If your company transacts with related parties – a parent abroad, a sister company, or an affiliated supplier – you likely have transfer pricing obligations in Vietnam. Many businesses discover this only during a tax audit, when penalties are already on the table. This article explains who must prepare documentation, what the reports contain, how the interest-expense cap works, and the mistakes that most often trigger adjustments. You will finish knowing whether you are exposed and what to prepare.

What transfer pricing actually regulates

Transfer pricing rules require that transactions between related parties be priced as if the parties were independent – the arm’s length principle. The concern is that related companies could shift profit to lower-tax locations by charging non-market prices. The rules do not forbid related-party dealings; they require you to prove the prices are consistent with what unrelated parties would agree.

Who is subject to the rules in Vietnam

Vietnam’s framework is set out in Decree 132/2020/ND-CP. It applies to taxpayers with related-party transactions, based on ownership and control relationships defined in the decree. Even purely domestic related-party transactions can fall within scope. If any counterparty meets the related-party definition, you should assess your obligations rather than assume the rules apply only to cross-border groups.

The three-tier documentation

Local File

This describes your local entity, its related-party transactions, the functions performed, risks borne, assets used, and the method chosen to demonstrate arm’s length pricing. It is the core of your defense in an audit.

Master File

This gives a group-wide picture: the multinational’s structure, business, intangibles, and financing arrangements. It shows where value is created across the group.

Country-by-Country Report

This applies to large multinational groups above a consolidated revenue threshold and reports revenue, profit, tax, and activity by jurisdiction. Whether you must file or only notify depends on where the ultimate parent sits and the group’s size.

The interest expense cap

Decree 132 limits the deductibility of net interest expense to a percentage of EBITDA for taxpayers with related-party transactions – a cap of 30% of EBITDA under the current rules. Interest above the cap is generally non-deductible, though the decree allows carrying forward disallowed interest for a limited number of years. Highly leveraged groups should model this cap before year-end, because it can substantially increase taxable income.

A real scenario

A Vietnamese subsidiary paid management fees and interest to its overseas parent. During a tax audit, the company could not produce a Local File or evidence that the fees reflected real services at market rates. The tax authority disallowed part of the deductions and adjusted taxable income upward. Had the company maintained contemporaneous documentation and benchmarking, most of the exposure would have been defensible. The cost of preparing documentation is almost always lower than the cost of an adjustment.

Common mistakes and how to fix them

• Assuming small or domestic groups are exempt. Fix: assess the related-party definition first; some exemptions exist for smaller taxpayers, but confirm rather than presume.
• Preparing documentation only after an audit notice. Fix: documentation should be contemporaneous, ready before the return deadline.
• Paying management or service fees with no evidence of benefit. Fix: keep contracts, deliverables, and proof the services were actually received.
• Ignoring the interest cap until year-end. Fix: model net interest against EBITDA during the year and plan financing accordingly.
• Using a benchmarking study that does not match your functions. Fix: align comparables to your actual functions, assets, and risks.

Action steps and checklist

• Map every related party under the decree’s ownership and control tests.
• List all related-party transactions: goods, services, royalties, and loans.
• Determine which documentation tiers apply to you.
• Select and justify a transfer pricing method for each transaction type.
• Prepare benchmarking to support arm’s length pricing.
• Calculate net interest against the EBITDA cap.
• Complete the related-party disclosure forms with your tax return.
• Keep documentation contemporaneous and retrievable for audit.

Conclusion and next step

Transfer pricing exposure is manageable when you document early and price transactions honestly. Your next step: run a related-party mapping this quarter to confirm scope, then check whether your net interest is approaching the EBITDA cap. Knowing your position before year-end is far cheaper than defending it during an audit.

Frequently asked questions

Do domestic-only companies need transfer pricing documentation?

They can. The rules turn on related-party relationships, not only cross-border status. Certain domestic transactions may have reduced obligations, but you should confirm against the decree.

Are any taxpayers exempt from documentation?

Decree 132 provides limited exemptions, generally for smaller taxpayers or simple domestic situations. Even where the full file is not required, disclosure forms may still apply, so verify your specific case.

What happens if we have no documentation in an audit?

The tax authority can reject your declared prices and impose its own adjustment, increasing taxable income and adding penalties and interest. Contemporaneous documentation is your main defense.

How does the interest cap affect a loss-making company?

If EBITDA is low or negative, the deductible interest is very limited, which can increase taxable income even in a weak year. Model this carefully before finalizing financing.

References

• Decree 132/2020/ND-CP on tax administration for enterprises with related-party transactions.
• OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.