“Hidden” Risks in Transfer Pricing Documentation 2025: Costly Lessons from Tax Audits

The 2025 financial year-end finalization season has arrived. While businesses often focus on revenue and expenses, an “undercurrent” known as Transfer Pricing is becoming the focal point of specialized tax audits.

Based on extensive practical experience supporting tax audit defenses for hundreds of FDI enterprises and domestic groups, Viet Uc Auditing highlights the key “blind spots” that businesses must review immediately before filing their returns.

1. Tax Audit Landscape 2024–2025: A Shift from “Form” to “Substance”

In the past, tax authorities mainly checked the completeness of forms (Forms 01, 02, 03, 04 under Decree 132/2020/ND-CP). However, over the past two years, the audit approach has changed dramatically.

Tax inspectors now focus deeply on the principle of “Substance over Form.”
This means that even if contracts are perfectly drafted and invoices are complete, if the economic substance of the transaction does not generate real value, or if pricing does not comply with the arm’s length principle, the risk of tax reassessment is extremely high.

Below are the four most common “hidden” risks identified through real tax audits.

Risk 1: Persistent Losses Despite Being a Simple Manufacturing or Processing Entity

A familiar scenario: a Vietnamese subsidiary reports consecutive losses over many years, citing market volatility, rising material costs, or an early investment phase.

However, tax authorities raise serious concerns when the functional profile identifies the entity as a Contract Manufacturer or Low-Risk Distributor.

Tax authority’s perspective:
A simple processing entity—bearing no inventory risk, no market risk, and with output fully guaranteed by the parent company—should inherently earn a stable, positive margin.

Consequence:
Tax authorities may reject the reported losses and impose a deemed profit margin based on their internal industry database—often significantly higher than the company’s actual results.

Recommendation:
If your company continues to incur losses in 2025, immediately reassess the operating model described in the Local File. Losses must be justified by objective causes (pandemics, natural disasters, force majeure events, etc.) supported by quantitative evidence, not generic explanations.

Risk 2: Management Fees – The “Achilles’ Heel” of Disallowed Expenses

Management fees, regional service fees, technical support fees, and royalty payments to parent companies are the most scrutinized and most frequently disallowed expense categories.

A common mistake is assuming that contracts + invoices + payment vouchers are sufficient. For tax authorities, this is not enough. To be deductible for CIT purposes, such costs must pass the “Three-Layer Test”:

1. Did the service actually occur?
   (Evidence such as emails, meeting minutes, consulting reports, expert travel records, etc.)

2. Did the service create economic value?
   (Was the service necessary to generate revenue?)

3. Is there duplication?
   (For example: If the Vietnamese entity already has an HR Director, why pay additional HR consulting fees to the group?)

Risk 3: Unreliable Benchmarking Data

When preparing the Local File, selecting comparable independent companies is the most critical step.

Risk arises when businesses (or inexperienced consultants) select non-comparable companies in terms of scale, industry, or functions—often to artificially lower the target profit margin.

If tax authorities reject the taxpayer’s benchmarking set, they will rely on their confidential internal database. At that point, the company loses negotiation leverage and is forced to accept the imposed tax.publisher.

Risk 4: Overlooking Interest Expense Limitation (EBITDA Cap) under Decree 132

Although the interest expense cap (not exceeding 30% of EBITDA) has been in place for years, errors still occur—especially in determining net interest expense and identifying related-party transactions.

Many chief accountants mistakenly assume:

“We only borrow from banks, not from the parent company, so it doesn’t apply.”

This assumption is often incorrect.

2. ACTION PLAN

The deadline for filing the Related-Party Transaction Disclosure Form and Transfer Pricing Documentation is 90 days from the end of the financial year (30 March 2026).

To ensure compliance and tax optimization, CEOs and CFOs should take immediate action:

Step 1:
Review all loan, funding, and guarantee relationships to accurately identify related parties.

Step 2:
Estimate preliminary 2025 financial results. If margins are low or losses are expected, prepare a robust Economic Analysis to defend the figures.

Step 3:
Prepare the Three-Tier Documentation (Local File, Master File, CbCR) before tax finalization. Preparing documentation retroactively after 30 March is considered non-compliance and may result in severe administrative penalties.

Transfer pricing is a complex legal maze. Proper compliance not only helps businesses avoid substantial penalties but also enhances credibility with tax authorities and investors.

At Viet Australia Auditing Ltd., we do more than prepare transfer pricing documentation—we deliver comprehensive tax risk management solutions.

Contact us today for tailored advisory support.

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