pricing databases when evaluating a company’s adherence to fair market pricing:

  • All sources available to companies (listed above)
  • Data provided by partner tax agencies
  • Database of the Vietnam’s Tax Agency

Unfortunately, Vietnam’s ability to utilize proprietary data to review transactions makes it difficult to assess the risk of being flagged or to determine the best way to manage an ensuing TP investigation. While there have been rumors that the Vietnamese government may soon engage a commercial database to evaluate fair market pricing and relations between entities, this remains to be seen. At present, the best way to manage TP risk in Vietnam is closely monitor ongoing developments within the Ministry of Finance and to ensure that all transactions are recorded in a manner consistent with prevailing reporting requirements. 


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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