Enterprises with Related-Party Transactions but Exempt from Transfer Pricing Documentation – Are They Still at Risk of Tax Reassessment?

In the context of increasingly tightened tax inspections—especially targeting enterprises with related-party elements—many businesses believe that “being exempt from transfer pricing documentation” means they are in the clear. However, the reality is far more complex.

Not being required to prepare Transfer Pricing Documentation does not mean an exemption from the obligation to prove the arm’s-length nature of related-party transactions. Without proper caution, businesses can still face tax reassessments, cost disallowances, or administrative penalties.

1. What Does “Exempt from Documentation” Mean?

According to Decree 132/2020/ND-CP, some enterprises with related-party transactions are exempt from preparing transfer pricing documentation if they meet specific conditions. For example:

• The taxpayer has related-party transactions, but annual revenue is under VND 50 billion and total value of related-party transactions is under VND 30 billion;

• The taxpayer has signed an Advance Pricing Agreement (APA) and submits annual reports in accordance with regulations on APAs;

• The taxpayer engages in simple functional activities, has no income or expenses from intangible asset use, earns under VND 200 billion in revenue, and achieves minimum pre-interest and pre-tax profit margins as follows:

  • Distribution: ≥ 5%

  • Manufacturing: ≥ 10%

  • Processing: ≥ 15%

2. Why Can You Still Be Reassessed?

Lack of supporting explanation

Even if you are exempt from preparing a Local File or Master File, if audited and unable to justify the reasonableness of transfer prices, the tax authority may reassess and impose additional Corporate Income Tax (CIT).

Typical cases:

• Management service fees from the parent company are booked, but no contracts, emails, or reports prove their actual value;

• Global advertising costs are allocated, but there's no evidence showing the Vietnamese entity received direct benefits;

• High internal management fees are recorded without explanation of how the fees were calculated.

Transactions lack economic substance

Under Circular 78/2021/TT-BTC and Circular 96/2015/TT-BTC, a deductible expense must:

• Have valid supporting documents (invoices, contracts, etc.),

• Serve business purposes,

• Be priced reasonably.

Missing any of these conditions can lead to disallowed expenses—even if the company is exempt from formal transfer pricing documentation.

3. Risk-Prone Scenarios Even Without a Transfer Pricing File

• Transactions with the parent company lacking defined value
  Management, training, IT, legal services... may be deemed unnecessary or lacking added value by tax authorities.

• Allocation of global marketing expenses
  Multinational campaigns may be charged to local entities. But if specific benefits in Vietnam cannot be demonstrated, these costs may be disallowed.

• Royalties/franchise fees without clear pricing
  Royalties based on a percentage of revenue—especially high rates without benchmarking—carry significant risk.

4. What Should Enterprises Do to Mitigate Risks?

Create an internal explanation file
Even if formal documentation is not required, companies should internally document:

• The nature of the transaction,

• Pricing methodology,

• Proof of service/brand usage,

• Justification for the necessity of the transaction.

Maintain supporting records, emails, and files
For services:

For royalties or advertising:

• Contracts, work emails, meeting minutes, training slides, analysis reports.

• Franchise/license agreements,

• Proof of media effectiveness in the Vietnam market.

Apply the arm’s-length principle
Even without a formal TP file, transfer prices must comply with the Arm’s Length Principle. Where possible, companies should:

• Conduct internal benchmarking against independent entities;

• Use benchmarking reports from external advisors.

5. When Should You Consult a Tax Expert?

• When numerous related-party transactions occur with the parent or affiliates;

• When these transactions represent a significant portion of total expenses;

• When preparing for a CIT finalization or receiving notice of tax inspection;

• When the business has incurred multiple years of losses but still incurs costs from related parties.

Being exempt from preparing a Transfer Pricing File is not a “magic shield” against tax audits. On the contrary, without proper preparation, enterprises remain at risk of cost disallowances, tax reassessments, and reputational or financial damage.

Therefore, even when simplified by regulation, businesses should proactively prepare internal documentation and review all related-party transactions ahead of tax finalization season.

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