Transfer pricing is becoming a hot issue in tax management, especially when tax authorities are increasingly tightening inspection and penalizing businesses that show signs of inappropriate pricing. From the regulations at Decree 132/2020/ND-CP arrive Decree 20/2025/ND-CP, the legal corridor on transfer pricing is constantly being improved, requiring businesses to be transparent in determining transfer pricing. This article will help you understand the nature of transfer pricing and the current legal framework so that businesses can avoid the risk of being overcharged and fined.
Transfer pricing concept
Transfer pricing is the act of one or more parties having affiliated relationship (belonging to the same group, having a relationship of interest or control) establishes prices, payment terms or transaction structures so that profits are transferred from a legal entity in one country to a legal entity in another country to reduce total tax obligations or achieve other financial benefits. In essence, transfer pricing is an economic-tax issue, arising from transactions between related parties rather than independent transactions in the market.
Why transfer pricing is a key issue in global tax management
Transfer pricing allows profits to be allocated between legal entities within the same group and when exploited, transfer pricing becomes a tool to shift profits to low-tax regions, eroding the tax base of countries. Therefore, managing transfer pricing is one of the top priorities of tax authorities and the international community.
When profits are shifted away from where real economic activity takes place, the country loses corporate income tax (CIT) which directly affects public revenue (spending on health, education, infrastructure). Because the losses are large-scale and cross-border, governments consider anti-transfer pricing a crucial task.
Legal framework regulating transfer pricing activities in Vietnam
Transfer pricing and control of transfer pricing behavior are always topics of special interest to financial policy makers in Vietnam. In practice, in order to strengthen tax management and prevent transfer pricing abuse, the State has issued many important legal documents detailing the determination of related party transaction prices, declaration obligations as well as sanctions for violations.
Circular 74/1997/TT-BTC dated October 20, 1997 of the Ministry of Finance is the first legal document in Vietnam to directly address the issue of transfer pricing in the operations of foreign investors. This is considered the initial step in forming a legal framework for transfer pricing management.
Circular No. 89/1999/TT-BTC dated July 16, 1999 and Circular No. 13/2001/TT-BTC dated March 8, 2001 were issued by the Ministry of Finance to guide the implementation of tax policies applicable to investment forms under the Law on Foreign Investment in Vietnam.
Circular 128/2003/TT-BTC was issued by the Ministry of Finance on December 22, 2003, officially replacing Circular 13/2001/TT-BTC on corporate income tax guidance, including content related to transfer pricing. However, when Circular 05/2005/TT-BTC guiding the implementation of foreign contractor tax was issued, the content on transfer pricing was no longer included in the scope of this document.
On December 19, 2005, the Ministry of Finance issued Circular 117/2005/TT-BTC, which for the first time provided guidance on determining market prices in transactions between related parties, laying the foundation for managing transfer pricing activities in Vietnam. Inheriting and perfecting this content, Circular 66/2010/TT-BTC dated April 22, 2010 was issued, becoming the first legal document detailing anti-transfer pricing measures through transfer pricing methods.
On May 21, 2012, the Ministry of Finance issued Decision 1250/QD-BTC, approving the Action Program to control transfer pricing activities for the period 2012-2015. Then, on December 20, 2013, the Ministry issued Circular 201/2013/TT-BTC guiding the application of advance pricing agreements (APA) in tax administration.
In line with OECD recommendations and to implement the program against base erosion and profit shifting (BEPS), on February 24, 2017, the Government issued Decree 20/2017/ND-CP regulating tax management for enterprises with related-party transactions.
After Decree 20/2017/ND-CP was issued, on April 28, 2017, the Ministry of Finance continued to issue Circular 41/2017/TT-BTC to provide detailed guidance on the analysis, comparison, selection of transfer pricing methods and preparation of transfer pricing dossiers. On June 24, 2020, the Government issued Decree 68/2020/ND-CP, amending and supplementing Clause 3, Article 8 of Decree 20 to better suit practical application.
On the basis of inheriting and perfecting previous regulations, on November 5, 2020, the Government issued Decree 132/2020/ND-CP on tax management for enterprises with affiliate transactionsThis document is considered an important step in perfecting the legal framework, enhancing the effectiveness of anti-transfer pricing and preventing loss of state budget revenue.
Objectives and risks of transfer pricing
Not all transfer pricing cases are negative. In fact, many businesses choose this method as a legitimate financial tool to achieve optimal business efficiency. So what makes them perform transfer pricing and what is the goal behind the numbers?
Why do businesses carry out transfer pricing?
Businesses engage in transfer pricing for a variety of reasons, the primary goal of which is to optimize tax liability. By adjusting transaction prices between related parties, businesses can shift profits to legal entities located in countries with low tax rates, thereby reducing the total tax payable for the entire group.
For example: If the goods have a market price of 100 but are internally priced at 70, the profit of 30 can be shifted to the unit located in the tax-incentive location, resulting in significant tax savings.
In addition, transfer pricing also helps the group optimize cash flow and repatriation. By adjusting prices, royalties or internal loan interest, businesses can balance cash flow between units, meet financial needs or hedge against exchange rate risks. Some businesses also apply transfer pricing as a tool to manage operational efficiency, allocate profits by function, ensure that those who bear risks and create real value receive a proportionate share of profits.
In addition, transfer pricing is also used to reduce customs costs or indirect taxes by adjusting import prices, helping to lower the tax base. For multinational corporations that own many intangible assets such as brands, patents or software, transfer pricing is also a measure to protect and exploit intellectual property (IP) through transferring usage rights or charging royalties between member companies. Finally, businesses can take advantage of legal differences between countries.
In general, transfer pricing is both a legitimate tool to optimize the global financial structure and potentially high risk if abused to evade taxes or distort business results. Therefore, understanding the nature and strictly controlling transfer pricing activities is a vital factor to help businesses maintain transparency, comply with the law and protect brand reputation.
Common forms of transfer pricing today
In fact, businesses can implement transfer pricing in many different forms, depending on business objectives, corporate structure and tax policies in each country. Each form has its own characteristics in terms of implementation methods, goals and potential risks if the principle of independent transactions is not followed. The table below summarizes the most common forms of transfer pricing today, helping businesses easily visualize the operating mechanism, identify risks and be proactive in tax management.
Board: Common forms of transfer pricing and corresponding risks for businesses.
| Transfer pricing | Detailed description | Business goals | Potential risks |
| Transfer pricing for goods | Sale of raw materials, finished products or goods between parent company and subsidiary at prices different from market prices. | Transfer profits to companies in low-tax countries to optimize cost of goods sold. | Tax authorities may adjust taxable prices; collect back taxes and fines for mispricing the market. |
| Management, technical & service fees | Revenue or cost of services, support, marketing, consulting between companies in the group. | Legalize cost shifting to reduce taxable profits in Vietnam. | Easily dismissed without proof of actual service or unreasonable fees. |
| Royalty or IP transfer or licensing | Licensing or transferring trademarks, patents, software, trade secrets. | Transfer profits to IP owners; protect intellectual property; optimize copyright taxes. | If the royalty fee is too high, it is considered a profit-shifting tool; there is a risk of having taxable income adjusted. |
| Internal financial transactions | Lending, guaranteeing, or providing financial services between related parties. | Coordinate internal cash flow; transfer profits through interest. | Interest rates that do not match market risk may be re-determined by tax authorities; increased costs are eliminated. |
| Internal cost allocation | Allocate costs of market research, marketing, and corporate management among units. | Increase costs in high tax locations to reduce taxable profits. | If the allocation is not reasonably based, the expense may be excluded from taxable income. |
| Profit split method | Profit sharing among affiliates based on contribution level. | Flexibly regulate profits between units; reflect functional roles. | If the division ratio does not reflect economic reality, it is considered profit manipulation. |
Thus, it can be seen that transfer pricing does not only take place in a single aspect but covers most of the internal activities in the group, from buying and selling goods, providing services to licensing intangible assets or allocating costs. Each form has the potential risk of being regulated by the tax authority, especially when the enterprise cannot prove a reasonable economic basis or does not prepare a complete transfer pricing dossier. Therefore, understanding the nature of each form and applying the Arm's Length Principle is an important foundation to help enterprises limit tax risks, while ensuring transparency and compliance with the law.
Current status of transfer pricing activities in Vietnam
From the practice of anti-transfer pricing work in Vietnam in recent years, it can be seen that there are some main difficulties and challenges that tax authorities are still facing:
“According to VCCI reports, on average each year there are about 40-501 TP3T enterprises. FDI declared losses, including many businesses that have suffered losses continuously for many years, some even have accumulated losses to the point of negative equity but still continue to operate normally, including expanding business scale."
It is worth noting that, despite reporting losses for many years, even cumulative losses to the point of negative capital, many businesses still continuously expand their operations instead of ceasing production or dissolving. This reality shows potential signs of transfer pricing behavior when profits are transferred to related parties in countries with low tax rates.
The Vietnamese tax authorities have detected and handled many typical transfer pricing cases, but there are still many businesses that have not been detected or are under suspicion. The inspection and verification of transfer pricing behavior still faces many difficulties and challenges, especially in collecting information, comparing market prices and proving the nature of transactions.
Measures against transfer pricing
Faced with the increasingly sophisticated situation of transfer pricing, Vietnam's tax authorities have implemented many measures to prevent and combat transfer pricing to control related-party transactions and ensure state budget revenue.. Specifically as follows:
- Completing the legal framework and tax management policies for related-party transactions: Updating and amending regulations such as Decree 20/2017/ND-CP, Decree 132/2020/ND-CP, Decree 20/2025/ND-CP to ensure compliance with international standards, creating a clear legal basis for determining and adjusting transfer pricing.
- Strengthening the apparatus and improving the capacity of inspection and control of transfer pricing: Strengthening human resources, specializing the tax inspection team; promoting training, experience exchange and applying technology in risk analysis to detect sophisticated transfer pricing behavior.
- Applying the Advance Pricing Agreement (APA) mechanism: Encourages businesses to proactively negotiate with tax authorities on pricing methods before transactions take place, helping to minimize dispute risks and improve compliance.
- Building and connecting databases to serve transfer pricing management: Developing a centralized data system on enterprises with related transactions, market prices and International Reporting (CbCR) to support analysis, comparison and accurate decision making.
- Orientation to attract FDI investment selectively, linked to efficiency and tax compliance: Discourage attracting investment capital "at all costs", while limiting general tax incentives to avoid creating loopholes for transfer pricing or profit shifting.
- Strengthen transparency, public responsibility and apply strict sanctions: Promote information disclosure, enhance the responsibility of management agencies and apply strong enough sanctions to deter and strictly handle violations of transfer pricing.
In general, Vietnam’s transfer pricing prevention and control measures are not only aimed at handling violations, but also at creating a transparent, fair and sustainable business environment. However, for this work to be truly effective, there needs to be proactive cooperation from businesses in honestly declaring, complying with regulations and accompanying tax authorities in the policy implementation process.
Conclude
In the context of a globalized economy and increasingly complex cross-border investment flows, transfer pricing continues to be a major challenge for both tax authorities and businesses. However, in addition to the State's efforts, businesses also need to proactively develop an effective tax management strategy, comply with regulations on declaration, prepare transfer pricing dossiers and consistently apply the Arm's Length Principle. This not only helps businesses minimize the risk of being overcharged and fined, but also enhances reputation and transparency in financial management.
If your business is having difficulty determining tax obligations, preparing related-party transaction records or assessing transfer pricing risks, please contact MAN – Master Accountant Network immediately for timely advice and support. Careful preparation today will be a solid “shield” to help your business develop stably and comply sustainably in the future.
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