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Client Alert - Vietnam Transfer Pricing, March 2017

On 24 February 2017, the Vietnamese Government issued Decree 20/2017/ND-CP (“Decree 20”) concerning tax administration for enterprises with related-party transactions. This is a significant release for Transfer Pricing (“TP”) and related-party transactions, and also introduces a number of other non-TP related changes to taxation.

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Decree 20 takes effective from 1 May 2017, permanently replacing previous TP regulations governed by Circular 66/2010/TT-BTC.


In this Decree, “Related Parties” have been redefined so that the common ownership requirement has been increased to 25% from the previous level of 20%. In addition, the former notion of being a related party simply by way of significant transaction levels with another entity (transaction dependency) has been removed.

Decree 20 also promulgates circumstances where smaller enterprises or groups are exempted from preparing transfer pricing documentation, along with a number of “safe harbour” provisions being provided from these TP regulations.


Decree 20’s contemporaneous documentation requirement follows OECD guidelines, with taxpayers required to prepare and arrange (i) a Master File containing standardised information for all members of a multinational group; (ii) Local File for the local taxpayer, and (iii) Country by Country Reporting (“CbC Reporting”) for TP lodgement. The CbC reporting is required where consolidated global revenue exceeds VND18,000 billion in a tax year.

TP Documentation is required to be prepared in Vietnamese prior to lodgement of annual Corporate Income Tax returns. In addition, documentation may be required to be presented within 15 days upon a specific TP audit.


Enterprises exempted from preparing the contemporaneous TP documentation requirements (but not from the application of other obligations detailed in Decree 20) include:

• Taxpayers who have related party transactions, but which have total revenue in a tax year of less than VND50 billion and the total value of related party transactions in the tax year of less than VND30 billion; or

• Have signed a mutual agreement regarding Advance Pricing Agreement (“APA”) with Vietnamese authorities and annually lodge an APA report; or

• Operate a “simple function” business with total revenue less than VND200 billion and achieve an EBIT ratio of at least 5% for “distribution”, 10% for “manufacturing” and 15% for “processing”.

In certain circumstances, enterprises are further exempted from being required to disclose certain information or calculations in the annual mandatory disclosures when lodging their annual Corporate Income Tax return, including:

• Entities having transactions with domestic related parties which are subject to Corporate Income Tax (“CIT”) in Vietnam; and

• Where Both parties apply the same CIT rate, with neither party is enjoying tax incentives.


Decree 20 introduces a cap on interest deductions relating to borrowings at 20% of earnings before interest, tax & depreciation (EBITDA).

There are no further provisions that allow for carry forward or retrospective application.


Decree 20 also stipulates additional requirements for general deductibility of expenditure which is paid to affiliated parties for intercompany services. Specifically:

• The services indicate direct benefits for the taxpayers’ business operation;

• Services provided by related parties are considered as being completed if and only if independent parties would be willing to pay for these services in the same circumstances; and

• Services fees are calculated and settled on an “independent transactions” principle, provided that supporting documents are available for review.

Non-deductible expenses are those that do not fit in with the arms-length principal, and do not add to the revenue or value to business activities. The Decree provides examples including expenses paid to related parties that do not have assets or employees commensurate with the size of the functions claimed, and where expenses are paid to a related party in a jurisdiction which does not collect corporate income tax and add value to the taxpayers business.


The release of this Decree from Vietnamese Government provides more commonality for multinational groups for complying with international transfer pricing documentation. It also gives much more concise guidance and safe harbours on what is and is not acceptable for related party transactions, along with better guidance on acceptable comparables for TP documentation.

However, this will result in significant additional work and cost for many taxpayers, and is something that needs to be planned and coordinated with parent entities well in advance. The requirement to translate all documents (including parent company documentation) into Vietnamese will be onerous.

For further information contact:

Matthew Lourey, Managing Partner

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Phan Thi Thu Thuy, Manager

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