This article is also available in French/ Cet article est aussi disponible en francais : https://www.asiattorney.com/sites/fr/news/144-actualite-fiscale-prix-de-transfert-augmentation-des-controles-fiscaux-preparez-votre-documentation
In recent years Vietnamese tax authorities have significantly increased the scope of control of transfer pricing. Transfer pricing refers to the financial flows between parent companies and subsidiaries in exchange for goods, services, patents etc. The actual value of the consideration can be questioned. Indeed, if it is artificially increased, it may reveal a voluntary reduction of the turnover and of the taxable income of the company; allowing therefore the company to evade some of its tax obligations.
Vietnam is experiencing a surge of foreign investment, which promotes rapid growth and increases international trade between companies from the same group. Encouraged by government deficits that are the direct consequences of the low tax rates of the country, verification of transfer pricing appears as an essential element of tax audits. Indeed, the Vietnamese tax authorities have brought their attention on transfer pricing whereas until very recently, tax audit on that subject were isolated.
Tax audits relating to transfer pricing can be exercised in many forms. First of all, it may be specific surveys on transfer pricing. Controls on transfer pricing can also be included in broader tax investigations. Finally, it can also take the form of formal requests to submit transfer pricing documentation or explain the disclosures on the transfer pricing declaration form.
These controls lead for a lot of companies to the reception of notice of tax adjustment procedure. The tax authorities were often very strict, justifying themselves by affirming that the transfer prices already made were responsible for the lack of profits reported in Vietnam (…).
These controls have significantly increased over these past few months in Binh Duong and Dong Nai in south Vietnam but also in Hai Phong in the north. Other provinces are also trying to strengthen controls. Up to now, the tax authorities have not adopted a unique method of control and therefore any company, regardless of the volume or nature of its transactions, may be subject to a tax adjustment.
Companies who have not completed their annual tax statement or did not prepare in advance the documentation on transfer pricing were subjected to severe fiscal adjustment. As it is difficult to understand the local requirements of transfer pricing legislation, companies may be trapped into tricky situations. In addition to this, it becomes more and more difficult to challenge adjustments.
Control of transfer pricing extends over several years and the result of adjustment can be important, especially when penalties and interest are also compounded in. Controls focus on the profits or losses considered below average, the variation in results from one year to another, and in particular the hypothesis of a significant decline in profits and, finally, applications for tax deduction for service charges and fees paid overseas.
FIDAL ASIATTORNEYS encourages companies to get in touch with their usual counsel to prepare their documentation for billings subjected to the legislation on transfer pricing. Ideally, this documentation should be completed in conjunction with the finalization of accounts for the year 2013.