Russell Bedford KTC would like to provide you with an important update on the current tax audit and inspection landscape, particularly for enterprises with related party transactions both within and outside Vietnam.

Increased Tax Audits/Inspections

Recently, tax authorities nationwide have been comprehensively and decisively intensifying their audit and inspection activities. These inspections not only review familiar issues such as VAT, CIT, PIT, or import/export taxes but also specifically focus on a complex area: related party transactions (transfer pricing).

An important note often overlooked by many enterprises: related party transaction inspections are not limited to companies with transactions involving overseas related parties. According to current regulations, enterprises with related party transactions entirely within Vietnamese territory may still be subject to declaration and preparation of transfer pricing documentation if they meet the legal conditions.

Does Your Enterprise Fall Under the Scope of Transfer Pricing Documentation Requirements?

To proactively manage risks, enterprises need to self-assess whether they are required to prepare transfer pricing documentation. Below are some key criteria for identifying “related parties” as per regulations:

• Capital ownership relationship: One enterprise directly or indirectly holds at least 25% of the owner’s capital contribution of the other enterprise.
• Common investor: Both enterprises have at least 25% of the owner’s capital contribution directly or indirectly held by a third party.
• Loans/lending: An enterprise borrows or lends an amount accounting for at least 10% of the owner’s capital contribution at the time the transaction arises.
• Personnel appointment & operational control: An enterprise appoints senior personnel or has the right to decide the financial and business policies of the other enterprise.

Exemption from Documentation Preparation (declaring information on the CIT finalization return is still mandatory):

• Enterprises with total revenue under VND 50 billion AND total value of related party transactions under VND 30 billion during the period.
• Enterprises that have signed an Advance Pricing Arrangement (APA).
• Enterprises operating with simple functions, with revenue under VND 200 billion, and meeting the profit margin criteria stipulated by law.

Common Mistakes Leading to Significant Risks

The process of working with tax authorities shows that many enterprises still make basic errors:

1. Omission, non-declaration of related party transactions: Especially domestic intercompany transactions, and loans/lending with individual managers.
2. Incomplete, inaccurate declaration: Errors in information, values, or incorrect classification of the nature of transactions.
3. Failure to prepare or superficial preparation of transfer pricing documentation: Lack of comparative analysis, weak arguments to defend the applied prices.
4. Transaction prices not adhering to the “arm’s length principle”: This is the core of transfer pricing risk management, leading to tax authorities reassessing taxable income.

Substantial Financial Risks and Urgent Compliance Pressure

The most significant risk currently is the speed of processing and enforcing tax authority decisions. Many enterprises have been quickly penalized, receiving assessment decisions in a very short period (possibly only a few weeks) and being forced to pay additional tax arrears immediately after the audit/inspection process concludes. Enterprises may face significant difficulties or be unable to mobilize financial resources in time to fulfill their assessed tax obligations within a short period.

More importantly, this assessed tax amount will include all administrative late payment penalties and incorrect declaration penalties, accumulated for all financial years with violations. For enterprises that have not been audited or inspected for a long time, this retroactive collection can become a very heavy financial burden, severely and suddenly impacting cash flow and business operations.

Recommendations

Given the current pressure of aggressive inspections and rapid processing, compliance with transfer pricing regulations is no longer an option but an urgent requirement. Mismanagement in this area not only leads to direct, sudden financial consequences but also affects the enterprise’s risk rating, resulting in stricter supervision in the future.

Enterprises need to immediately review all related party transactions (both domestic and international) to assess the level of compliance and prepare necessary explanatory documents.

Contact Russell Bedford KTC for more detailed advice on regulations, risk assessment support, or professional and compliant preparation of transfer pricing documentation. Our team of experienced experts will assist you to navigate through this complicated landscape.