Exemption from transfer pricing declaration

According to Government Decree 132/2020, enterprises are responsible for maintaining and providing the transfer pricing documentation file, which includes information, documents, data, and records such as:

  • Information about related-party relationships and related-party transactions as per Appendix I;

  • Local files and appendix II;
  • Master files and appendix III;
  • Country-by-Country reports of profits of ultimate parent companies and appendix IV.

However, the following cases are exempt from declaration and preparation of the transfer pricing documentation file:

1.

Taxpayers shall be exempted from the transfer pricing declaration requirements referred to in Section III and IV of the Appendix I to this Decree, and the transfer pricing documentation requirements prescribed herein only if they are engaged in transactions with related parties that must pay corporate income tax within the territory of Vietnam, are subject to the same corporate income tax rates as applied to these taxpayers and all of them are not offered the corporate income tax incentive within a specified taxable period, but they shall be required to clarify bases for such exemption in Section I, II included in the Appendix I hereto.

2.

Taxpayers shall be responsible for making transfer pricing declaration according to the Appendix I to this Decree, but shall be exempted from the transfer pricing documentation requirements in the following circumstances:

a) Taxpayers are engaged in the transfer pricing but their total sales arising within a specified taxable period are less than VND 50 billion, and their total values of the related-party transactions arising within a specified taxable period do not exceed VND 30 billion;

b) Taxpayers already entering into Advance Pricing Agreement (APA) have submitted the annual report in accordance with legislation on Advance Pricing Agreements. For those related party transactions which are not covered by the APA, taxpayers shall be responsible for making transfer pricing declarations as referred to in Article 18 herein;

c) Taxpayers perform business activities by exercising simple functions, neither generating any revenue nor incurring any cost from operation or use of intangible assets, generating the sales of less than VND 200 billion, as well as applying the ratio of net operating profit before deducting loan interest and corporate income tax (exclusive of the difference between sales and costs of financial activities) to net sales, in the following sectors:

  • Distribution: 5% or over;
  • Manufacturing: 10% or over;
  • Processing: 15% or over.
In case where taxpayers keep separate accounting records of their sales and expenses in each sector, the ratios of net profits before deducting loan interest costs and corporate income taxes to net sales in specific respective sectors shall be used for calculation purposes.
Exemption-from-transfer-pricing-declaration

In case where any taxpayer manages to keep a separate accounting record of sales but fails to do so with respect to expenses arising in the manufacturing and business sectors, it shall be required to allocate expenses in proportion to sales generated in each sector to use the ratio of net profits before deducting loan interest costs and corporate income taxes to net sales in specific respective sectors for calculation purposes.

In case where any taxpayer fails to keep separate accounting records of sales and expenses in specific manufacturing and business sectors for the purpose of determination of the ratio of net profits before deducting loan interest costs and corporate income taxes to net sales in specific respective sectors, it shall be required to use the ratio of net profits before deducting loan interest costs and corporate income taxes to net sales generated in the sector with the highest ratio.

In case where the taxpayer chooses not to use the ratio prescribe in this point, they must prepare the transfer pricing file under regulations in force.

3.

With regard to taxpayers qualified for exemption from transfer pricing declaration and documentation requirements under the provisions of clause 1 and 2 of this Article, the determination of total deductible loan interest costs for the calculation of corporate income taxes of enterprises having related party transactions shall be subject to

a) Total loan interest cost arising after deducting deposit interests and lending interests within a specific taxable period which is deducted during the process of determination of income subject to the corporate income tax is not 30% more than the net profit generated from business activities within the taxable period plus loan interest costs arising after deducting deposit interests and lending interests arising within the taxable period plus depreciation/amortization expenses arising within that period of a taxpayer;

b) The portion of loan interest cost which is non-deductible as prescribed in point a of this clause is carried forward to the next taxable period for the determination of total loan interest cost deductible if total loan interest cost deductible in the next taxable period is lower than the amount prescribed in point a of this clause. The loan interest costs may be carried forward for a maximum consecutive period of 05 years, counting from the year following the year in which non-deductible loan interest costs arise;

Taxpayers must declare the rate of loan interest costs arising within a specific taxable period according to Form No. I

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