Forms transfer pricing increasingly sophisticated, becoming a major challenge in international tax management, especially in Vietnam where many FDI enterprises are concentrated. Through adjusting the prices of goods, intangible assets, internal services or financial costs, multinational corporations can shift profits to countries with low tax rates. In order to control the risk of budget loss, the Government has issued Decree 20/2025/ND-CP, update new legal framework and strengthen supervision of transfer pricing activities according to international standards.
| Form group | Describe | Main objective | For example |
| Tangible assets | Adjust internal buying and selling prices | Reduce taxable profits | Sell low to parent company |
| Intangible assets | Copyright, trademark, technology fees | Increased internal costs | High copyright fees |
| Internal services | Management fee | Unreasonable cost increase | Management service fee |
| Financial activities | High interest rate, loan adjustment | Increase in deductible interest expense | Internal loans with high interest rates |
| Contribute capital | Valuation of contributed assets is higher than actual value | Increase depreciation expense and reduce corporate income tax | Contribute capital with technology equipment |
In summary, transfer pricing practices often revolve around adjusting the value of internal transactions to impact taxable profits in Vietnam.
In-depth analysis of common forms of transfer pricing
To minimize taxable profits in high-tax countries, multinational corporations have used many sophisticated tricks. Below are the most common forms of transfer pricing today:
Transfer Pricing through Tangible Assets
This is the most direct and easily identifiable form. These forms of transfer pricing are carried out through the adjustment of internal purchase and sale prices:
- Oversupply Pricing: A subsidiary in Vietnam purchases raw materials, semi-finished products or machinery from the parent company or an affiliated party at a price higher than the market price. This increases input costs and directly reduces taxable profits in Vietnam.
- Underpricing Sales: The subsidiary in Vietnam sells finished products to the parent company or an affiliate at a price lower than the market price. This reduces the revenue recorded in Vietnam, thereby transferring profits to the affiliate abroad.
While transfer pricing through tangible assets is easily recognized through internal purchase and sale price adjustments, at a more sophisticated level, multinational corporations often take advantage of intangible assets such as brands, copyrights or technology to carry out profit transfer.
Transfer Pricing through Intangible Assets
However, while tangible transactions are easily controlled through market price comparison methods, profit adjustment through transactions related to Intangible Assets becomes much more complex and sophisticated. Intangible assets (brands, copyrights, technical know-how) have values that are difficult to quantify, creating conditions for more complex forms of transfer pricing:
- Royalty Fee and Brand Usage Fee: The parent company charges a royalty or brand usage fee to its subsidiary in Vietnam at a very high rate, sometimes disproportionate to the actual contribution of that brand to revenue. The purpose is to transfer profits under the name of non-commercial expenses.
- Technology Transfer: Overpricing of fees related to the transfer of technology, software, or internal technical services.
Not only stopping at “inflating” the value of brands or copyrights, many corporations also expand into internal services. A more sophisticated form of transfer pricing, difficult to prove and easy to cause controversy in tax inspections.
Transfer pricing through Internal Services
This is a group of transfer pricing forms that are difficult to control because of the intangible nature of the service:
- Management Fee: The parent company charges a fee to its subsidiary in Vietnam under the guise of management, administrative, and consulting services. The biggest challenge is to prove that this service actually arises and brings economic benefits to the subsidiary (Benefit Test).
- Marketing Fee Allocation: Allocating a large portion of global marketing costs to the subsidiary, increasing the unreasonable costs of this company.
If internal services create “opacity” in determining actual economic value, financial activities open up more sophisticated transfer pricing space, through the borrowing-lending mechanism and the allocation of interest costs among related parties.
Transfer Pricing through Financial Activities
In internal financial transactions, adjusting the cost of debt capital is one of the most effective mechanisms for implementing transfer pricing, including the following forms:
- High-interest loans: The parent company lends capital to its subsidiary at an interest rate higher than the market interest rate, increasing the subsidiary's deductible interest expense and reducing taxable profits in Vietnam.
- Cap on interest expense: Mechanism to control deductible interest expense (according to Decree 132/2020/ND-CP and Decree 20/2025/ND-CP). An important new point is that Decree 20/2025/ND-CP has provisions on transferring non-deductible interest expenses (not deducted up to the end of 2023) to the next tax periods.
In addition to transfer pricing techniques through financial activities such as high-interest internal loans or adjusting interest costs, many corporations also use more sophisticated transfer pricing through contributed capital assets to legalize the adjustment of investment value and optimize taxable profits.
Transfer pricing through capital contributions
This form involves the valuation of assets when contributing capital: Foreign investors contribute capital with tangible assets (machinery, equipment) or intangible assets (technology) with a valuation value higher than the actual value. This increases the annual depreciation (expense), thereby reducing the profit subject to corporate income tax.
Updated legal basis and transfer pricing tools
To combat sophisticated forms of transfer pricing, Vietnam is constantly improving its legal framework, demonstrating its authority in tax administration.
Decree 20/2025/ND-CP with important highlights
Decree 20/2025/ND-CP amending and supplementing Decree 132/2020/ND-CP is the most detailed and updated legal document. According to the provisions of Decree 132/2020/ND-CP (and as adjusted and supplemented), related parties are parties that have a direct or indirect relationship in ownership, control, or operation of another party or are under the control or operation of the same third party. Common criteria include:
- Capital ownership ratio: One enterprise directly or indirectly holds at least 25% of the capital contribution of the other enterprise.
- Control and appointment of personnel: Two enterprises are under control of key management or personnel (For example, one enterprise appoints at least 50% of the number of members of the board of directors or management of the other enterprise).
- Borrowing/Lending capital: An enterprise guarantees or lends another enterprise an amount of capital equal to at least 25% of the borrowing enterprise's capital contribution and accounting for more than 50% of the total value of the borrowing enterprise's medium- and long-term debts.
- Dependent transactions: Two enterprises have transactions to buy, sell, use tangible and intangible assets or provide services accounting for more than 50% of the total value of transactions of each party in the tax period.
- Control Agreement: Other cases where the parties have an agreement to govern and control each other's business activities and financial policies.
The provisions on the carry-forward of interest expenses address the issue of carrying forward non-deductible interest expenses to subsequent tax periods, bringing clarity to businesses.
Arm's Length Principle
The core principle is that transaction prices between related parties should be determined as transaction prices between independent parties. Common methods of determining prices include:
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method (RPM)
- Cost plus method (CPM)
- Net Transactional Margin Method (TNMM)
- Profit Split Method
Compliance with the arm’s length principle is only truly valuable when the enterprise has sufficient evidence in its price determination records. Therefore, establishing and storing a set of related party transaction records in accordance with regulations is a mandatory next step to demonstrate that internal transaction prices are determined in accordance with market standards.
3 levels in the Transfer Pricing Profile
Enterprises must comply with the regulations on 3-tiered documentation according to BEPS standards:
- Declaration (Appendix I according to Decree 20/2025/ND-CP): Annual declaration of related party transaction information.
- Local File: Detailed documentation in the country where the subsidiary operates.
- Master File: Overview of the Group's global operations.
- Country-by-Country Reporting (CbCR): Vietnam has signed the Multilateral Agreement between Competent Authorities on the exchange of Country-by-Country Returns Reports allowing for the automatic exchange of CbCRs with other member countries.
Although the regulations on transfer pricing documentation have been standardized and detailed, in reality, many businesses have not fully complied or have only prepared documentation in a formal manner. This poses many legal risks and serious financial consequences when tax authorities conduct in-depth inspections and examinations of transfer pricing activities.
Legal consequences and risks
Enterprises with unreasonable transfer pricing practices face many serious risks, causing reputational damage and financial losses. Tax collection and administrative penalties are the most direct and serious consequences, including:
- Collecting original tax: Enterprises are charged with all corporate income tax and other taxes (VAT, contractor tax, etc.) due to transfer pricing behavior that reduces tax obligations.
- Administrative penalty for under-declaration of tax: Apply a fine equal to 20% on the amount of tax collected due to incorrect declaration leading to under-declaration (according to the Law on Tax Administration). In case of tax evasion (with signs of fraud), the fine may increase from 1 to 3 times the amount of tax evaded.
- Late payment fee: Enterprises must pay late tax payment fees according to regulations, at a rate of 0.03%/day on the amount of late tax payment.
- Fines for violations of documents and procedures: Fines for failure to submit or late submission of the Transfer Pricing Declaration or failure to prepare/provide timely the Transfer Pricing Document. This fine is usually within the scope of administrative fines for tax violations, which can be up to VND 25,000,000 for late submission or incomplete submission of required documents.
- Brand and reputation risks: Being publicly investigated by tax authorities for transfer pricing can negatively affect a business's image (for example, the case of Coca Cola Vietnam in the past).
- In-depth inspection: Enterprises with related-party transactions and signs of transfer pricing are always key inspection subjects, causing waste of time and compliance costs.
Conclusion and recommendations
Transfer pricing is a high-risk, complex, and sensitive area, requiring FDI enterprises to have a proactive compliance strategy, rather than only responding when audited. Understanding the various forms of transfer pricing, staying updated on new regulations under Decree 20/2025/ND-CP, and building a well-structured related-party transaction dossier will help businesses minimize the risk of tax arrears and penalties.
In the context of increasingly stringent tax audits, many businesses have opted to use transfer pricing services From specialized consulting firms like MAN – Master Accountant Network, we review all related-party transactions, standardize documentation, and develop sustainable transfer pricing strategies tailored to the specific characteristics of operations in Vietnam.
To ensure safety and optimize compliance costs, businesses should proactively consult transfer pricing experts or reputable tax consulting units such as MAN - Master Accountant Network, thereby building a sustainable and appropriate transaction management strategy for the specific characteristics of operations in Vietnam.
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 MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Transfer Pricing Methods
What is transfer pricing and why are FDI companies often subject to inspections?
Transfer pricing is the practice of related-party enterprises adjusting internal transaction prices in a way that deviates from market principles, aiming to shift profits to countries with lower tax rates. FDI enterprises are often subject to audits due to cross-border transactions, the use of intangible assets, internal borrowing, and the potential for tax evasion.
What are the most common forms of transfer pricing today?
Common forms of transfer pricing include: Adjusting the purchase and sale prices of tangible assets; charging unusually high royalties, trademark fees, and technology fees; charging internal management, consulting, and marketing service fees; high-interest linked loans with thin capital structures; and overvaluing contributed assets to increase depreciation.
Are royalties and internal service fees always considered transfer pricing?
No. Royalties or service fees are acceptable if the business can demonstrate: that the service or asset actually arises, that there is a specific economic benefit to the business in Vietnam, and that the fee is in line with market prices.
When should businesses conduct a transfer pricing review?
Businesses should review transfer pricing: Before the corporate income tax settlement period, when there are changes in internal pricing policies, when royalties, service fees, or large related-party loans are incurred before a tax audit or inspection.
Should we use external transfer pricing services?
For FDI businesses or businesses with complex related-party transactions, using transfer pricing services from a specialized firm helps to: Review all related-party transactions, Standardize documentation according to BEPS standards, Prepare explanations for tax audits, and Reduce long-term legal risks and compliance costs.
Editorial Board: MAN – Master Accountant Network