Note: The following provides our insights on the draft of the Transfer Pricing Decree (“TP Decree”), dated 3 October 2016, which is published on the official website of the Ministry of Finance.  There may be changes in the final TP Decree so the below should be taken as a reference only. 


Following Vietnam Government’s Resolution No. 19-2016 / NQ-CP on April 28, 2016, the Ministry of Finance (“MoF”) has finally completed the draft of the TP Decree. This was initially published in early September 2016 to collect comments from government bodies and the public. The version released on 3 October captures various comments made, including from the MoF and the Ministry of Planning and Investment. 

Although it is in draft form, the final draft of the TP decree will need to be ready to submit to the Prime Minister by 30 November 2016 for review and signature.  This suggests that any further amendments are likely to be minimal.

The TP Decree was introduced under pressure for more stringent control requirements to combat transfer pricing and loss of tax revenue in the state budget.  From practical point of view, the Vietnamese authorities require enhanced regulations as the existing guidance is outdated and was creating confusion in compliance and enforcement.  In addition, the TP Decree is also a response to Base Erosion and Profit Shifting (“BEPS”) developments at the OECD level as well as in Asian jurisdictions including India, China and Singapore. 

Significant Changes

More specific and internationally consistent definition of related parties

To bring the definition of related party for transfer pricing purposes more in line with global standards the following changes were made:

  • Ownership – In the prevailing regulations, a party that holds directly or indirectly at least 20% of the charter capital of the tested party is considered a related party. In the draft TP Decree, this ownership threshold is adjusted to 25% of the capital actually contributed.This threshold is also consistent with the ownership threshold used in international databases such as Oriana, which are commonly applied in Vietnamese benchmarking studies for both transfer pricing documentation and audit defense purposes.
  • Transactions – The existing test of a controlled relationship based on transaction volume was changed from 50% threshold to 60% threshold. Based on the draft Decree, two enterprises are considered related parties if one enterprise directly or indirectly controls more than 60% of the total revenue or total product quantity (in the prevailing regulation, only product quantity is considered).This provision was initially introduced to identify transactions between taxpayers in Vietnam with a “paper company” set up in a low tax jurisdiction with no direct shareholding relationship in order to escape the transfer pricing net.  However, the existing definition has triggered significant challenges for many FDI entities that happen to be part of a supply chain with limited customers e.g. parts suppliers for the automobile and motorcycle manufacturers.  The increase from 50% to 60% should have an impact on reducing the number of such companies inadvertently caught in the transfer pricing net, despite no shareholding or other non-arm’s length connection with the customer or supplier.

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