With Vietnam's tax administration system becoming increasingly transparent and undergoing digital transformation, tax audits of businesses with related-party transactions will be a key focus in 2026. One of the most important documents that business leaders need to pay special attention to is the National Local File. So, how can this document be created to both comply with regulations and act as an effective shield against tax assessment risks? Let's explore this in detail with MAN – Master Accountant Network in the article below.
The legal basis and core role of the Local File national record.
Compliance with transfer pricing regulations is no longer an option but a vital obligation for FDI businesses. In Vietnam, all guidelines on creating a local file are strictly regulated. Decree 132/2020/ND-CP.
According to OECD international standards in the set related party transaction identification records (including: Local File, Master File In addition to the CBCR report, this document plays a crucial role in helping local tax authorities understand the true nature of a business's economic transactions. By 2026, Vietnamese tax authorities will not only check the completeness of the documentation but also focus on comparing data between related-party transactions and actual business operations in Vietnam.
Building a well-organized national Local File is the first step for businesses to demonstrate compliance with the Arm's Length Principle (AMP), thereby minimizing the risk of cost rejection or profit adjustments. Without this file, businesses will be at a disadvantage from the very beginning of audits.
Detailed structure required in a standard national Local File according to Decree 132.
To meet the stringent requirements of the regulatory authority, a standardized national Local File, as specified in the Appendix of Decree 132/2020/ND-CP, must ensure the following key components:
Overview of the business
This includes a management structure diagram, organizational structure, and key business strategies. The company needs to highlight the position of its Vietnamese entity within the group's global supply chain.
Provide a detailed description of the related transactions.
The list of transactions (purchases of raw materials, consulting services, loans, royalties, etc.) must be detailed with specific financial data. This is the primary data for tax authorities to use in post-audits. The national Local File must clearly show the cash flow and economic nature of each transaction.
Functional, Asset, and Risk Analysis (FAR Analysis)
This is the most important part of National Local File. The business must demonstrate:
- Functions: What activities does the business perform? (For example: manufacturing, assembly, distribution, or administrative support...).
- Assets: What tangible or intangible assets does the business use? (Examples: machinery, technological know-how, brand...).
- Risks: What risks does the business actually face? (For example: market risk, inventory risk, exchange rate risk...).
The Profit Margin (FAR) analysis is the most reliable evidence to explain the level of profit a business is enjoying. If a business fails to explain this in its Local File national record, the tax authorities may impose profit margins based on unfavorable comparative factors.
Choosing a method for determining transfer pricing.
Businesses need to clearly explain the reasons for choosing one of the prescribed methods (such as market price comparison, resale price, cost plus profit, or net profit margin...). The choice of method must be accompanied by convincing comparative data.
The 5-step process for creating an optimized Local File national profile for 2026.
To save time and optimize compliance costs, the Local File national profile creation process should follow this roadmap:
- Step 1 – Review the list of related-party transactions: Identify transactions subject to regulation under Decree 132.
- Step 2 – Analyze the actual function: Conduct a survey of the operating departments to ensure the documentation matches reality. Never describe the function in the local file differently from what is actually happening at the factory or office.
- Step 3 – Choose a suitable pricing method: Consider the simplicity and legal protection of each method. The appropriate method should be chosen based on the industry and field in which the business operates.
- Step 4 – Use the database: Search for similar independent companies to establish a market profit margin range. Businesses should consult with a professional. related party transaction advisory services Seek support from specialized and experienced organizations like MAN – Master Accountant Network to obtain relevant, compelling, and industry-specific databases.
- Step 5: Complete the documentation: Prepare a written report, archive supporting documents, and update the latest figures before the tax settlement period.
Adhering to the above procedures not only helps businesses complete their local file but also provides finance and accounting departments with a systematic view of tax risk management.
Potential risks associated with the Local File national record could lead to businesses being subject to back taxes.
During the process Transfer pricing consultancy, MAN has observed that many FDI businesses often make serious mistakes when implementing the Local File national profile, specifically:
- Using generic templates: A set of documents that does not reflect the unique characteristics of the business is a serious error that will cause tax authorities to question its authenticity.
- Inconsistencies: Discrepancies between figures in the local file and tax returns or financial statements are a sign that may warrant an in-depth audit.
- Lack of supporting documentation: Many businesses do not retain important documents such as emails regarding pricing, original contracts, or documents proving internal service costs.
These small errors in the local file can completely alter the outcome of an audit. Businesses need to pay particular attention to the logical consistency of the numbers.
A real-world case study demonstrates the crucial role of the Local File national record.
To better understand the value of this document, let's consider a typical case: An FDI company X, which manufactures electronic components, purchases raw materials from its parent company abroad. During the 2025 tax audit, this company was questioned due to its lower-than-average profit margin and consecutive losses for three years.
Before contacting MAN, the company's self-prepared Local File national tax return was very rudimentary, lacking sharp arguments for FAR analysis. When facing the tax authorities, the company was completely flustered and the tax authorities intended to reassess its profits, claiming that the company was engaging in transfer pricing by inflating the cost of raw materials.
MAN's intervention, supporting company X:
- MAN's team of experts reviewed all the data and restructured the FAR analysis to demonstrate that the business acted only as a low-risk subcontractor.
- MAN helped businesses systematize supporting documents (transaction emails, market data, industry forecasts) in a scientific manner to present directly to the inspection team.
- Using accurate comparative data from independent, comparable companies, the business can convince tax authorities that its profit margin remains within a safe range.
As a result, the business passed the inspection without any tax adjustments. This is the strongest proof that investing in building a professional local file is the best way to protect your business's profits.
Frequently Asked Questions about Local File National Profiles
According to regulations in Vietnam, businesses with related-party transactions must prepare this set of documents and submit them to the tax authorities when requested for inspection (or when submitting the corporate income tax return if exempted or required to declare according to Decree 132).
Businesses can create their own Local File national financial records; however, this is a significant challenge. Self-preparation requires access to specialized international financial databases and in-depth legal explanation skills in tax terminology. Many businesses create their own records but struggle to defend their pricing methods when audited, leading to the disallowance of expenses or tax assessments. Therefore, seeking professional consulting services with practical experience not only helps businesses complete accurate records but also protects their legitimate profits.
This is a significant risk. If the tax authorities require the submission of the Local File national tax return and the business is not ready, administrative penalties may arise, and the business will lose the right to proactively explain the situation, leading to the risk of being assessed a higher tax.When is it necessary to create a Local File national profile?
Is it possible to create the application myself?
What if the documentation is incomplete before the inspection?
Conclude
In summary, the Local File national record is not simply a procedural report, but a strategic risk management tool. In 2026, when tax data is strongly interconnected, proactively reviewing and completing records will be key to giving businesses peace of mind.
Don't let your business be caught off guard when the tax authorities request documents. Preparing documents yourself without accurate comparative data or without experience in explaining things to inspectors is the biggest risk for businesses. Let MAN's team of related-party transaction experts handle this responsibility for you.
Contact MAN – Master Accountant Network For timely 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.