Vietnam: Draft decree on transfer pricing standards | KPMG | US

Vietnam: Draft decree to implement transfer pricing standards, BEPS recommendations

Vietnam: Draft decree on transfer pricing standards

The Ministry of Finance released a draft decree on transfer pricing that is being viewed as an intention to adopt and implement base erosion and profit shifting (BEPS) recommendations relevant to Vietnam.

1000

Related content

The draft decree—Quy định về quản lý giá chuyển nhượng của các giao dịch liên kết, chống chuyển giá, chống thất thu Ngân sách nhà nước (Regulations on the management of transfer pricing in related-party transactions, prevention against transfer pricing abuse and state budget loss)—was released 3 October 2016, and expected to be confirmed before the end of 2016 and effective in 2017.

The draft decree introduces a number of new principles including: a “substance over form” standard; measures for the comparability of related-party transactions against independent transactions; consideration of development, enhancement, maintenance, protection and exploitation (DEMPE) functions with respect to intangibles, and new requirements such as Master or Group file, Local file, and country-by-country reporting. The application of such principles will enable the tax authorities to disregard or recharacterise related-party transactions in instances when those transactions result in reduced tax revenue.  

The documentation requirement is clearer and stricter in the draft decree than under current rules, particularly in that the draft decree states that the documentation must be available before the corporate tax return’s filing date, and the documentation must be provided to the tax authorities within 15 business days from the date of a request made by the tax authorities for the documentation. Clearer bases have been given for the tax authorities’ presumptive assessment (ấn định) in instances of taxpayer failures to have or provide documentation. Certain thresholds are also provided for exemptions from the documentation rules (but submissions of a declaration of related-party transactions is still required) when:

  • The taxpayer only has related-party transactions with domestic parties that are subject to the same corporate income tax rate (none of whom enjoys corporate income tax incentives); and
  • The taxpayer’s annual revenue does not exceed VND50 billion (approximately US $2.27 million) and the total value of the related-party transactions does not exceed VND30 billion (approximately US $1.36 million). 

The draft decree (or proposed regulations), for the first time, introduce new guidance regarding the tax deduction for interest on intercompany loans and related-party services expenses. Certain provisions have been introduced to deny deductions linked with related or affiliated parties that:

  • Lack of business substance and are considered as asset holding companies
  • Are located in jurisdictions with preferential income tax rates under 15%, or
  • Lack of substantial management over earnings or property

In addition, certain thresholds that define related-party relationships have been revised. For instance, the ownership criteria have been revised to require a holding of at least 25% of the capital of the other entity (previously set at 20%). Enterprises that otherwise would be unrelated parties, will be deemed related or affiliated parties if one enterprise sells more than 60% of its total sales in a fiscal period, or provides more than 60% of the raw materials or input products (both provisions were previously set at more than 50%).

 

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Vietnam:

Thuy Duong Hoang | +84 439461600 | dthoang@kpmg.com.vn

Alvaro Flores | +84 838219266 | alvaroflores@kpmg.com.vn

Thuy Ha Dang | +84 838219266 | hdang@kpmg.com.vn

© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit