Enterprises that are not covered by an exemption under Decree 132/2020/ND-CP must prepare transfer pricing documentation before the annual corporate income tax finalisation. This documentation comprises three tiers with different scope and applicability, and must be ready for production within the time limit requested by the tax authority — it is not filed together with the annual return. Correctly identifying which tier applies to your enterprise avoids both missing mandatory documentation and wasting resources on unnecessary preparation.
The three documentation tiers (Local file, Master file, CbCR)
Local file
The Local file applies to the legal entity in Vietnam and describes the enterprise, its line of business, management structure, details of each related-party transaction arising during the period, a comparability analysis against independent transactions, and the pricing method applied to each type of transaction. This is the most commonly required tier in practice, with content corresponding to Form II (Appendix II) issued with Decree 132/2020/ND-CP.
Master file
The Master file describes the multinational group of which the enterprise is a member as a whole — ownership structure, global business operations, significant intangible assets, the group's internal transfer pricing policies, and consolidated financing activities. A Vietnamese enterprise that is part of a group whose ultimate parent company prepares a Master file is typically required to retain the copy provided by the group, together with a Vietnamese translation when requested by the tax authority.
Country-by-Country Report (CbCR)
The CbCR applies only to the ultimate parent company in Vietnam of a multinational group that meets the prescribed global consolidated revenue threshold, or to a Vietnamese company authorised by its foreign ultimate parent company to file on its behalf. Its content shows the allocation of income, tax paid, and business activities of the group by country of operation.
Revenue thresholds and timing
- An enterprise whose total revenue during the period and total value of related-party transactions during the period are both below the prescribed thresholds is exempted from preparing the Local file, but must still declare Form 01
- Where either of the two thresholds above is exceeded, the enterprise must prepare a Local file with a comparability analysis for each material transaction
- The Master file is mandatory where the enterprise is a member of a multinational group that prepares consolidated financial statements and the group is required to prepare a Master file under the prescribed consolidated revenue threshold
- The CbCR applies only where the group's global consolidated revenue in the financial year immediately preceding the reporting year meets the prescribed threshold
- Documentation must be prepared before the annual corporate income tax finalisation is declared, retained at the enterprise, and produced within the time limit requested in writing by the tax authority — the CbCR in particular may need to be filed directly in certain specific cases under separate regulations
Methods for determining the arm's length price
- Comparable Uncontrolled Price method: directly compares the price of the related-party transaction with the price of an independent transaction under comparable conditions
- Resale Price Method: applied where the enterprise purchases from a related party and then sells to an independent market, determined through the gross profit margin on the resale price
- Cost Plus Method: applied to the party performing processing or contract manufacturing, adding a gross profit margin on cost that is consistent with the market
- Transactional Net Margin Method: compares the enterprise's net profit margin with that of independent enterprises performing comparable functions — the most commonly used method in transfer pricing audit practice in Vietnam
- Profit Split Method: applied to complex transactions involving significant contributions of intangible assets from multiple related parties, where it is difficult to find a comparable independent transaction
Enterprises should select the method best suited to the nature of the transaction and the availability of independent comparable data, prioritising the method with the highest reliability where sufficient comparable data exists.
Risks of missing or late documentation
- Failing to produce documentation within the requested time limit: the tax authority treats the enterprise as having no supporting information or documents and is entitled to assess the price, profit margin or tax payable
- Documentation that is prepared superficially, lacks a comparability analysis, or uses unsuitable comparable data: it is easily rejected during an inspection, leading to an upward adjustment of taxable income
- Failing to update documentation promptly for actual changes in transactions during the year: the documentation no longer reflects the true nature of the transactions and loses its evidential value before the tax authority
- The financial consequences include an arrears assessment of corporate income tax, late-payment interest, administrative penalties, and the risk of being selected for specialised transfer pricing inspections in subsequent years
Frequently asked questions
Does transfer pricing documentation have to be filed with the tax authority every year? No. The enterprise prepares and retains it at its own premises and produces it only when the tax authority requests it in writing during an inspection or audit.
Does an enterprise with only one small-value related-party transaction still need to prepare all three tiers of documentation? Not necessarily. The scope of each tier depends on revenue thresholds, transaction value, and the enterprise's position within the group structure — a specific review is needed before determining the obligation.
Can last year's Local file be reused for the following year? No. The Local file must reflect the transactions and comparable data of each specific tax period; reusing the prior year's documentation unchanged is a significant risk in the event of an audit.
Which pricing method is most commonly accepted by the Vietnamese tax authority? The Transactional Net Margin Method (TNMM) is the most commonly used, given the limited availability of transaction-level independent comparable data in the Vietnamese market, but the final choice must still be based on the nature of each specific transaction.
Contact TLA to have your applicable thresholds reviewed and your transfer pricing documentation built to standard ahead of the finalisation season.
