Tax & Customs Department

Academy of Finance

Transfer pricing

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LEARNING OUTCOMES

1. Government legislation
2. Scope of application
3. Definition of related party
4. Transfer pricing methods
5. Tax administration

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Transfer pricing

• Decree No. 132/2020/ND-CP dated November 05, 2020, w.e.f

20/12/2020.

LY PHUONG DUYEN- TAX & CUSTOMS DEPARTMENT -AOF

Transfer pricing

Transfer
pricing
Application of
methodologies
transfer
in related
pricing rule
party
transactions

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Application of transfer pricing rule
➢“Transfer pricing” refers to the pricing of goods and services
in cross-border (and may be within a country) transactions
between companies in a multinational group
➢The “transfer pricing” may be artificially adjusted by the
multinational group so as to:
• o Minimise taxes to the MNC group;
• o Reduce earnings in a “soft” currency;
• o Avoid exchange control regulations
➢ This is often combined with the use of a tax haven to “park” profits
tax-free offshore
➢ The “arm-length” price is the price that would be charged in
similar transactions between unrelated companies in the open market

LY PHUONG DUYEN- TAX & CUSTOMS DEPARTMENT -AOF

Transfer pricing
General
• Applicable circumstances:
• Business establishments which are carrying out business in
Vietnam conduct applicable transactions with a “related party” who
is liable to CIT in Vietnam.
• Applicable transactions:
• Trading (sales – purchase)
• Barter
• Lease
• Transfer of goods / services

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Transfer pricing
General
• Basic principle
1. Presumption of non-arm’s length: “market price” is defined as price reached by
objective agreement between unrelated parties →transaction between affiliated
parties is presumed as “non-arm’s length”
2. Transactions used to determined market price are not required to be exactly the same,
only comparability is required in the absence of “material differences”
3. Material differences are differences of information and/or data which have material or
important impacts on the prices. If material difference exists, the differential value
must be quantified and excluded from the market prices
4. Transaction of the concerned party with an unrelated party is given priority

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Related parties (to be determined by each tax
period)
A party involved Parties which are Both parties involved
directly/indirectly in the directly/indirectly under directly/indirectly in the
management, control, common control, management, control,
capital contribution or management, capital capital contribution or
investment (in any form) in contribution, investment investment (in any form) in
the other party: by a common entity one common entity

A parent company vs.

Between sister A holding company
Between parent companies (i.e. having “affiliate”
company vs. subsidiaries of the relationship with one
subsidiaries same group) common entity

Sister companies vs.

Between holding
affiliates
company vs. affiliates

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Transfer pricing
General
• Particular examples of related parties (1)
1. An enterprise participates directly or indirectly in at least 25% of equity of the other
enterprise;
2. Both enterprises own at least 25% of equity in which a third party participates directly or
indirectly;
3. An enterprise is the shareholder who has the greatest ownership of equity of the other
enterprise, or participates directly or indirectly in at least 10% of total share capital of the
other enterprise;
4. An enterprise guarantees or offers another enterprise a loan under any form (even including
third-party loans guaranteed by financing sources of related parties and financial transactions
of same or similar nature) to the extent that the loan amount equals at least 25% of equity of
the borrowing enterprise and makes up for more than 50% of total medium and long term
debts of the borrowing enterprise;

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Transfer pricing
General
• Particular examples of related parties (1)
5. An enterprise appoints a member of the executive board responsible for the leadership or
control of another enterprise provided the number of members appointed by the former
accounts for more than 50% of total number of members of the executive board responsible
for the leadership or control of the latter; or a member appointed by the former has the right
to decide financial policies or business activities of the latter;
6. Both enterprises appoint more than 50% of membership of the executive board or have one
member of the executive board authorized to decide financial policies or business activities
who is appointed by a third party;
7. Both enterprises are managed or controlled in terms of their personnel, financial and business
activities by individuals, each of whom is in one of the following relationships with the others
such as a wife, husband, natural/foster father, natural/foster child, natural/foster
older/younger sibling, brother/sister-in-law, maternal/paternal grandfather/grandmother,
maternal/paternal grandchild, and maternal/paternal aunt, uncle and nibling;

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Transfer pricing
General
• Particular examples of related parties
8. Both business entities have transactions, either between their head
offices and permanent establishments or between permanent
establishments of overseas entities or individuals.
9. One or more enterprises is/are put under control of one individual
through either his/her capital participation into that enterprise or
his direct involvement in administration of that enterprise;
10. In other cases where an enterprise is in reality under management
of, or control of decision on, business activities of the other
enterprise.
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Transfer pricing
General
• Selection of comparable transactions
1. Similarity of transactions is assessed on characteristics” and
“circumstances” of the transactions (referred to as “conditions of
transactions”)comparable transaction
2. Comparisons may be made on transaction-to-transaction basis or
product-to-product basis. However, comparisons on aggregate basis
will apply if segregation of transactions/products is not possible or
inappropriate
3. Taxpayers’ arm’s length transactions with unrelated parties may be given
priority to be selected as comparable, insofar as such comparable are not
created/re-structured from non-arm’s length transactions

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 Transfer pricing methodologies in related party
transactions

1. Method 1: Comparable Uncontrolled (independent) Price: (So sánh

giá giao dịch độc lập)
2. Method 2: Resale Price Method: (Giá bán lại)
3. Method 3: Cost Plus Method (Giá vốn cộng lãi)
4. Method 4: Comparable profits (arms’ length taxable profits): (So
sánh lợi nhuận)
5. Method 5 : Profits split : (tách lợi nhuận)

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Method 2: Resale Price Method
• Circumstances:
• o Transactions of products in the process of supplying simple services
and distributive trading.
• o The products do not markedly change in value and have a quick
turnover

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Method 3: Cost Plus Method
• Circumstances
• o Transactions in the stage of manufacturing, assembling or
processing and sold to related parties
• o Services provided to related parties

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Method 4: Comparable profits (arms’ length
taxable profits)
• Circumstances:
• o An variance of resale price method and cost plus method
(therefore same application as these methods)

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Method 5 : Profits split
• Circumstances:
• o Joint research and development
• o Development of products where intangibles are exchanged
• o Profits exchanged with substantial intangible rights attached to them

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The End