In April 2017 the Ministry of Finance issued Circular 41/2071 / TT - BTC. This complements the contents of Decree 20 promulgated in February 2017.
Both will become effective from May 2017.
The revised contents are as follows.
1. Comparability analysis of benchmark analysis
2. Method of calculating transfer pricing
3. Procedures to observe (Country by country report etc.)
4. Exemption from transfer pricing tax regulation
For each item, confirm the following contents.
(1. Comparability analysis of benchmark analysis etc.)
· Emphasize the importance of the concept of realism
· Specify to take into account all of the following factors
1) Characteristics of financial or service to provide or receive
2) Contractual terms
3) Function analysis
4) Economic situation
· Consider factors such as location saving (excess profitability due to
geographical requirements such as cheap labor) and local market premium
(advantage of specific market).
· Explanation about qualitative, quantitative criteria and working capital
adjustment etc.
· Provide guidance that emphasizes the process of development, improvement,
maintenance, protection and use of intangible assets
· Detailed explanation of benchmark analysis procedure
(2. Method for calculating transfer pricing)
2-1. Guidelines on the scope and adjustment of arm-length’s price
· Application of Full range
In the following cases, the whole range will be the independent company
price.
① When comparable transactions or companies that have comparable reliability
and comparability are identifiable or can not be identified
② When there are differences but sufficient information is available to
resolve all of the differences
· Application of inter-quartile range
When there is an important difference between independent comparable transaction,
company and a taxpayer, but information that resolves most of the important
difference can be obtained.
· Transfer price adjustment
If it falls within the above range, there is no obligation to adjust transfer
pricing. However, if it is outside of that range, it is necessary to calculate
the most appropriate value in the whole range or quartile range and make
appropriate adjustments.
This adjustment needs to be adjusted for transfer pricing only if tax revenue
does not decrease.
· Applying the median of the interquartile range
When the tax authorities make deemed adjustment, the median of the interquartile
range is used.
(3. Method of calculating relocation)
Circular 41 has the following description.
· Resale Price Method, Cost Plus Method, Comparable Profit Method
· When using Comparable Profit Method, income and expenses from financing
activities are deducted from calculation of operating income.
· The index of the profit level indicator takes into account the nature
of the taxpayer's business and the actual performance.
· If tax amount is too small, it is subject to additional tax, fine, and
delinquent tax.
(4. Procedure to Observe)
1. Submission of Disclosure Document
The following documents must be submitted with the tax return of the corporation
tax.
· Form 01: Information on related parties and their transactions (change
from previous form 03)
· Form 02: Information required for local file and checklist
· Form 03: Information required for master file and checklist
· Form 04: Country by Country Report (If the final parent company is in
Vietnam and the worldwide income in the tax year is over 18 trillion Vietnamese
dongs (about 90 billion yen) or more)
2. Production and storage of transfer pricing document
Companies are obligated to create and keep the following documents.
· Local files
· Master file
· Copies of Country by Country Report (when prepared in accordance with
the laws and regulations of the area where the final parent company is
located)
According to the law, it is necessary to prepare these documents before
submitting the corporation tax declaration.
Upon tax examination, these documents shall be submitted within 15 business
days if requested by tax authorities.
Handling of Country by Country Report
Handling of Country by Country Report is as follows.
· When a taxpayer is a subsidiary belonging to a multinational group and
consolidated, it is obligation to submit.
· If it is not possible to submit with the final return form, submit a
copy of the national communications prepared in the previous fiscal year
and a statement of defense.
· If you are unable to submit Country by Country Report for the current
year or the previous year, submit a statement of defense
(Guidelines for exemption from transfer pricing tax system)
Regarding Decree 20, there is provision for exemption from obligation to
prepare transfer pricing document. (reference)
Circular 41 supplements the exemption provision for taxpayers handling
multiple simple functions.
· In cases that taxpayers can grasp revenue and expenses by segment
⇒ Use different profit margins for each segment
· If the taxpayer can grasp the revenue for each segment, but can not grasp
the cost
⇒ Use expenses proportionally based on earnings and use profit margin
· Taxpayers are unable to grasp revenue and expenses by segment
⇒ Apply the highest profit margin in exception rule to this business segment
As stated above, provisions concerning documentation of new transfer pricing
have been introduced.
Especially for a master file, even Japanese companies are exempted from
creation, it is necessary to prepare for future tax investigations, because
creation storage is required in Vietnam.