In June 2016, the Prime Minister of the Socialist Republic of Vietnam, Mr. Nguyen Xuan Phuc, has signed off the Instruction No. 22/CT-TTg on reinforcing the 2016’s State Budget. Of which, an remarkable point is to strengthen tax audits, and to push for inspections on transfer pricing and related party transactions. In addition, the Prime Minister also requested all cities/provinces to meet the target of tax revenue for 2016, with an aim of exceeding 2015’s income by at least 14 – 16%.
Accordingly, we would recommend the enterprises having related party transactions closely attend to main requirements on the compliance of Transfer Pricing as follows:
- Declaration of Related Party Transactions (“RPTs”) to be lodged to the tax authority together with fiscal year-end CIT return;
- Contemporaneous Transfer Pricing (“TP”) documentation to be prepared and maintained at the enterprise, which includes a benchmarking study analyzing the independent companies/comparable transactions to achieve a market range for proving the arm’s length nature of the Company’s RPTs. Transfer Pricing documentation and Declaration of RPTs should be consistent in terms of TP methods and RPTs data. Any adjustment after decision of tax audit would not be accepted;
- Multinational corporations may develop a Global Transfer Pricing Master File or Benchmarking Analysis to apply for all subsidiaries. However, such report/documentation needs to be further reviewed, and localized/modified to truly reflect the Vietnamese subsidiary’s operations, and meet local transfer pricing regulations and prevailing practices applicable for Vietnam. The Transfer Pricing documentation to be submitted to the local tax authority must also be in Vietnamese.
- In addition to compliance with Transfer Pricing declarations and Transfer Pricing documentation, enterprises may also consider a more comprehensive approach such as entering into an APA with the tax authorities.
In case of noncompliance with arm’s length principle and the above TP disclosure and documentation obligations, enterprises might be subject to a reassessment and consequently a deemed adjustment of price or profit made by the tax authorities based on their judgment and database. This accordingly leads to an exposure of tax collection, late payment interests and penalties to be charged by the authorities. Such adjustments might also entail wider consequences in terms of altered tax profile and possible adverse publicity, which we have recently observed.
With our extensive experience in TP planning and compliance, and as one of the major TP service providers in Vietnam, we are pleased to assist you to properly comply with the laws and regulations with the following services:
- Review and analysis of Transfer Pricing risks and opportunities;
- Full Transfer Pricing documentation;
- Localization of Groups’ Master File into Vietnam-specific Transfer Pricing documentation;
- Transfer Pricing benchmarking study;
- Transfer Pricing audit defense; and
- APA application.
Should you need any assistance, don't hesitate to contact us.
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Mazars Vietnam - TP Alert (VIE) - June 2016
Mazars Vietnam - TP Alert (ENG) - June 2016