On 5 November 2020, the Vietnamese Ministry of Finance (MoF) has issued new transfer pricing Decree No. 132/2020/ND-CP. The new Decree replaces the existing Transfer Pricing (TP) regulations (Decree No. 20/2017/ND-CP) and provides the following new compliance requirements in Vietnam:
Expand the concept of Commercial Database
Decree 132 expands the scope of collecting financial and economic data sources for comparative analysis to commercial databases of data trading organizations that provide archived information sources, standardize and update.
Previously, comparative data sources were limited to databases provided by information trading organizations from publicly available sources.
Increasing cap on deductible interest expenses
The Decree has increased the cap on deductible interest expenses from 20% of earnings before interest, tax, depreciation, and amortization (EBITDA) to 30% of EBITDA.
Non-deductible interest expenses are allowed to be carried forward for five years counting from the year following the year the non-deductible interest expense arises.
Narrowing acceptable arm’s length range
The acceptable arm’s length range is elevated to width from the 35th percentile to the 75th percentile (narrowing from the 25th to the 75th percentile range under Decree 20). Thus, the proposed lower threshold value is increased by 10%.
CbC reporting rules
Vietnamese parent companies of a multinational group need to submit a Country-by-Country report if the group has consolidated revenues amounting to at least VND 18,000 billion (approximately EUR 730 million) in the applicable tax period and submit reports to the tax authority no later than 12 months after the end of the fiscal year of the parent companies.
It is not required to submit to the tax authority in case the Vietnamese tax authority can receive inter-country profit reports through automated information exchange (AEOI);
Decree No. 132 new international practice to ensure compliance with commitments when participating in the BEPS forum is: reporting inter-national profits received through the form of automatic information exchange if the Authorities have the authority of the two countries that have signed the Agreement. The taxpayer only has to provide it to the tax authority in case the competent authorities of the two countries do not sign the Agreement.
Exemptions from the three-tiered TP documentation
- Only arising transactions with affiliated parties that are liable to pay corporate income tax in Vietnam; and
- Apply the same corporate income tax rate as the taxpayer; and
- Neither party is entitled to corporate income tax incentives in the tax period.
Decree 132 takes effect from 20 December 2020 and applies to fiscal year 2020 to replace Decree 20/2017/ND-CP.
