3 Common Misconceptions About Transfer Pricing Documentation

In the context of deepening economic integration, related-party transactions have become increasingly common in Vietnam, especially among enterprises with foreign elements. However, many businesses still misunderstand or are not fully aware of their obligations to prepare transfer pricing documentation – a critical factor in complying with transfer pricing regulations. Below are three common misconceptions businesses should take note of to avoid legal and tax risks:

1. Only profitable companies are required to prepare transfer pricing documentation

Many businesses believe that only companies with profits need to worry about preparing transfer pricing documentation. However, under Decree 132/2020/NĐ-CP, all enterprises involved in related-party transactions – regardless of profit or loss – are obligated to declare and prepare full transfer pricing documentation if they meet the specified conditions. A loss does not exempt a company from compliance; on the contrary, it may raise suspicions with tax authorities about potential transfer pricing practices aimed at reducing taxable income.

2. Only transactions with a foreign parent company are considered related-party transactions

Another common misunderstanding is that only transactions with a parent company or affiliated companies abroad are deemed related-party transactions. In fact, the concept of “related parties” under Vietnamese law is much broader. Domestic enterprises may still be involved in related-party transactions if they fall into categories such as: sharing common shareholders with ownership of 25% or more, having control or management relationships between parties, or being under the control of a third party.
As a result, many companies may unknowingly engage in related-party transactions and fail to declare or document them properly, exposing themselves to penalties.

3. Submitting the declaration form is enough; no need to prepare full documentation

Some businesses assume that submitting the related-party transaction declaration (Form 01) is sufficient to fulfill their transfer pricing obligations. However, this is just the first step in the compliance process. Companies must also prepare and maintain the following documents:

• Local file

• Master file

• Country-by-Country Report (CbCR) – if applicable

Failure to prepare and retain these documents in accordance with the regulations may result in tax imposition or administrative penalties of up to hundreds of millions of VND, depending on the nature and severity of the violation.

Transfer pricing and the obligation to prepare related-party transaction documentation is a complex issue, requiring deep understanding of legal regulations and practical experience. Viet Australia Auditing has many years of experience in auditing, tax consulting, and transfer pricing, and is committed to supporting businesses in evaluating, reviewing, and building proper, transparent, and effective transfer pricing documentation.

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Viet Australia Auditing Company is an independent auditing organization licensed and established in 2007 in the Socialist Republic of Vietnam.