The national file is one of the important factors in tax administration and control of related-party transactions between enterprises. Preparing a complete and accurate national file not only helps enterprises comply with Vietnamese tax laws on transfer pricing but also minimizes the risk of being inspected and sanctioned. In the context of international integration, the local file plays a crucial role in the national file, providing detailed information on related-party transactions and valuation methods. At the same time, understanding the relationship between the national file with the IGF and the master file helps enterprises standardize reporting and comply with the regulations. OECD regulations on transfer pricing documents.
This article will provide detailed guidance on national filing, including mandatory contents, valuation methods, transfer pricing reporting, as well as important notes to optimize filing and minimize transfer pricing risks.
Country profiles and their role in related party transactions
Introducing the concept of national profiles
A local file is a mandatory document that a business must establish to demonstrate the implementation of related-party transactions with related parties within the same group or parent-subsidiary company. This file provides detailed information on transactions, valuation methods, as well as the legal basis to prove that the transactions are carried out according to the arm's length principle. Establishing a complete local file helps businesses be transparent in tax reporting, while minimizing transfer pricing risks when being audited by tax authorities.
Why local files are an important part of national records
In the national filing structure, the local file plays a central role because it records in detail each related party transaction of an enterprise in Vietnam. The local file not only lists the related parties and the transaction content, but also provides analysis of valuation methods, demonstrates market prices, and illustrates how the enterprise complies with transfer pricing regulations.
According to data from the General Department of Taxation, enterprises that do not establish or fail to establish local files account for about 35% of the total number of enterprises inspected for transfer pricing in the 2020-2023 period, leading to many cases of being fined for not being able to prove market prices.
For example, an FDI enterprise operating in the high-tech manufacturing sector establishes a local file detailing service provision transactions with the parent company. Thanks to the complete records, this enterprise can prove the market price applied to the service and avoid tax collection. According to the General Department of Taxation Report 2022, about 35% enterprises were inspected due to lack or incomplete national records, leading to penalties and tax collection due to failure to prove market prices.
Relationship with related party transactions and compliance with Vietnamese tax laws on transfer pricing
National filings are closely linked to related party transactions, including the purchase and sale of goods, provision of services or transfer of assets between companies in the same group. Through national filings, businesses can demonstrate that these transactions are priced at market prices, in accordance with Vietnamese tax laws on transfer pricing and international standards such as the OECD Guidelines. Full compliance with national filings not only avoids the risk of being fined but also increases credibility and transparency in relations with tax authorities and related parties.
For example, a trading company in Vietnam conducts a transaction to purchase raw materials with its parent company in Singapore. Thanks to complete national and local files, the company proves that its pricing method complies with the arm's length principle, avoiding tax arrears and legal risks. Accurate national records also help businesses increase their reputation with tax authorities and international partners, and facilitate audits related to transfer pricing.
Local file: Contents and requirements
Business and affiliate information
In the national dossier, related party information is an important part that helps tax authorities understand related relationships and the scope of transactions. The mandatory elements that need to be provided include: company name, tax identification number, address, ownership structure and description of business activities.
For example, an electronics manufacturing company in Vietnam needs to list all parent companies and subsidiaries within the group, along with details of the manufacturing, service or business sectors in which the related parties operate. Providing full information helps demonstrate that all transactions between related parties are conducted transparently and in compliance with Vietnamese tax laws on transfer pricing.
Affiliate transaction details
This section requires the enterprise to record all related transactions, from the purchase and sale of goods, provision of services, to the transfer of assets. At the same time, it is necessary to present detailed transfer pricing, explaining the basis for determining prices.
For example, a trading enterprise may list transactions for purchasing raw materials from the parent company, selling products to a subsidiary, or providing management services to another branch. Each transaction requires a contract, invoice, accompanying documents, and analysis of pricing to demonstrate compliance with the arm's length principle. According to the General Department of Taxation's 2022 report, enterprises that do not prepare detailed related-party transactions are often susceptible to price adjustments and tax arrears.
Transfer pricing and market price justification
This is a crucial part of the local file, which helps to demonstrate the market price for related party transactions. The enterprise needs to describe the valuation method applied, for example, the independent comparable price method, the cost plus method, or the profit allocation method. Correct application of the arm's length principle will minimize transfer pricing risks.
For example, a logistics service provider must demonstrate that the service fees charged to its subsidiary in Vietnam are equivalent to the independent market rates. Without this basis, tax authorities may adjust prices and collect taxes, resulting in unexpected costs.
Transfer pricing report
The transfer pricing report is a compilation of information from the local file, helping to demonstrate that the business has complied with the law on transfer pricing. This report includes a list of transactions, valuation methods, market comparisons, and conclusions on compliance with the market price principle.
For example, a pharmaceutical manufacturing company's transfer pricing report would summarize transactions for purchasing raw materials from the parent company and selling finished products to its subsidiary, along with market price analysis to demonstrate compliance with the arm's length principle, thereby reducing the risk of tax arrears.
Real world example of local file
An FDI enterprise operating in the field of electronics manufacturing established a local file detailing the service provision transaction with the parent company. Thanks to the complete file, the enterprise was able to prove the market price applied to the service and avoid tax collection. This is a testament to the importance of establishing a local file in the national file, at the same time helping the enterprise comply with OECD regulations on transfer pricing documents.
Relationship with IGF and Master file
IGF (Intercompany Global File)
IGF, or Intercompany Global File, is a report that summarizes cross-border intercompany transactions within a multinational corporation. IGF provides an overview of transactions between a parent company and its subsidiaries in many countries, from the purchase and sale of goods and services to the transfer of assets.
The role of the IGF in managing international inter-company transactions includes:
Help the group control transfer pricing risks globally.
Assist tax authorities in assessing the transparency and compliance of international transactions.
As a reference document for local files, it helps to prove that transactions in Vietnam are conducted according to the arm's length principle.
Compare Local file and IGF
| Criteria | Local file | IGF (Intercompany Global File) |
|---|---|---|
| Scope | Affiliated transactions in Vietnam | All cross-border related transactions within the group |
| Purpose | Comply with Vietnamese tax laws, demonstrate market value | Global transaction management, international reporting support |
| Content | Related party information, transaction details, valuation methods, transfer pricing reports | Overview of intercompany transactions, scope and value, without detailing individual transactions in specific countries |
| For example | Electronics manufacturing company sets up local file for service provision transaction with parent company in Singapore | IGF consolidates all transactions between subsidiaries in Asia, Europe and North America |
Master file
Master file is a group-level document that summarizes important information about the group's structure, business strategy, transfer pricing strategy and member companies.
Compare Master file and Local file
| Criteria | Local file | Master file |
|---|---|---|
| Scope | Affiliated transactions in Vietnam | The entire group, all subsidiaries and international branches |
| Content | Related party information, transaction details, valuation methods, transfer pricing reports | Corporate structure, business strategy, transfer pricing strategy, corporate policy |
| Purpose | Comply with Vietnamese tax laws, demonstrate market value | Providing context and data to local files, supporting tax authorities and corporations in assessing transfer pricing risks |
| Legal requirements | Mandatory under Vietnamese tax law on transfer pricing | Mandatory under OECD guidelines on international transfer pricing documentation |
Illustrative example: A multinational corporation establishes master file consolidate information about branches in Asia and Europe. At the same time, subsidiaries in Vietnam set up local file details of transactions with the parent company. IGF consolidates all international intercompany transactions, helping the group manage global transfer pricing risks.
Legal regulations and international standards
Vietnam Tax Law on Transfer Pricing
According to Vietnam's tax law on transfer pricing, enterprises with related-party transactions must establish a local file to prove that the transaction price between related parties is determined according to the arm's length principle.
Basic requirements when preparing a national profile include:
Affiliate information: company name, tax code, ownership structure, field of operation.
Details of related transactions in Vietnam: purchase and sale of goods, provision of services, transfer of assets.
Method of determining market price for each transaction.
Consolidated transfer pricing report, demonstrating compliance with market price principles.
Compliance with these requirements helps businesses reduce transfer pricing risks, avoid price adjustments and tax arrears.
OECD regulations on transfer pricing documentation
OECD Transfer Pricing Documentation Guidelines guide multinational enterprises to prepare documentation at three levels:
- Master file: Summary of corporate information, business strategy, transfer pricing strategy.
- Local file: Details of related party transactions in the country, valuation methods, transfer pricing reports.
- Intercompany Global File (IGF): Summary of cross-border transactions within the group.
An important principle that applies globally is the arm's length principle, which ensures that related-party transactions are priced similarly to independent transactions in the market.
| Criteria | Vietnam Tax Law on Transfer Pricing | OECD regulations on transfer pricing documentation |
|---|---|---|
| Scope of application | Enterprises with related transactions in Vietnam | Multinational enterprises, international intercompany transactions |
| Request Profile | Local file | Master file, Local file, IGF |
| Main content | Related party information, transaction details, valuation methods, transfer pricing reports | Master file: corporate structure, transfer pricing strategy; Local file: details of transactions in the country; IGF: summary of global transactions |
| Pricing principles | Arm's length principle | Arm's length principle |
| Purpose | Comply with Vietnamese law, demonstrate market price | Support global transfer pricing risk management, transparency of inter-company transactions |
Risks and notes when preparing national profiles
Transfer pricing risk
When preparing national filings, businesses can face a number of transfer pricing risks, particularly if information is incomplete or valuation methods are inaccurate. Common errors include:
Does not list complete information about related affiliates or branches.
Transaction details are incomplete, lacking contracts, invoices, and documents.
The transfer pricing method is not consistent with the arm's length principle, leading to price adjustments by the tax authority.
Transfer pricing reports lack transparency and do not compile market comparison data.
Optimize national profiles
To reduce transfer pricing risks, businesses need to establish standard national records, comply with the law and effectively combine the following types of records: Local file, IGF and Master file.
National profile optimization guide:
Create detailed local file: Fully record related party information, transaction details, valuation method and transfer pricing report.
Refer to master file: Using corporate data to demonstrate context and valuation basis for transactions in Vietnam.
Apply IGF: Aggregate cross-border transactions to assess risk and compare international market prices.
Quality control of records: Review data, contracts, documents, and market comparison figures before submitting to tax authorities.
Regular updates: Adjust records when there are changes in transactions, corporate structures or new legal regulations.
Example: A multinational corporation establishes a local file for its subsidiary in Vietnam, referring to the master file and IGF to demonstrate that the valuation method complies with the arm's length principle. Thanks to a complete system of records, the enterprise reduces the risk of tax arrears and increases transparency in the management of related-party transactions.
Optimize national profiles
To reduce transfer pricing risks, businesses need to establish standard national records, comply with the law and effectively combine the following types of records: Local file, IGF and Master file.
National profile optimization guide:
Create detailed local file: Fully record related party information, transaction details, valuation method and transfer pricing report.
Refer to master file: Using corporate data to demonstrate context and valuation basis for transactions in Vietnam.
Apply IGF: Aggregate cross-border transactions to assess risk and compare international market prices.
Quality control of records: Review data, contracts, documents, and market comparison figures before submitting to tax authorities.
Regular updates: Adjust records when there are changes in transactions, corporate structures or new legal regulations.
Illustrative example: A multinational corporation sets up a local file for its subsidiary in Vietnam, referring to the master file and IGF to demonstrate compliant valuation methods. arm's length principle. Thanks to a complete system of records, businesses reduce the risk of tax arrears and increase transparency in managing related-party transactions.z
National profile optimization guide:
Create detailed local file: Fully record related party information, transaction details, valuation method and transfer pricing report.
Refer to master file: Using corporate data to demonstrate context and valuation basis for transactions in Vietnam.
Apply IGF: Aggregate cross-border transactions to assess risk and compare international market prices.
Quality control of records: Review data, contracts, documents, and market comparison figures before submitting to tax authorities.
Regular updates: Adjust records when there are changes in transactions, corporate structures or new legal regulations.
Illustrative example: A multinational corporation sets up a local file for its subsidiary in Vietnam, referring to the master file and IGF to demonstrate compliant valuation methods. arm's length principleThanks to a complete system of records, businesses reduce the risk of tax arrears and increase transparency in managing related-party transactions.
Conclude
National records play a key role in tax administration and transfer pricing management, helping businesses demonstrate that transactions between related parties are conducted transparently, complying with Vietnamese tax laws on transfer pricing and OECD regulations on transfer pricing records. Preparing complete and accurate records not only minimizes transfer pricing risks, but also enhances the reputation of businesses before tax authorities and international partners.
Compliance with international laws and standards is a prerequisite for businesses to operate safely in a multinational business environment. The effective combination of Local file, Master file and IGF helps businesses manage risks, control market prices and ensure transparency throughout the entire chain of linked transactions.
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Be proactive in establishing the correct national profile to reduce tax risks and ensure all related party transactions are managed efficiently, transparently and in compliance with the law.
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