The tax authorities, led by the Ministry of Finance and the General Department of Taxation, having been enforcing the transfer pricing regulations actively, including enquiring into transparency of taxpayers’ related party transactions and audits. Taxpayers are now required to provide more information about their related party dealings and their compliance with the arm’s length principle as defined in the transfer pricing regulations by maintaining contemporaneous transfer pricing documentation.
Form 03-7 for declaration of related party transactions
Pursuant to Circular 156/2013/TT-BTC issued by the Ministry of Finance on 6 November 2013, Form 03-7/TNDN (“Form 03-7”) is applied for taxpayers’ disclosures of related party dealings for the tax period beginning 1 January 2014 onwards. The new Form 03-7 replaces Form GCN-01/QLT (“Form 01”) issued under Circular 66/2010/TT-BTC providing transfer pricing regulations in Vietnam (“Circular 66”). Under Circular 66, taxpayers have obligations to declare the related party transactions correctly and sufficiently, failing which they may be subject to the local tax authority’s assessment or adjustment of transfer prices or profits for tax purposes. Generally, a transfer pricing assessment and adjustment will result in a higher amount of tax payable.
Form 03-7 (enclosed) requires taxpayers to:
• Self-assess the arms’ length value (commonly called ‘market value’) of their related party transactions and disclose the reassessed amounts based on market value in Column 4 (for revenue or income) or Column 8 (for expenses) of the form;
• Declare the differences between the accounting amounts and the reassessed amounts in Column 5 (for revenue or income) or Column 9 (for expenses) of the form; and
• Declare an increase in profits due to the re-assessment of transfer prices of the related party transactions in Column 11 of the form. The upward adjustment to the taxpayer’s accounting profit is reported in Form 03-7/TNDN, i.e. Item 1.5 (Code B6) of the annual tax return. There is no guidance in the forms in case the taxpayers’ reassessment of transfer prices results in a reduction of profits for tax in line with the arm’s length principle.