Why do businesses need to prepare Transfer Pricing Reports?

Transfer pricing report is one of the most complex and important tax documents for enterprises with related-party transactions. Preparing and maintaining transfer pricing reports is not only a legal compliance but also a proof to protect the tax position of the enterprise before the management agency. This article provides the most detailed and informative instructions on the process, structure and practical experience when preparing Transfer Pricing Reports (Transfer Pricing Documents) according to current regulations in Vietnam.

What is a transfer pricing report?

Report transfer pricing It is a set of documents prepared and maintained by the enterprise to demonstrate that all related-party transactions comply with market principles, thereby demonstrating the reasonableness of profits. This document is not simply a table but also includes in-depth analysis of the enterprise's functions, risks and assets.

The core role of transfer pricing reports is legal evidence to help businesses protect themselves and explain to tax authorities when there are inspections and audits of corporate income tax (CIT) and transfer pricing.

Key legal basis in Vietnam

Transfer pricing reporting in Vietnam is mainly regulated by:

• Decree 132/2020/ND-CP: Regulations on tax management for enterprises with related-party transactions. This is the core legal document, replacing the previous Decree 20/2017/ND-CP and detailing the structure of the dossier.
• Related guiding circulars: Detailed instructions on implementing the provisions in Decree 132/2020/ND-CP.

Enterprises need to understand these regulations to prepare correct and complete transfer pricing reports.

Deadline for submission and storage period of Transfer Pricing Documents

To ensure compliance, enterprises need to clearly note the regulations on submission time and storage requirements for Transfer Pricing Documents as follows:

• When to make a transfer pricing report: Enterprises with related-party transactions are required to declare information on related-party transactions according to Form No. 01/GDLK attached to the annual Corporate Income Tax Finalization Declaration. The Transfer Pricing Determination dossier (full transfer pricing report) must be prepared before the time of submitting the Corporate Income Tax Finalization Declaration (usually the last day of the third month from the end of the fiscal year).
• Storage requirements: Enterprises must prepare and store a set of transfer pricing reports at the time of submitting the Corporate Income Tax Finalization Declaration, and must present this file within 15 working days upon request of the tax authority during inspections and audits.

Once you have a good understanding of the deadlines and recordkeeping requirements, the next step is to determine the scope of application, i.e. which businesses are required to report transfer pricing and which businesses are eligible for exemptions.

Subjects required to prepare Transfer Pricing Documents

Any enterprise that has related party transactions during the tax period must comply with transfer pricing regulations, including declaration and preparation of documents.

Determining Related Transactions according to Decree 132/2020/ND-CP

According to Clause 2, Article 5 of Decree 132/2020/ND-CP, a transaction is considered related when it arises between parties with related relationships. Specific cases include:

• Direct ownership relationship: One party participates directly or indirectly in the management, control, capital contribution or investment of the other party.
• Indirect/Common Ownership: Parties are directly or indirectly under the management, control, capital contribution or investment of a third party.
• Cross-capital relationship: An enterprise has at least 251% of the owner's capital contribution and simultaneously holds at least 251% of the owner's capital contribution of the other enterprise.
• Controlling personnel relationship: One party appoints/nominates or their related person to participate in the management or control of the other party.
• Joint management relationship: Two enterprises have more than 50% members of the Board of Directors or persons with the authority to decide on financial and business policies appointed by a third party.
• Family relationship: Two enterprises with more than 50% members of the Board of Directors or persons with authority to decide on financial and business policies are people with family relationships (wife, husband, father, mother, children, brothers, sisters).
• Financial/loan relationship: One party guarantees or lends to the other party in any form (including loans from third parties guaranteed by related parties) provided that the loan accounts for at least 10% of the total equity of the borrower and lasts for at least half a year in the tax period.
• Supply chain/production management relationship: The enterprise is under the management and control of production and business activities, or provides raw materials, supplies, and key products to the other party.
• Significant asset use relationship: The enterprise uses or has the right to use the other party's intangible assets or tangible assets over 80% of the value of those assets, in a tax period.
• Delegation relationship: The party has the right to appoint a person to operate and control the business activities of the other party; or the party has the right to decide on the financial and business policies of the other party.
• Actual control relationship: Parties are under the actual control and direction of an individual through the use of capital or business activities.

When determining that an enterprise has any of the detailed related relationships mentioned above, the enterprise will officially be responsible for performing mandatory compliance obligations according to the provisions of the law on transfer pricing.

Compulsory obligation 

All enterprises that have related transactions (purchase and sale of goods, provision of services, loans, transfer of intangible assets, etc.) during the tax period have two basic obligations:

• Mandatory declaration: Must declare information on related party transactions according to Form No. 01/GDLK attached to the annual Corporate Income Tax Finalization Declaration.
• Filing (When not exempted): A complete set of Transfer Pricing Reports (Local File, Master File) must be prepared and maintained if the exemption conditions listed in section 2 are not met.

However, to reduce the compliance burden for small-scale enterprises and businesses with simple functions, Decree 132/2020/ND-CP also specifically stipulates cases that are exempted from preparing detailed Transfer Pricing Documents (Local File and Master File).

Conditions for exemption from filing Related Transaction Documents

Decree 132 on related-party transactions clearly stipulates cases where enterprises are exempted from the obligation to prepare a Pricing Document (Local File, Master File), although they still have to declare Form 01/GDLK. Understanding these criteria according to Article 16 is very important for small and medium-sized enterprises (SMEs):

Exemptions based on transaction size and turnover

This case applies to businesses that simultaneously meet both of the following criteria regarding scale:

• Total revenue generated during the tax period is less than 50 billion VND
• Total value of all related transactions arising in the tax period is under 30 billion VND.

Simple functional exemption and profit margin

To be considered for this exemption, an enterprise must simultaneously satisfy all of the following conditions regarding scale and operational efficiency:

• Total revenue generated during the tax period is less than 200 billion VND;
• Only perform simple functions, do not generate revenue or expenses from the exploitation and use of intangible assets;
• Do not conduct affiliate transactions outside of Vietnam; and
• Achieve the minimum pre-tax net profit margin on revenue (Net Profit Margin - NPM) for each industry as specified in Decree 132/2020/ND-CP (Specifically: Distribution 5%, Production 6%, Processing 7%).

Exemption for purely domestic transactions

To be exempted, domestic related party transactions must simultaneously satisfy strict conditions on taxpayer and tax rate as follows:

• Enterprises only have related party transactions with related parties that are subject to corporate income tax in Vietnam.
• Associated parties apply the same corporate income tax rate.
• One of the parties has declared and determined that the taxable income is not lower than the prescribed level.

For businesses that are not exempt or want to fully demonstrate compliance with market principles, understanding the structure and detailed content of the Transfer Pricing Documentation is a prerequisite.

Detailed structure of the Transfer Pricing Documentation

The Transfer Pricing Documentation (Transfer Pricing Document) consists of three main parts, designed according to the OECD's recommendations on combating base erosion and profit shifting (BEPS):

Related Transaction Information Declaration (Form No. 01/GDLK)

This is the official legal document submitted with the Corporate Income Tax Finalization Declaration.

• Main content: Provides an overview of related parties, the value of each type of related party transaction (purchase, sale, service, loan), the pricing method applied, and financial results (profit margin).
• Important indicators: Enterprises need to pay special attention to accurately declaring total revenue, total costs, pre-tax profit and other financial indicators, ensuring consistency with financial statements and other parts of the transfer pricing report.

Core Contents of the Local File

This is the most detailed document, focusing on the analysis of specific related party transactions of the business unit in Vietnam. Description of the business unit in Vietnam, organizational structure, business strategy and significant changes during the period.

Specifically, detailed information on Affiliate Transactions is presented in the following content:

Functional Analysis

This is the most important element of transfer pricing reporting. Functional analysis aims to determine the real economic role of Vietnamese enterprises in the global value chain.

• Function: List in detail the activities that the business performs (production, assembly, distribution, R&D, marketing, management…).
• Assets: Identify the assets used (tangible assets such as factories, machinery; intangible assets such as brands, technological know-how).
• Risk: Allocate the risks that the business bears (market risk, inventory risk, credit risk, exchange rate risk).

Choosing a method to determine transfer pricing

Enterprises must select and demonstrate the suitability of one of five main methods:

• Traditional methods: Comparable Uncontrolled Price Method (CUP), Resale Price Method, Cost Plus Method.
• Profit-based methods: Transactional Net Profit Method (TNMM), Profit Split Method (PSM).
• Reason for selection: The choice of method must be based on the results of Functional Analysis, prioritizing the method with the highest reliability and comparability.

Benchmarking and Setting Up Independent Trading Ranges

Comparative analysis is an important step in determining the independent value range, this process includes detailed steps such as:

• Search process: Enterprises must carry out the process of searching for independent comparables (Comparables) on international databases (e.g. Compustat, Amadeus).
• Financial Processing: Make financial adjustments (e.g., working capital adjustments) to minimize accounting and operating differences, ensuring comparability.
• Establishing the Arm's Length Range: The Arm's Length Range is usually defined as the 35th to the 75th percentile. If the company's profit margin falls outside this range, the company may have to make adjustments to bring the profit back to the median. This entire process must be clearly documented in the transfer pricing report for tax authorities to review.

Master File and Country-by-Country Report (CbCR)

These documents provide a comprehensive view of the Multinational Enterprise (MNE)'s business operations.

• Global Profile (Master File): Applicable to MNE Groups with global consolidated revenue above the prescribed threshold (VND 18,000 billion). Master File describes the Group's legal structure, business strategy, value chain and overall transfer pricing policy.
• CbCR Report (Country-by-Country Report – Form No. 04/GDLK): Applicable to MNEs with global consolidated revenue of VND 18,000 billion or more. This report provides aggregated information on revenue distribution, profit, corporate income tax paid, and business performance indicators (number of employees, tangible assets) in each country. This is an important risk tool for tax authorities.

Once a firm has a clear understanding of the required documentation structure, including the Master File and CbCR Report, the next step for the firm is to implement the implementation process to effectively complete and protect transfer pricing reporting.

Roadmap for effective transfer pricing reporting

A professional transfer pricing reporting process is presented specifically in the following table:

The above three steps form a fundamental process to help businesses build a systematic transfer pricing report, ensuring transparency, compliance with regulations and limiting risks when tax authorities inspect and examine transfer pricing.

Reference price list for Transfer Pricing Report preparation services.

With tax authorities increasingly tightening management of related-party transactions according to BEPS standards and Vietnamese law, preparing transfer pricing reports is not only a mandatory compliance requirement but also an important tool to help businesses proactively control tax risks, protect reasonable expenses, and safeguard profits.

Based on the size of the business, industry, and complexity of related-party transactions, we develop a transparent, detailed, and competitive pricing structure for Transfer Pricing Reporting services, ensuring optimal cost efficiency while fully meeting legal requirements and providing accountability to tax authorities.

Important note:

• Prices exclude VAT. 10%
• Travel, printing, notarization fees, etc. (if any) will be charged separately as needed.
• Completion time may vary if business data is incomplete or if complex transactions arise.

Note: The price list is for reference only; the exact price will depend on the specific business operations and scale of your company. To receive the most detailed and accurate price quote, please contact MAN – Master Accountant Network.

Optimized workflow 

Transfer pricing reports are only truly valuable when they are prepared through a systematic process, with risk control from the outset and ensuring accountability to the tax authorities. Based on this, MAN's workflow is implemented in the following steps:

Step 1 – Survey and gather information

MAN engages with businesses to gain an overall understanding of their operating model, corporate structure, affiliated parties, and the types of transactions that occurred during the period.

This stage helps to quickly determine the scope of documentation required, identify potential transfer pricing risks early, and advise on appropriate handling strategies from the outset.

Step 2 – Verify and review the data provided by the business.

The team of experts conducts a review to verify the completeness and consistency of accounting records, contracts, invoices, internal pricing policies, and other documents related to related-party transactions.

In cases where the data is inconsistent, MAN will provide a specific list of additions or corrections, avoiding risks during report preparation and tax audits.

Step 3 – Develop an implementation plan and sign a service contract.

Based on the information we have reviewed, we have developed a detailed implementation plan which includes:

• Scope of work
• Methods for determining transfer pricing
• Timeframe for completing each item
• Costs and responsibilities of each party.

Signing a contract helps to clarify rights and obligations and ensures that the project is implemented according to the agreed schedule.

Step 4 – Prepare a Transfer Pricing Report in accordance with current regulations.

We conduct a Functional-Risk-Asset Analysis (FAR), select an appropriate valuation methodology, and perform a comparative analysis according to OECD standards and Vietnamese legal regulations.

The report is logically structured, well-structured, and supported by clear data, ensuring the company's ability to defend its tax position when dealing with tax authorities.

Step 5 – Hand over the documents and make revisions based on feedback.

After finalizing the draft, MAN hands it over to the company for review.

All feedback will be received and promptly addressed with clear explanations, ensuring the final document aligns with the company's operational practices and internal management requirements.

Step 6 – Support for explanation 

In the event that the tax authorities require explanations, audits, or inspections related to related-party transactions, MAN will support businesses through:

• Drafting explanatory documents
• Consulting services for arguing in defense of costs.
• Provide support in working with tax authorities within the scope of services agreed upon.

Common errors when preparing Transfer Pricing Reports

Businesses are often at risk if:

• Lack of data synchronization: Information in the transfer pricing report does not match other tax records (e.g., the functional description in the transfer pricing report is different from the business registration).
• Errors in comparative analysis: Using comparative data that is not suitable for the Vietnamese market or not making adequate financial adjustments.
• Poor functional analysis: Failure to clarify key risks such as market risk or intangible asset risk, leading to easy profit-increasing adjustments by tax authorities.

MAN's commitment to providing Transfer Pricing Reporting services.

With practical experience in implementing solutions for numerous FDI enterprises and companies with related-party transactions, transfer pricing services MAN's focus is not only on proper filing but also on protecting businesses from the risks of tax audits and inspections. Accordingly, we are committed to:

• Absolute confidentiality of business information.
• Comply with and stay updated on current tax regulations and policies.
• Provide support in explaining matters to the Tax Authority when requested.

Conclusion and recommendations

Transfer pricing reporting is not just an administrative burden. It is an effective tax risk management tool, helping businesses avoid tax arrears and administrative fines, and enhancing transparency and credibility.

To ensure standard transfer pricing reports, businesses should: 

• Periodic review: Conduct an internal transfer pricing risk assessment annually, especially before the end of the fiscal year.
• Seek professional assistance: Due to the complexity and depth of expertise, the preparation and maintenance of transfer pricing reports should be done by experienced tax consultants.

Contact MAN – Master Accountant Network for advice and support in preparing professional transfer pricing reports, ensuring compliance and transparency for businesses.

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 and CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, and financial consulting.

Editorial Board: MAN – Master Accountant Network