TaxNewsFlash-Transfer Pricing

May 6, 2010
No. 2010-27



Vietnam: New Transfer Pricing Regulations Are Effective 6 June 2010

Vietnam’s Ministry of Finance issued new transfer pricing regulations as Circular 66/2010/TT-BTC (22 April 2010). The guidelines under Circular 66 are effective beginning 6 June 2010.

Circular 66 replaces Circular 117/2005/TT-BTC (19 December 2005). Changes made by Circular 66 are described below.


In general, Circular 66 provides a comprehensive set of guidelines concerning the following elements:

  • The arm’s length principle
  • Alternative criteria defining related-party relationship
  • Material differences
  • Arm’s length range
  • Principles of comparability analysis
  • Transfer pricing methods—the five commonly used methods:
    • Comparable Uncontrolled Prices Method
    • Resale Price Method
    • Cost Plus Method
    • Comparable Profits Method
    • Profit Split Method
  • Benchmarking standards
  • Database
  • Transfer pricing documentation and record retention requirements
  • Triggers for the tax authority’s transfer pricing adjustments
  • Annual declaration requirements

Compliance Requirements

Companies with related-party transactions in general must comply with the following requirements:

  • Determine transfer prices for related-party transactions in accordance with the arm’s length principle (under which prices are to be negotiated and agreed upon as if the transactions were conducted between unrelated (independent) parties). Note that Circular 66 primarily applies for corporate income tax purposes.
  • Create and maintain contemporaneous transfer pricing documentation as supporting evidence of compliance with the arm’s length principle. As such, the onus is on corporate taxpayers to provide evidence with respect to arm’s length transactions. Penalties and arbitrary assessments of transfer prices or profits for corporate income tax purposes may apply when a corporate taxpayer fails to have documentation or provide documentation within the prescribed period (30 business days following the tax authority’s written request for such documentation).
  • Submit an annual declaration of related-party transactions and related transfer pricing methods on Form GCN-01/QLT when filing an annual corporate income tax return. One change provided in Circular 66 requires companies to declare their different categories of related-party transactions with detailed information concerning individual related parties, the nature of the related-party relationship, and the related transfer pricing methods.

Technical Amendments

Certain technical amendments made by Circular 66 tighten the application of the transfer pricing rules, including:

  • The thresholds of “material differences” are now prescribed to be 1% of transfer prices or 0.5% profit margin (either on a gross margin or net margin basis). The definition of “material differences” thresholds could have broad implications with respect to a number of aspects of transfer pricing analysis; the analysis must be conducted in accordance with the regulations—particularly, the number of comparables to be selected, benchmarking, etc.
  • The median value of an inter-quartile range is now to be used for purposes of benchmarking and transfer pricing adjustments in certain cases. Based on observations from international transfer pricing practices, strictly using the median value appears to result in significant disputes between taxpayers and tax authorities in transfer pricing audits and in negotiations for advance pricing agreements.

Practical Issues

Since the application of the local transfer pricing regulations (Circular 117 of 2006), tax professionals have noted a number of transfer pricing risk transactions and “red flags” that can be identified from the local practice, including:

  • Prolonged loss making in one or a combination of the following situations—business expansion (as indicated by revenue and investment) associated with prolonged loss makings and suspected less-than arm’s length transfer prices of tangible goods involving raw materials, fixed assets, and manufactured products
  • Operating loss-making at companies that perform routine functions and assume low risks in contract manufacturing or export processing (toll manufacturing)
  • Disallowed deductions for certain business expenses under the rationale of risk allocation between the Vietnamese company and international related parties
  • Rejected corporate income tax deduction for related-party payment of service fees, when the expenditures were not adequately substantiated in terms of service levels and transfer price setting
  • Inconsistency between the use of intangible assets (as evidenced by the payment of user’s fee) and business profits
  • Inconsistency between documented transfer pricing policy and actual business results, setting aside the effects of external factors

KPMG Observation

There have been reports that the local tax authorities have expressly indicated concerns about the transfer pricing practice in a number of sectors and of their intention to focus on and scrutinize transfer pricing matters in upcoming tax audits. Proper planning and compliance with the local requirements therefore may need to be given high priority on the corporate agenda for tax governance. Prudent taxpayers would pay attention to the following areas:

  • Maintain contemporaneous transfer pricing documentation (i.e., at the time related-party transactions are conducted, rather than after the fact)
  • Consider arm’s length transfer pricing in business decisions on dealings with related parties, including supply chain related issues
  • Review the results of application of transfer pricing policy and maintain necessary explanatory information for the results

For more information, contact a KPMG tax professional in Vietnam:

Warrick Cleine, +84 8 38 21 9266 (ext. 8200), 

Hoang Thuy Duong, +84 4 3946 1600 (ext. 6406), 

Ta Hong Thai, +84 8 3821 9266 (ext. 8240), 


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