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At a turning point for BEPS-related tax reforms

Thuy Duong Hoang, a partner at KPMG Vietnam, provides an update on transfer pricing management, audits, APAs and offers a view of BEPS.

Update on local transfer pricing management

The year 2016 marks the milestone of a decade of transfer pricing regulations in effect in Vietnam. Since the release of Circular 117/2005/TT-BTC, subsequently revised and replaced in 2010 with Circular 66/2010/TT-BTC in effect, the Vietnamese tax authorities have gradually increased the level of enforcement through transfer pricing audits.

Led by the General Department of Taxation (GDT), the central tax office, provincial tax authorities have executed the Action Plan released by the Ministry of Finance (MOF) on transfer pricing management for the 2012 to 2015 period. The GDT established a specialised transfer pricing team in February 2012. Official transfer pricing audit divisions were set up at the GDT and some major provincial tax offices (ie Hanoi, Ho Chi Minh City, Dong Nai and Binh Duong) in late 2015.

Transfer pricing audits – controversy and risk management

Local regulations require that contemporaneous transfer pricing documentation (in Vietnamese) must be created and provided to the tax authorities within 30 working days from the authorities' written request. However, in practice, an even shorter notice is given to taxpayers where documentation is requested before or during a tax audit that is generally mandated under laws to be completed within 30 days.

There is no clear procedure to follow for a transfer pricing audit in Vietnam. A specific transfer pricing audit can be initiated, or it can form part of the scope of a general tax audit. Each year the tax authorities select companies in a few specific industries for tax audits. The industries targeted for transfer pricing audits vary from year to year.

Companies having recurrent tax losses, significant decreases of taxable income year-to-year, significant related party transactions (especially management fees, royalties and interest costs on intercompany loans) may be selected for an audit ahead of others. In recent audits, the scope has been extended beyond the review of tangible product transactions (ie manufacturing and distribution activities) to include those transactions involving intangibles, management fees, and intra-group financing.

In 2015, tax and transfer pricing audits were conducted on 4,751 companies which reported tax losses, had significant related party transactions, and/ or was suspected of abusing transfer pricing matters. This represented a 30% year-on-year increase and resulted in a total tax loss reduction of VND 10,050 billion ($450,000), a total deductible expense reduction of VND 303 billion, and collection of VND 1,062 billion in additional tax and penalties.

Key notes from recent transfer pricing audits are:

  • Transfer pricing adjustments were made in case tax payers failed to explain tax losses, or in case transactions were not, in the tax authority view, carried out at arm's length in accordance with the Tax Administration Law and transfer pricing regulations. It is notable that, due to the definitions of 'relationship' in the regulations, transfer pricing adjustments were also applied to transactions with business partners that account for the majority of the taxpayer company's business (eg the business partner accounts for 50% of the taxpayer's sales), even though they are independent of each other in terms of ownership or management;

  • The median value of an interquartile range for each year under tax audit was widely used for purposes of transfer pricing adjustments without consideration of the taxpayers' economic circumstances such as business start-up or difficult business conditions; and

  • A deemed profit margin was usually proposed by local tax authorities based on their secret comparable data. Having a robust benchmarking analysis is essential to negotiate with the tax authorities on the adjustment. Note, the negotiation process is time-consuming and usually exceeds the prescribed timeline for an audit (ie 30 days from the date of decision on the tax audit). In our experiences, negotiating with the local tax authorities to close the audit at field appears to be a better strategy to resolve an audit, as opposed to the alternative of a dispute resolution process (such as appellations, court actions or Mutual Agreement Procedures).

In conclusion, taxpayer companies should have robust benchmarking and documentation prior to a tax audit which will be useful in case of negotiations in the audit at field.


Effective in Vietnam since February 2014, the APA regulations and programme are in the early stages of application but progressing well, despite the fiscal authority's determination to promote APA with an aim of creating certainty and transparency in the tax administration, and inbound investment. Unilateral, bilateral and multilateral APAs are available under the local regulations.

Presently, eight APA applications have been filed or are under negotiation. Seven cases relate to companies engaged in manufacturing activities, and one is engaged in distribution activities. No APA has been concluded to date. The GDT expects to conclude the first APA in 2016.


MAP is available under the double tax treaties to which Vietnam is a signatory. Under the local regulations, MAP is applied:

  • After taxpayers have fulfilled their tax obligations per the tax authorities' assessment decisions; and

  • The cases are not escalated to the court.

The expected time frame for a MAP application is three years from the date of the decision on the transfer pricing adjustments by the local tax authorities.

Presently, six MAP requests are pending in Vietnam, of which five requests are from South Korea and one from Japan. No case has been resolved to date, and no clear timeline within which resolution can be expected.

View of BEPS

It is noted from the very recent Government's Resolution No. 19 (dated April 28 2016) that a governmental decree on transfer pricing and tax evasions will be proposed by the MOF during 2016. The resolution is made in the broader context with an aim of improving the Vietnamese business environment. The decree is intended to introduce some important changes in tax policy in relation to transfer pricing and preventing tax base erosion.

Based on discussions between KPMG and the fiscal authority, some of the BEPS actions might be taken into account in the upcoming tax regulatory changes, especially in relation to working out tax regulations on the digital economy, tax treaty abuse, limiting the erosion of tax base via interest deduction, permanent establishment, transfer pricing, documentation and reporting.



Hoang Thuy Duong


KPMG in Vietnam

46th Floor, Keangnam Hanoi Landmark Tower, 72 Building, Plot E6, Pham Hung Street, Me Tri, Tu Liem Hanoi

Tel: +84 (4) 3946 1600 (ext. 6516)

Duong is a Tax Partner and Head of KPMG's Global Transfer Pricing Services (GTPS) in Vietnam. He has close to 16 years' experience in tax and transfer pricing planning, servicing publicly held and private multi-national and Vietnamese corporations.

Professional and Industry Experience

  • Duong is leading KPMG Vietnam's GTPS and Value Chain Management advisory groups. Duong has been in charge of hundreds of transfer pricing advisory projects.

  • During his international assignment to KPMG Australia, Duong gained experience in global transfer pricing and international tax planning, and transfer pricing documentation.

  • Duong has advised a large number of multinationals on tax, customs and transfer pricing planning and compliance, supply chain tax planning, business restructuring, as well as provided tax due diligence and structuring advice on a number of corporate transactions in various sectors including Diversified Industrials, Automotive, Consumers, Financial Services, Infrastructure, Information Technology, Japanese and Korean Markets, and a number of other sectors.

  • Duong was the Engagement Partner on a project providing capacity building assistance on transfer pricing (funded by the European Commission) and APAs to the Vietnamese General Department of Taxation (GDT).

  • Duong is in regular consultation with the GDT in relation to BEPS.

Function and specialisation

  • Global Transfer Pricing

  • Value Chain Management

  • International Tax & Corporate Tax

Education, Licenses & Certifications

  • Bachelor of Science (Economics)

  • INSEAD-KPMG Executive Development

  • Member of CPA Australia

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