Subject: Transfer pricing

Subject: Transfer pricing

Question:

Dear Trithucviet,

We are a Foreign Invested Company (FDI), we would like to ask about the cases to do Transfer Pricing Report and how to do, please consult.

Thank you

<Answer>

As required by law, companies have to deal with related parties, they must make a transfer report, the purpose of this report is to determine the transaction price with related parties in accordance with market price.

 

Therefore, the Company must:

  1. Determination of related parties: The parent company, the company with the same owner, the same Group, the company has the same management board. . . Prior to 2017, customers with buying or selling transactions account for 50% of the purchase value or more are related parties.

 

  1. Transactions arising: Buying, selling, exchanging, renting, leasing, borrowing, lending, transferring machinery, equipment, goods or providing services; loan, lending, financial services, financial security and other financial instruments; to buy, sell, exchange, lease, borrow, transfer the tangible and intangible assets and agree on the use of common resources such as cooperation and exploitation force; sharing costs between associated parties.

 

  1. Determine the transaction price that is appropriate to the market price:

The methods currently are: 1) Price comparison method; 2) Profitability comparison method; 3) Profit split method.

 

Companies usually choose method 2: Companies must select at least 5 other companies in the same industry, similar size, no associated transactions, etc. Then calculate the average profit margin (calculate the quartile and apply to companies, recalculate profits and taxes (if applicable).

 

Companies are active to choose 5 uncontrolled companies as mentioned above which benefit themselves, to calculate the rate, that companies can adjust their profit margin.

If the company does not carry out the Transfer Pricing Report or make an inappropriate Transfer Pricing Report, or the unsuitable database and cannot persuasively explain to the tax office when being checked;  the tax authorities have the right to choose companies with high rates of income or the rates calculated by the tax office of the industry to apply to companies (then companies are completely passive because not carrying out transfer pricing reports as prescribed).

 

After having average profit margin, companies will:

  • Make a transfer report (about 20 pages), analyze and prove to protect the database of your choice and the results of your calculation is appropriate.
  • In addition, companies must prepare form 1.2, 3 and 4 to submit to the tax office,
  • Making final CIT report after adjusting the rate of return and the payable CIT (if any).

 

The above is our advice for your reference. Prior to implementation, you should contact our consulting team for further clarification or further reading the provisions of Decree No. 20/2017/NĐ-CP dated 24 February 2017 and guidance of Circular No. 41/2017/TT-BTC dated 28 April 2017.

 

Consulting Department – Trithucviet Company Limited

Email: info@trithucviet.com.vn

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