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Vietnam: Transfer Pricing Regulations Amended

(May 27, 2010) Effective June 6, 2010, Vietnam's Ministry of Finance Circular 66/2010/TT-BTC, amending the country's transfer pricing regulation (Circular 117/2005/TT-BTC) will take effect. Application of the new Circular is limited to transactions between enterprises and their related parties; it does not cover individuals, unlike Circular 117. (Rachel Saw, Transfer Pricing Regulations Amended, TAX NEWS SERVICE, May 18, 2010, IBFD online subscription database.)

Under the definition of “related parties,” which includes limited liability companies, two companies are related if they meet the following criteria (replacing the Circular 117 criterion of affiliation being based on 20% ownership of “total assets” in another company):

  • one party provides the other with a guarantee or grants a loan that constitutes at least 20% of the owner's equity of the guaranteed party/borrower, and that loan accounts for more than 50% of the total value of long- and medium-term loans of the guaranteed party/borrower; or
  • both parties hold, directly or indirectly, at least 20% of the owner's equity of a third party. (Id.)

If companies have related-party transactions, they must:

  • Use the arm's length principle to determine the transfer prices for such transactions (whereby the prices are negotiated and agreed upon as if the transactions were between unrelated parties). (Vietnam: New Transfer Pricing Regulations Are Effective 6 June 2010, TAX NEWS FLASH – TRANSFER PRICING, No. 2010-27, May 6, 2010, available at
  • Create and maintain “contemporaneous transfer pricing documentation as supporting evidence of compliance with” that principle. If the corporate taxpayer fails to have the documentation or to provide it within the prescribed period, “[p]enalties and arbitrary assessments of transfer prices or profits for corporate income tax purposes may apply.” (TAX NEWS FLASH – TRANSFER PRICING, supra.)
  • File a certain form with their annual corporate income tax return that provides an annual declaration of the company's related-party transactions and related transfer pricing methods. In a departure from Circular 117, under Circular 66 companies must “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.” (Id.)

The Circular also stipulates a new threshold for what constitutes a “material difference” in the increase or decrease of transacted products' unit price: 1% of transfer prices or a 0.5% profit margin (based either on gross or net margin). (Saw, supra; TAX NEWS FLASH – TRANSFER PRICING, supra; see also for background information on Circular 117, Ninh van Hien, Vietnam Issues Circular on Transfer Pricing Regulations, THE ARM'S LENGTH STANDARD 1-3 (Apr. 2006), available at