Transfer pricing and profit transfer to parent companies is actually a burning issue in Vietnam. The General Department of Taxation said that tax authorities inspected and adjusted market prices in 130 enterprises from 2010 to 2015, reduced VND2,962 billion of loss, increased VND3,430 billion of taxable income and retrieved VND724 billion. Therefore, the Ministry of Finance coordinated with relevant ministries and agencies to study, formulate and submit to the Government for the issue of Decree 20/2017/ND-CP on tax administration on companies with associated transactions.
According to Mr Cao Anh Tuan, Deputy Director of the General Department of Taxation, Decree 20 aims to improve the legal basis for tax administration on companies with associated transactions and strengthen the legal compliance of taxpayers; create a sound and healthy business environment for all enterprises, raise the efficiency and effectiveness of tax collection management, as well as create favourable conditions for revenue management modernisation; step up tax administrative procedure reform towards simplicity, clarity and transparency; reduce costs and time of exercising tax obligations; and encourage taxpayers to perform self-assessment, self-calculation and self-payment mechanisms.
In addition, the decree aims at preventing and limiting the transfer of profits overseas and protecting revenue sources for Vietnam; and ensures harmonious rights and legitimate interests of enterprises.
Ms Nguyen Thi Lan Anh, Deputy Director of the Investigation Bureau under the General Department of Taxation, said “Regulations on tax administration for companies with associated transactions are built on the basis of promoting effective management of associated transactions in the past time, addressing existing bottlenecks, updating and supplementing new management solutions to fighting base erosion and profit shifting (BEPS).
A decree content that draws the attention of the press is the obligatory declaration and determination of prices of associated transactions and document preparation for determining prices of associated transactions. Any mother company whose main office is in Vietnam and whose total international annual profit surpasses VND18 trillion (US$803 million) must complete a multinational earnings report and submit it to the tax authority in Vietnam. Giving explanation to this figure, Ms Lan Anh said, compiling bodies collected international experiences and assessed local practices to introduce the best legal basis. Currently, to enhance the transparency of transfer pricing management, countries are reviewing and amending regulations on tax administration on companies with associated transactions by requesting multinational corporations to provide a holistic report on their whole distribution value chains, value creation channels, and paid tax amount in countries with three-level associated transaction pricing documents, namely global record, national record and international earnings report. These records will improve the quality of transfer pricing risk management for tax offices while reducing compliance costs for taxpayers by tax coordination and information exchange mechanisms.
Requesting the highest mother company whose main office is in Vietnam and whose total international annual profit surpasses VND18 trillion (US$803 million) to make a multinational earnings report and submit it to the tax authority in Vietnam is rooted from international experience and practice. In many other countries, this figure is EUR750 million (US$846 million). In addition to this provision, in the coming time, tax authorities in the world will have information exchange mechanisms to ensure the effective, transparent management. With its inspection results, tax authorities also found that regulations on tax administration on enterprises with associated transactions are being gradually standardised with a clearer legal corridor. Hence, foreign-invested enterprises more actively follow these new regulations. At the same time, tax authorities will also apply risk management methods to facilitate enterprises to do business.
On July 31, 2017, tax authorities will publicly disclose information on tax audits of multinational corporations in Vietnam to the public.