As the global economy enters a phase of intensified enforcement of commitments to combat tax base erosion, tax administration for multinational corporations in Vietnam is witnessing unprecedented tightening. The focus of current audits is no longer solely on tangible goods transactions but has shifted deeply into the internal financial architecture. Transfer pricing in financial transactions is a top priority on the agenda of tax authorities.
Since 2026, with the support of big data analytics and artificial intelligence, tax authorities have been able to unravel even the most complex capital structures. This shift stems from the fact that businesses often exploit loopholes in interest rates, guarantee fees, and debt instruments to subtly manipulate profits. This article will delve into the latest legal regulations, methods for determining market prices, and strategies for building risk protection profiles regarding transfer pricing in financial transactions for businesses.
The nature and types of transfer pricing in financial transactions.
To manage transfer pricing risk in financial transactions, businesses need to understand the economic nature of these types of transactions within the group. This is not simply a matter of borrowing money, but rather the transfer of value and financial risk between related parties.
Typical types of linked financial transactions
To accurately identify potential risks, businesses need to classify common internal financial structures and then apply the corresponding reconciliation principles in accordance with the transfer pricing regulations for financial transactions as follows:
- Internal loan agreements: This is the most common form but also the most susceptible to scrutiny. Common violations include applying fixed interest rates for extended periods without updating market fluctuations, or providing interest-free loans between units within the same system. From a transfer pricing perspective in financial transactions, all loans must have an interest rate equivalent to the rate that two independent parties would agree upon under the same conditions.
- Financial guarantee: When a parent company commits to paying off a subsidiary's debt so that the subsidiary can borrow from banks at a lower interest rate, an economic benefit is created. If the subsidiary fails to pay the guarantee fee to the parent company, this would be considered transfer pricing for a financial transaction not at market price.
- Centralized capital management: This is a modern cash flow optimization model, but it is extremely complex in terms of valuation. Determining the deposit interest rate for units with surplus capital and the borrowing interest rate for units with capital shortages within a shared "pool" requires an extremely rigorous transfer pricing calculation system to ensure fairness.
- Corporate bonds and hybrid debt instruments: The emergence of convertible bonds between related parties also poses a significant challenge to transfer pricing control in financial transactions, especially when determining the value of conversion options associated with bond interest rates.
These are types of transactions that pose a risk of transfer pricing, and are conducted to avoid scrutiny by regulatory authorities. Businesses should seek advice on this matter. Transfer pricing advisory services Specialized units such as MAN – Master Accountant Network provide support, advice, and transaction review.
Why are financial transactions a focus of inspection?
Interest expense is one of the cost items with the greatest impact on pre-tax profit. By manipulating interest rates through transfer pricing transactions in finance, corporations can easily "erase" profits in countries with high tax rates and "collect" profits in tax havens or entities enjoying tax advantages. Therefore, tax authorities now consider these transactions a top priority in tax risk management.
The overlap between Decree 132 and Decree 20/2025/ND-CP
The changing legal environment places businesses in a position where they must comply more strictly than ever before with regard to transfer pricing in financial transactions.
Decree 132/2020/ND-CP: Core Values
Decree 132/2020/ND-CP It remains a core principle regarding related-party transactions in Vietnam, with two unwavering principles:
- Arm's Length Principle: All related-party financial transactions must be compared with equivalent transactions in the free market.
- The principle of substance over form: Tax authorities have the right to reject the legitimacy of a loan if the business cannot demonstrate a genuine need for capital or if the purpose of using the capital is not for production and business activities, even if the loan agreement has all the necessary signatures and seals.
New points from Decree 20/2025/ND-CP
Decree 20/2025/ND-CP was issued to concretize OECD standards in the Vietnamese context, especially in the management of transfer pricing for financial transactions:
- Clarifying guarantee fees: The new decree requires businesses to analyze the specific benefits received by the guaranteed party. The guarantee fee must not exceed the difference in interest rates saved as a result of that guarantee.
- Mandatory credit rating: For large-value financial transactions (e.g., over VND 100 billion), businesses are required to have internal credit rating reports or reports from independent organizations as a basis for determining interest rates in transfer pricing documentation for financial transactions.
- Centralized database: Tax authorities are authorized to use data from the banking system and bond market to determine interest rates if businesses cannot provide convincing evidence of the independence of transaction prices.
Pay particular attention to loans from credit institutions and banks. (See reference) Is taking out a bank loan considered a related-party transaction? To understand and identify the relevant relationships in order to make the declaration correctly.
In-depth analysis of interest expense control (EBITDA)
EBITDA and the 30% threshold remain a nightmare for many businesses with high debt structures when facing transfer pricing regulations for finance transactions.
30% EBITDA Control Mechanism
The total interest expense incurred that is deductible when determining corporate income tax must not exceed 30% EBITDA. This calculation formula has been standardized, but in practice, there are some points that require careful consideration:
Net interest expense = Total interest expense – Interest on deposits (or loans) |
Therefore, optimizing financial operating revenue can help businesses free up more room for deductible interest expenses.
EBITDA calculation according to tax standards: The EBITDA used in this formula is not exactly the same as the EBITDA in the financial statements, but must be adjusted for non-deductible revenues/expenses according to corporate income tax law.
See details: Formula for calculating interest on related-party transactions.
Regulations on carrying forward excess interest income.
One positive aspect of transfer pricing management for financial transactions is the mechanism allowing the carry-forward of interest expenses exceeding the 30% limit to subsequent years within a five-year period. However, the condition for this carry-forward is that the enterprise must maintain a record of compliance with related-party transaction regulations annually. If, in one year, the enterprise is found to have violated the integrity of its records, this carry-forward right may be completely revoked.
Techniques and methods for determining market price
This is the most important part of the transfer pricing documentation for financial transactions, where businesses must provide specific data to substantiate their claims.
Comparable Uncontrolled Price (CUP) Method
To apply the CUP to loan interest rates, experts need to adjust for a range of differentiating factors, specifically as follows:
- Timing factor: The interest rate at the time of disbursement is the benchmark value, not the average annual interest rate.
- Credit rating: A high-risk business (CCC rating) will certainly face higher interest rates than a AAA-rated business. If a parent company lends to its (loss-making) subsidiary at the same low interest rate as it would to an AAA-rated business, the tax authorities will consider this a transfer pricing discrepancy in financial transactions.
- Loan structure: Terms regarding principal and interest grace periods, and early repayment options all affect the cost of capital and need to be quantified.
Guarantee fee pricing method
There are two main accepted approaches to transfer pricing management for financial transactions:
The profit-oriented approach, then:
Guarantee fee = Interest rate without guarantee – Interest rate with guarantee |
This benefit is usually shared between the guarantor and the guaranteed party.
Cost-based approach: Based on the capital costs and increased risks that the guarantor incurs when fulfilling the commitment.
Financial transfer pricing risk management process for businesses.
To protect against rigorous transfer pricing audits of financial transactions, businesses should implement the following process:
Step 1: Review and identify relationships
Carefully examine the conditions in Article 5 of Decree 132/2020/ND-CP. Pay particular attention to loans exceeding 25% of contributed capital and accounting for over 50% of the total value of medium and long-term debts from a controlled entity. This is the most sensitive threshold in transfer pricing control for financial transactions.
Businesses should seek advice. related party transaction advisory services To allow a team of professionals with experience to conduct the review and identification.
Step 2: Analyze the economics and nature of the loan.
Before signing a contract, a capital needs analysis report is necessary. Why does the business need to borrow? Why not issue shares? If these questions cannot be answered, the loan may be considered thin capitalization and all interest payments may be rejected under the guise of transfer pricing controls for financial transactions.
Step 3: Conduct benchmarking research.
Use databases such as Bloomberg, Reuters, or data from commercial banks to search for similar transactions or sectors. The results should be presented as independent price ranges.
Step 4: Draft the loan agreement and supporting documents.
The contract must be detailed, and any changes to interest rates must be made through an addendum with compelling economic justification. This is the most important legal evidence in transfer pricing documentation for financial transactions.
Step 5: Periodically monitor EBITDA.
The accounting department needs to create a quarterly EBITDA tracking sheet to forecast the portion of interest expense at risk of being disallowed, thereby enabling timely cash flow adjustments or debt restructuring.
Step 6: Complete the local file.
National documentation must include a detailed analysis of the financial transaction, including credit ratings and the chosen valuation methodology. Consistency of information is key to passing transfer pricing audits of financial transactions.
See details: National profile of related-party transactions.
Impact of the Global Minimum Tax (Pillar Two)
With the widespread adoption of OECD Pillar Two in 2026, the issue of transfer pricing in financial transactions will become even more complex.
- Tax optimization is no longer easy: Pushing interest rates higher in Vietnam to reduce corporate income tax can increase the effective tax rate in the parent company's home country, leading to the need for additional tax payments (top-up tax).
- The rise of AI in tax administration: The Vietnamese tax authority is developing a Smart Audit system. This system automatically scans financial reports and compares a company's borrowing interest rates with the fluctuation range of the global market. Any discrepancies will trigger an automated transfer pricing audit of the financial transaction.
Conclude
With tax audits increasingly focusing on capital structures and internal transactions, transfer pricing in financial transactions is no longer a concern for large multinational corporations but has become a real risk for all businesses with related-party transactions. From internal loan interest rates and financial guarantee fees to EBITDA control and market price determination records, every financial decision can directly impact tax obligations and the legal safety of a business.
Compliance shouldn't begin when tax authorities conduct an audit, but should be built right from the capital structure design stage, loan agreement drafting, and transfer pricing documentation standardization. A proactive governance strategy will help businesses not only minimize the risk of tax audits and penalties but also enhance transparency and long-term financial management capabilities.
If your business is dealing with related-party loans, guarantee fees, or requires a review of transfer pricing records for financial transactions, partnering with MAN – Master Accountant Network's team of expert tax and transfer pricing consultants will be a necessary step to protect your business interests in the most sustainable and secure way.
Contact MAN – Master Accountant Network for free support and advice!
Contact information MAN – Master Accountant Network
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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.