In the context of Vietnam's tax authorities tightening tax management, especially transfer pricing audits, full compliance with the obligation to declare related-party transaction information is a matter of survival for FDI enterprises and multinational corporations. In the Transfer Pricing Documentation Set, Master File It plays a crucial role in helping regulatory agencies gain a comprehensive view of the corporation's value chain.
However, in reality, many accountants still struggle with preparing this document. Understanding how to build and complete the Master File according to Decree 132 not only helps businesses comply with the law but also serves as a shield protecting them from the risks of being subject to back taxes and tax assessments amounting to billions of dong.
What is Master File according to Decree 132?
According to Decree 132, the Master File is a set of documents that provides an overall view of a multinational corporation, including:
- The organizational structure of the corporation.
- A global business operating model.
- Value chains and supply chains.
- Transfer Pricing Policy.
- Intangible assets (trademarks, patents, technology, etc.).
- Internal corporate financial agreements.
- The consolidated financial position of the group.
Core legal basis
According to the provisions of Article 18 of Decree 132/2020/ND-CP According to the Government's regulations issued on November 5, 2020, regarding tax management for enterprises with related-party transactions, taxpayers with related-party transactions are obligated to prepare, store, and submit Transfer Pricing Documentation, including:
- National Profile of Related-Party Transactions (Local File)
- Master File
- Country-by-Country Report (CbCR).
The role and nature of MasterFile
The Master File provides macro-level information about the global business operations of a multinational corporation (MNE). This document clarifies:
- The ownership structure and business operating model of the corporation worldwide.
- The primary source of profit and the structure of the global supply chain.
- Categories, ownership, and methods of exploiting intangible assets (IPs).
- Methods of capital financing, and internal financial transactions between member companies.
- Consolidated financial statements and functional risk allocation agreements.
The regulations on creating Master Files under Decree 132 demonstrate strong synchronization between Vietnamese tax law and the OECD's Action 13 BEPS (Combating Base Erosion and Profit Shifting). This makes it easier for local tax authorities to identify profit shifting from countries with high tax rates to countries with preferential tax rates (tax havens).
The entities required to create a Master File according to Decree 132
Not all businesses with related-party transactions are required to prepare this documentation. The tax authorities have clearly categorized those required to comply and those exempted from the obligation to reduce the compliance cost burden for small businesses.
The group of people who are required to comply.
Businesses operating in Vietnam are required to create a Master File under Decree 132 if they simultaneously meet the following conditions:
- Related-party transactions occurred during the tax period.
- Being a member of a multinational corporation means you have an obligation to prepare consolidated financial statements.
- Not subject to the exemption from preparing Transfer Pricing Documentation.
Cases where Master File creation is waived
Article 19 of Decree 132/2020/ND-CP specifies the cases in which taxpayers are exempt from preparing Transfer Pricing Documentation (including both Master File and Local File):
| Criteria | Exemption conditions |
| Revenue and Transactions | Revenue is less than VND 50 billion and the total value of related-party transactions arising in the tax period is less than VND 30 billion. |
| APA Agreement | The taxpayer has signed an Advance Pricing Agreement (APA) and submitted the required annual APA report. |
| Simple function | Businesses that perform simple functions, do not own intangible assets, have revenue below $200 billion VND, and achieve a minimum gross profit margin on net revenue (before deducting interest expenses and taxes – EBIT) for each industry: Distribution: Minimum 5% Production: Minimum 10% Processing: Minimum 15% |
Important Note: Even if exempted from preparing a Master File under Decree 132, taxpayers are still required to declare information on related-party transactions in the Appendix attached to this Decree and submit it along with the Corporate Income Tax Return.
The structure and detailed content of the Master File according to Decree 132.
To ensure legal validity, a company's global profile must be constructed precisely according to the prescribed structure. The tax authorities will use this structure as a benchmark to assess the company's compliance during audits.
According to Decree 132, the content of a Master File must include the following five core information groups:
Organizational chart of a multinational corporation.
The core foundation of the Master File under Decree 132 is the clear outlining of the entire corporate structure. To enable tax authorities to quickly identify cross-border relationships and capital flows, businesses are required to provide the following visual documents:
- This illustrates the legal structure of a global corporation, clearly showing the relationship between the ultimate parent company and its subsidiaries.
- A detailed list of affiliated entities within the group, including their legal names, official registered business addresses, direct or indirect ownership percentages, and geographical operating locations of each member company.
Description of the business operations of a multinational corporation.
Beyond simply reviewing the legal framework on paper, tax authorities need a deep understanding of how the corporation operates and generates cash flow in practice. Therefore, this section describing the business activities serves to explain the corporation's global value chain through key elements:
- Value chain and profit drivers: A detailed description of the factors driving the group's core profitability.
- Supply chain: A diagram or description of the supply chain for the company's largest revenue-generating product or service (or any other product or service that accounts for more than 5% of the company's revenue).
- Internal Service Agreements: A list and brief description of internal service agreements between affiliated members (excluding R&D).
- Functional analysis: Describes the core functions, assets used, and key risks undertaken by the entities within the corporation.
- Business restructuring transactions: Information about mergers, acquisitions, splits, or transfers of business functions that occurred during the tax period.
Intangible assets of multinational corporations
During transfer pricing audits, intangible assets are always a sensitive area and easily targeted due to the ease with which profits can shift between countries with different tax rates. To demonstrate the legitimacy of royalty or technology licensing fees, MasterFile, under Decree 132, requires businesses to provide extremely transparent explanations of the following legal and practical aspects:
- Provide a general description of the group's strategy for developing, owning, maintaining, and exploiting intangible assets (including the locations of key R&D facilities).
- This list includes intangible assets that have a material impact on determining the transfer pricing of the group and their legal owners.
- List of internal agreements relating to intangible assets (e.g., technology transfer contracts, cost-sharing agreements, copyright agreements).
- Describe the group's transfer pricing policy for R&D activities and intangible assets.
Internal financial operations of multinational corporations
Internal cash flow is like the bloodstream that sustains the entire corporate system, but it is also where tax risks related to excessive interest expense can easily arise. This section requires the business to provide a comprehensive overview of its capital financing strategy and how it manages internal cash flow through:
- Describe how the corporation raises capital and finances its member companies (including information on centralized financial coordination centers, if any).
- A list of significant internal lending and borrowing transactions, including information about the lender, borrower, interest rate, and loan terms.
- Describe the group's transfer pricing policy for financial agreements between related parties.
Financial statements and tax obligations
Corporations and businesses must demonstrate the integrity and compliance of their tax obligations on an international scale to the relevant regulatory authority. This final set of information serves to verify the data by requiring businesses to attach key financial and legal documents:
- Consolidated financial statements for the fiscal year of a multinational corporation for a tax period that coincides with or ends before the tax period of a taxpayer in Vietnam.
- A list and brief description of all unilateral, bilateral, or multilateral Advance Pricing Agreements (APAs) that the corporation has entered into with the tax authorities of various countries.
Timeframe for creating and storing Master Files as per Decree 132 that businesses need to remember.
Strict adherence to deadlines for preparing and archiving documents is crucial to avoid administrative penalties for tax procedural violations. Businesses need to remember the following two particularly important deadlines:
Deadline for creating and preparing archival records.
According to Decree 132, the Master File must be prepared, completed, and ready for storage at the enterprise before the deadline for submitting the Corporate Income Tax (CIT) return.
- Based on Tax Administration Law No. 38/2019/QH14, The deadline for submitting corporate income tax returns is no later than the last day of the third month from the end of the calendar year or fiscal year (usually 90 days).
- Businesses are not required to automatically submit Global Tax Returns to the tax authorities during annual tax settlement; they are only obligated to keep them readily available at their headquarters for inspection purposes when requested.
Deadline for submitting documents upon inspection decision.
When the tax authorities announce a decision to audit and inspect transfer pricing at a business:
- The deadline for submitting the Transfer Pricing Documentation is no more than 15 working days from the date of receiving the request for documents from the inspection team.
- Taxpayers may apply for an extension of the deadline for submitting documents if there is a valid reason. The extension is granted only once and for a maximum of 15 working days from the original deadline.
Penalties for failing to prepare the Master File on time as required by Decree 132.
Neglecting to prepare or submitting legal documents that do not meet quality standards can lead to extremely serious financial consequences for businesses. Current penalties are very strict.
Imposing administrative penalties for violations of tax procedures.
Based on Decree 125/2020/ND-CP regulating administrative penalties for violations related to taxes and invoices:
- Failure to create or maintain records Pricing documents Or, submitting late may result in administrative penalties with fines ranging from 8 to 15 million VND for each procedural violation.
Risk of being taxed
This is the most dangerous risk for any business with related-party transactions. According to Article 20 of Decree 132/2020/ND-CP: The tax authority has the full right to determine the amount of tax payable (including determining revenue, expenses, gross profit margin or net profit margin) for taxpayers in the following cases:
- The taxpayer failed to submit the Local File and Master File within the deadline required by the tax authorities.
- Businesses that provide incomplete or untruthful information in their documentation, or use unreliable comparative data, may fail to demonstrate the objectivity of the transaction price.
When a tax assessment is required, the tax authorities will use their internal tax database (with comparable businesses that have high profit margins) to determine the tax rate for the business. This often results in the business being required to pay back the corporate income tax along with late payment penalties calculated using the following formula:
Late payment penalty = Amount of tax to be collected x 0.03% x Number of days of late payment |
Conclusion and optimal solutions for business compliance costs.
Preparing and completing the Master File according to Decree 132 is not simply an administrative procedure entirely delegated to the accounting department, but requires strategic coordination between the company's leadership in Vietnam and the global corporation's tax management department. Proactively building accurate documentation from the beginning of the fiscal year is the optimal approach to control transfer pricing audit risks and protect the company's cash flow.
If your business is having difficulty gathering information from the parent company, translating specialized documents, or needs to review the risk of discrepancies between the Master File and Local Files, then consulting a professional is recommended. Transfer pricing advisory services Seek timely support from specialized and experienced organizations in the field, such as MAN – Master Accountant Network.
Contact MAN – Master Accountant Network For expert advice and support!
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam auditors with over 30 years of experience in accounting, auditing, and financial consulting.