Overview On Transfer Pricing In Vietnam

1. Introduction

Vietnam’s transfer pricing (TP) framework has undergone significant transformation over the past decade, in line with global efforts to tackle base erosion and profit shifting (BEPS). As Vietnam continues to attract substantial foreign direct investment (FDI), particularly from multinational enterprises (MNEs) in manufacturing, technology, and services, the government has recognized the risk of revenue leakage through profit shifting to low-tax jurisdictions. This recognition has resulted in a comprehensive legal framework—mainly Decree 132/2020/ND-CP (replacing Decree 20/2017) and Circular 41/2017/TT-BTC—which aligns Vietnam more closely with OECD standards.

The Vietnamese tax authorities have increasingly prioritized TP enforcement. Transfer pricing issues are now central in tax audits, and disputes are on the rise, particularly involving cross-border related-party transactions (RPTs). For MNEs, this means compliance with TP regulations is no longer optional—it is a strategic necessity.

2. Core Principles

At the heart of Vietnam’s TP regime is the arm’s length principle, which requires that RPTs be conducted under terms and conditions comparable to transactions between independent entities. Taxpayers are obliged to:

• Use appropriate TP methods to determine arm’s length prices;
  
  

• Disclose related-party dealings in annual tax filings;
  
  

• Maintain detailed, contemporaneous TP documentation; and
  
  

• Provide such documentation in Vietnamese upon request.
  
  

Failure to comply empowers the tax authorities to make TP adjustments, potentially resulting in significant additional tax liabilities, penalties, and reputational risks.

3. Scope of Related-Party Transactions

Vietnamese TP rules have a broad reach, covering almost every type of intercompany transaction, such as:

• Sale, purchase, lease, exchange, or transfer of goods, services, tangible or intangible assets;
  
  

• Borrowing, lending, guarantees, financial services, and other capital arrangements;
  
  

• Licensing or assignment of intellectual property rights;
  
  

• Shared use of resources such as labor, equipment, and cost-sharing agreements;
  
  

• Head office and branch or permanent establishment transactions.
  
  

This wide coverage ensures that both straightforward and complex arrangements—ranging from raw material purchases to intra-group financing and intellectual property transfers—fall under scrutiny.

4. Definition of Related Parties

The regulations define related parties broadly, capturing situations of direct or indirect influence. Key criteria include:

• Ownership of at least 25% of equity or cross-shareholdings by a third party;
  
  

• Significant minority interests (10% or more) combined with controlling influence;
  
  

• Financing arrangements where loans equal 25% of equity and exceed 50% of medium/long-term debt;
  
  

• Control over board appointments or decision-making authority;
  
  

• Influence through family relationships (spouses, parents, children, siblings, grandparents, grandchildren, uncles/aunts, nieces/nephews);
  
  

• Transactions between head offices and permanent establishments;
  
  

• Any other circumstances showing de facto control.
  
  

This expansive scope reflects Vietnam’s intention to capture a wide range of potential profit-shifting structures.

5. Transfer Pricing Methods

Taxpayers must adopt one of five OECD-aligned methods:

a. Comparable Uncontrolled Price (CUP);

b. Resale Price;

c. Cost Plus;

d. Comparable Profits;

e. Profit Split.

While these methods mirror international practice, Vietnam requires justification of the method selected and a demonstration that results are consistent with market-based outcomes.

6. Documentation and Disclosure Obligations

Compliance rests on annual disclosure and comprehensive documentation:

• Annual TP Disclosure Form: Filed with the Corporate Income Tax (CIT) return.
  
  

• Local File: Transaction-level documentation prepared and kept at the Vietnamese entity.
  
  

• Master File: Group-level information on operations, value chain, and global TP policies.
  
  

• Country-by-Country Report (CbCR): Ultimate parent’s global report on income allocation and taxes, to be filed (or explained if unavailable).
  
  

• Supporting Information: Any other material affecting comparability or TP conclusions.
  
  

All documentation must be available in Vietnamese and contemporaneous with the tax period.

7. Compliance Burden and Risks

The burden of proof lies entirely with the taxpayer. Companies face significant challenges:

• Broad definitions of related parties increase the number of reportable transactions;
  
  

• Extensive disclosure requirements create heavy administrative work;
  
  

• Aggressive enforcement by the tax authorities heightens the risk of disputes;
  
  

• Language requirement (Vietnamese) adds translation and compliance costs for foreign groups.
  
  

Non-compliance may result in:

• Adjustments to taxable income;
  
  

• Back taxes and reassessments;
  
  

• Late payment interest;
  
  

• Administrative penalties;
  
  

• Reputational damage and strained relationships with tax authorities.
  
  

8. Strategic Considerations for Multinational Companies

Given the complexity, MNEs operating in Vietnam should adopt a proactive TP strategy:

1. Risk Assessment: Identify high-risk transactions such as royalties, service fees, and intra-group loans.
   
   

2. Benchmarking Studies: Conduct regular comparability analyses using Vietnamese or regional data.
   
   

3. Integrated Documentation: Ensure Local File, Master File, and CbCR are consistent across jurisdictions.
   
   

4. Governance: Establish internal controls and policies for intercompany pricing.
   
   

5. Dispute Readiness: Prepare for audits by maintaining contemporaneous evidence and explanations.
   
   

9. Comparative Perspective

Compared with OECD and ASEAN peers, Vietnam’s TP regulations are strict in:

• Thresholds: A relatively low 25% equity ownership triggers related-party status.
  
  

• Family relationships: Broader than in many jurisdictions, increasing reportable entities.
  
  

• Language requirements: Mandatory Vietnamese documentation is uncommon in other countries.
  
  

• Audit approach: Vietnam’s authorities often combine general tax audits with TP reviews, heightening exposure.
  
  

This makes Vietnam one of the more challenging TP jurisdictions in Southeast Asia, demanding higher levels of compliance investment.

10. Conclusion

Vietnam’s TP regime is evolving rapidly, reflecting the country’s determination to align with international best practices while protecting its tax base. For MNEs, the implications are clear: TP compliance is a high-stakes obligation requiring careful planning, robust documentation, and proactive management. Failure to comply can expose businesses to substantial financial and operational risks, whereas well-managed TP strategies can foster smoother relationships with tax authorities and ensure long-term tax certainty.

General notes:

• The above is summarised from the current legislations and practices for internal reference only.

• This document cannot be relied upon by any other parties nor included in any submissions, reports, documents or letters required by the relevant regulatory bodies without our prior written consent and/or subject to our approval on the appropriate form and contents; and

• Please kindly noted that SP&A is not a legal firm, our comments provided under this document may include reviewing regulatory documents to be identified as general management consultancy, therefore, should not be considered, nor intended to be, a legal advice.