The tax authority determines revenue, expenses, or taxable income to establish tax obligations using principles of analysis, comparison, the transfer pricing method, and databases utilized in managing transfer pricing.
Cases in which the tax authority has the right to tax imposition
Tax authorities shall be vested with authority to set the levels of price, profit margins or profit split ratios; levels of taxable income or corporate income tax payable for any taxpayer failing to comply with transfer pricing declaration or determination requirements; failing to provide or incompletely provide data and information provided for the purpose of determination of prices of related party transaction in the following cases:
- Taxpayers do not provide or insufficiently provide information or do not submit the Form given in the Appendix I;
- Taxpayers provide insufficient information required in the transfer pricing files referred to in the Appendix II and III to this Decree, or do not present the transfer pricing files and data, evidencing documents and records used as the basis for comparability analysis and determination of prices in the transfer pricing files at the tax authority’s request within the time limits prescribed herein. Information included in the transfer pricing file that is proved material or substantial if such information has impacts on results of analyses for selection of independent comparables, transfer pricing methods or results of adjustments for levels of price, profit margin and profit split ratios of taxpayers;
- Taxpayers use inaccurate or unrealistic information about arm’s length transactions for comparability analyses, declaration and determination of the transfer prices, or rely on data, evidencing documents and records which are illegitimate, invalid or are of unclear origin to determine levels of price, profit margins or profit split ratios applicable to related-party transactions;
- Taxpayers commits any violation against transfer pricing regulations set forth;
- Databases used for tax imposition purposes must be subject to regulations laid down in the Law on Tax Administration.
The level of fines for transfer pricing
Penalties of 10% to 20% shall be imposed on the underreported tax amount compared to the required tax amount.
Penalties ranging from 1 to 3 times the amount of evaded taxes for tax evasion actions.
The late payment fee is calculated at a rate of 0.03% per day on the overdue tax amount.
Based on Vinasc’s experience, businesses should fully comply with the requirements for disclosure and the preparation of Transfer Pricing Documentation. By doing so, businesses have complete autonomy in selecting independent comparable entities. If a business falls into any of the situations in which the tax authority has the right to tax imposion as mentioned above, then the determined profit margin will entirely depend on the tax authority’s data. Typically, the entities selected for comparison are those with high profits, which can be highly disadvantageous for the business.
Contact
If your business is interested in learning about Vinasc’s transfer pricing services, please contact Vinasc using the information provided below. We will gather the necessary information and send a detailed quotation for your business’s consideration.