In the era of global tax transparency, the role of CbCR reporting in tax management and related-party transactions has gone far beyond a mere compliance obligation. For tax authorities, CbCR is an "X-ray" tool that helps identify transfer pricing risks and tax base erosion on a global scale; for multinational corporations, it is a crucial measure reflecting the level of transparency, risk management, and tax responsibility in the context of BEPS, MCAA, and the Global Minimum Tax officially operating in Vietnam from 2025. Understanding and implementing CbCR correctly not only helps businesses avoid audit and tax collection risks but also creates a solid foundation for sustainable development strategies and international credibility.
What is a Country-by-Country Report (CbCR)?
Country-by-Country Reporting (CbCR) This is a type of tax report for multinational corporations, providing an overview of how income is distributed, taxes paid, and key economic performance indicators are categorized across the countries in which the corporation operates.
According to Government Decree 132/2020/ND-CP, CbCR is the "final and most important piece" in the three-tiered transfer pricing documentation set:
- Local File: Details of related-party transactions in Vietnam.
- Master File: General information about the corporation's global structure and strategy.
- CbCR Report: Consolidated financial data for each country.
Required target audience and revenue threshold
Not all businesses are required to submit a Certificate of Conformity (CbCR). According to international standards and regulations in Vietnam:
- International threshold: Corporations with consolidated revenue of 750 million Euros or more.
- Regulations in Vietnam: Businesses with a parent company located in Vietnam and consolidated global revenue of VND 18,000 billion or more during the tax period.
For subsidiaries in Vietnam with parent companies abroad, the obligation to submit CbCR depends on whether the parent company's country has signed an information exchange agreement with Vietnam. This is a key point for 2025, when the list of countries that automatically exchange information with Vietnam will be significantly expanded.
See details: Instructions for filling out Appendix IV (Form 04/GDLK).
The role of CbCR reports in modern tax administration.
Understanding the role of CbCR reporting in tax management and related-party transactions is key for businesses to anticipate actions by regulatory authorities.
The "X-ray" tool helps to see through the profit structure.
Before the CbCR, tax authorities typically only saw the "tip of the iceberg"—local activities. With the CbCR, tax authorities now have a heat map of global profits.
Based on this report, the tax authorities can make comparisons between:
- Tax payments in Vietnam compared to countries with low tax rates.
- The ratio of profit to the number of personnel or tangible assets in each location. If a subsidiary in Vietnam contributes 50% of global revenue and personnel but retains only 5% of global profit, that is a red flag that triggers immediate transfer pricing audits.
Risk Assessment of Related-Party Transactions
Tax authorities use machine learning algorithms to analyze CbCR data to detect sophisticated transfer pricing practices. The role of the CbCR report here is to provide input data for corporate risk rating systems. Indicators such as “Profit per employee” or “Actual corporate income tax paid” compared across countries will show whether a corporation is diverting profits to locations with lower tax rates.
Automatic Emergency Information Exchange (AEOI) Mechanism and the Power of MCAA
By 2025, Vietnam will have fully activated the automatic information exchange mechanism. This means that if you are a subsidiary of a corporation in the US or Singapore, the CbCR data submitted in that country will be automatically transferred to the General Department of Taxation of Vietnam. The role of CbCR reporting in tax management and related-party transactions will now shift from "voluntary declaration" to "automatic cross-referencing," making information concealment impossible.
The role of CbCR in corporate internal governance.
Don't just look at CbCR from a tax obligation perspective. For managers, it offers strategic value:
A shield against inspection risks.
Careful preparation of the CbCR allows businesses to assess their financial health from the perspective of the tax authorities. If any irregularities are detected, businesses can proactively adjust their transfer pricing policies before an audit takes place, thereby minimizing heavy penalties.
Optimizing the global value chain.
CbCR data analysis helps management identify gaps in the operational structure. For example, maintaining too many entities in countries that do not provide real economic value but increase tax compliance costs can be reduced to optimize resources.
Affirming ESG values and brand reputation
In the 2025 era, "Tax Transparency" is an integral part of ESG (Environmental, Social, and Governance) reporting. International investors and credit rating agencies prioritize corporations with clean CbCR reports, demonstrating that businesses make equitable contributions to the development of the communities where they operate.
Risks and consequences of CbCR violations
Discrepancies in Country-by-Country Profit and Loss Reports can lead to serious consequences for businesses:
Determining transfer pricing tax
If the data in the Country-by-Country Report shows that profits have been improperly shifted, the tax authorities have the right to reject the company's related-party transaction prices and determine a tax rate based on market comparison methods.
Administrative sanctions
The penalty framework is based on Decree 125/2020/ND-CP, which stipulates penalties for specific acts as follows:
- Violation of the payment deadline: Fines range from VND 8,000,000 to VND 25,000,000 depending on the number of days of delay.
- False or incomplete declaration: A fine of VND 5,000,000 to VND 8,000,000 will be imposed for failing to declare certain items in the related-party transaction documentation.
- Tax evasion: If the CbCR violation results in an underpayment of tax or an overpayment of tax, the penalty can range from 1 to 3 times the amount of tax evaded.
Country-by-Country (CbCR) reports are the primary source of data for calculating supplemental taxes. If the CbCR data is inaccurate, the calculation of supplemental taxes under Pillar Two will be flawed, leading to the risk of being subject to tax assessments in multiple countries simultaneously.
Compliance Guidelines – Standard Procedures Applicable to Large Corporations
To optimize The role of CbCR reports in tax management and related-party transactions.Below is the standard procedure applied by the expert team of MAN – Master Accountant Network for large corporations. Specifically, it is as follows:
- Reviewing Thresholds and Corporate Structure: Accurately determine global consolidated revenue according to the accounting standards of the country where the ultimate parent company is located. MAN conducts in-depth analysis of ownership structure to identify member entities that need to be included in the Report, avoiding potential risks.
- Consistency Check: This is the most important step. It is essential to ensure that the data on the CbCR matches the Master File and the Local File. Any discrepancies in profit margins, employee numbers, or actual tax payments will be analyzed and thoroughly explained by MAN's team of experts in Table 3 of the Country-by-Country Profit Report before submission.
- Checking deadlines and information exchange: MAN assists businesses in collecting data from subsidiaries, ensuring that all CbCR reports are completed and submitted within 12 months of the fiscal year end, completely eliminating the risk of penalties for late submission.
- Expert advice: At MAN, the CbCR report is more than just filling out a form. Our team of experts, with in-depth knowledge of Vietnamese law and OECD guidelines, will advise businesses on how to optimize transfer pricing policies based on CbCR data, helping them prepare for changes in the Global Minimum Tax (Pillar Two).
With extensive experience in related-party transactions (transfer pricing) and supporting FDI enterprises and multinational corporations, MAN – Master Accountant Network is not just a tax consulting firm, but a reliable partner, helping businesses transform compliance obligations into a competitive advantage.
Conclude
In the context of automated information exchange mechanisms, BEPS Action 13, and the simultaneous implementation of the Global Minimum Tax, the role of the Transfer Pricing Correspondence Report (CbCR) in tax management and related-party transactions has become a key factor determining the level of tax compliance and safety of multinational corporations in Vietnam. The CbCR is no longer simply a declaration obligation, but serves as a basis for tax authorities to assess transfer pricing risks, and simultaneously acts as a "mirror" reflecting the tax governance capacity, transparency, and accountability of businesses globally.
Based on practical experience in implementing related-party transaction documentation and CbCR reporting for numerous FDI enterprises and cross-border corporations, MAN – Master Accountant Network recognizes that businesses are only truly secure when their CbCR is built on accurate and consistent data, aligned with the Master File and Local File, and closely tied to the corporation's actual value creation model. Proactive review, standardization, and in-depth consultation from the outset not only help businesses minimize the risks of audits, tax collection, and penalties, but also create a solid foundation for a sustainable, transparent, and reputable development strategy in the era of global tax management.
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 the Role of CbCR in Tax Management and Related-Party Transactions
From 2025 onwards, why will the role of the CbCR report be given special attention by the Vietnamese tax authorities?
From 2025, Vietnam will officially operate the automatic transfer pricing information exchange (CbCR) mechanism under the MCAA, allowing Vietnamese tax authorities to directly receive CbCR data from abroad. This helps tax authorities gain a comprehensive view of profit allocation, taxes, and economic activities of corporations, thereby assessing transfer pricing risks more quickly and accurately than traditional methods.
Is it mandatory for the CbCR data to match the Master File and Local File exactly?
While a "100% arithmetic match" isn't required, consistency in nature and economic logic is mandatory. Any discrepancies in revenue, profit, taxes, or operational functions between the CbCR, Master File, and Local File must be clearly explained; otherwise, they will be considered a high-risk indicator.
What is the relationship between CbCR and the Global Minimum Tax (Pillar Two)?
The CbCR does not replace the Pillar Two filing, but it is a foundational data source for preliminary assessment of the Effective Tax Rate (ETR) in each country and for identifying the risk of additional tax liability. If the CbCR is inaccurate or inconsistent, businesses may face the risk of additional tax collection in multiple countries simultaneously.
Editorial Board of MAN – Master Accountant Network