Tax Alert

July 2012

Keeping you informed

Transfer Pricing - Vietnamese Tax authorities action plan

On 21 May 2012, the Ministry of Finance issued Decision 12501 approving an Action Program on Transfer Pricing for the period from 2012 - 2015. The Decision is a development of an earlier Decision2 approving the reform of the tax system strategy for the decade 2011 - 2020, and a subsequent Notification3 entitled Enhancing Management of Transfer Pricing Issues in foreign invested enterprises, issued on 16 February 2012. In addition, amendments to the Law on Tax Administration have been submitted and reviewed by the National Assembly, the Government and relevant organizations, and it is expected that the amendments will be approved by the National Assembly by October 2012. However the revision of regulations governing the interpretation and the application of the Law will continue through 2012 - 2013. We discuss below some notable points regarding Transfer Pricing issues in these documents: I. ADVANCED PRICING AGREEMENT (APA) Following the changes to the Law on Tax Administration, it is expected that the Decree and the Circular guiding the application of the Law will be reviewed and amended by the General Department of Taxation (GDT). The Annual Transfer Pricing Declaration Form will also be revised. Under the proposed amendments, Advance Pricing Agreements may be allowed, with a limitation of 5 years, stating basis for tax calculation and transfer pricing methods applied in related party transactions before the taxpayer submits the Corporate Income Tax Declaration and the Custom Declaration. II. ACTION PROGRAM In addition to APAs, Decision 1250 sets out administrative actions to control transfer pricing activities through to 2015, as follows: 1. Developing the management system and human capacity GDT Transfer Pricing unit: A special transfer pricing management unit has been developed at GDT level in 2012.

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Decision 1250/Q-BTC dated 212 May 2012 issued by the Ministry of Finance Decision 732/Q-TTg dated 17 May 2011 issued by the Prime Minister Notification 48/TB-VPCP dated 16 February 2012 issued by the Central Government Office about the Deputy Prime Ministers decision

Local Transfer Pricing units: In addition, in 2013 some Transfer Pricing units will be established in the tax departments of some major provinces and cities where it is expected that enterprises may have significant related party transactions.

Co-operation: The Action Plan proposes that training programs should be conducted, with sharing sessions and cooperation among tax departments, and between tax authorities in Vietnam and foreign tax departments and other international organizations such as OECD, WB, JICA and EU, in order to develop the auditors undertaking transfer pricing reviews.

Training: To this end, in May 2012, an EU Delegation started a Project to support Vietnams tax authorities in their management of transfer pricing. The Project will be implemented over the next 12 months, to design and deliver customized training courses for the Transfer Pricing Task Force at the General Department of Taxation, and for officials at provincial tax offices in the business hubs of Ha Noi, Da Nang and Ho Chi Minh City.

Exchange of information: Supplementing this activity, the draft amended Law on Tax Administration grants Vietnams tax authorities the ability to consult and exchange information with overseas tax offices of jurisdictions which have a Double Tax Agreement (DTA) with Vietnam.

2. Strengthening Databases The Databases supporting Transfer Pricing management by the Tax authorities will be strengthened in several ways, including: Sharing information with other Ministries and Government Authorities, such as the Ministry of Planning and Investment, Ministry of Police, State Bank; Collecting information from departments within the Ministry of Finance, such as the Price Management Department, General Department of Customs; Collecting information from foreign tax authorities; Developing an Application for information sharing between related authorities and organizations for the period from 2013 - 2015; Developing a Data Application to manage and utilize information. Note that the database will not only collect information. The information will be processed and developed into a database of profit margin for major industries, and a database of prices for goods and/or services in high risk areas. This will assist in screening and risk analysis for transfer pricing audits. 3. Sharpening Transfer Pricing investigations Transfer Pricing investigations will be enhanced, not only in quantity but also in quality.

Quantity: Investigations covering Transfer pricing issues will be at least 20% of the total investigations every year; Quality: To support Transfer Pricing investigation activities, the tax departments at provincial level will be required to give clear guidance, and to collect, and closely monitor and report on the declaration and submission of the Annual Transfer Pricing Declaration Form. A Transfer Pricing investigation Procedure and Handbook will be issued, containing guidelines on the conduct of Transfer Pricing investigations.

Screening: The process of Transfer Pricing investigation is being modernized, following the amended Law on Investigation. Big groups with several subsidiaries, and enterprises perceived to represent a high risk of transfer pricing, will be screened, and will become the targets for Transfer Pricing reviews. Criminal proceedings: One notable point in the draft amended Law on Tax Administration is that the proposal to grant tax authorities the right to conduct criminal investigations where tax evasion is suspected. Note that the Criminal Law already provides that those who evade tax of VND 100 million (approximately USD 5,000) or more are considered to have committed a criminal act.

III. TRENDS AND ACTIONS REQUIRED From the successful year of 2011, when 856 enterprises were audited, and total additional tax and penalties assessed was about USD82 million, the Ministry of Finance and GDT have seen the value of transfer pricing audits. For the first time, the official Action Program covers the major contents, milestones and the authorities responsible through to 2015 for the purpose of controlling Transfer Pricing in Vietnam. In particular, in 2012, with the establishment of the Transfer Pricing Team in the General Department of Taxation, Transfer Pricing audit measures will be one of the GDTs main activities. The number of planned visits in relation to Transfer Pricing audits for 2012 is 1,500 enterprises nearly twice the number of the previous year. As the Tax authorities are taking serious steps to tackle transfer pricing, especially by conducting many more Transfer Pricing investigations, enterprises should not wait until a notice, a reminder or a request is received from the tax authority. In addition to compliance with Transfer Pricing declarations and Transfer Pricing Documentation according to current guidance, enterprises should be considering more comprehensive planning steps, and even be prepared to enter into an APA if they wish to be best prepared for the coming changes in the increasingly contentious subject of Transfer Pricing.

Contact
For more information, please contact:
Thomas McClelland Tax Leader +84 (8) 3911 0727 tmcclelland@deloitte.com Tuan Bui Tax Partner +84 (4) 6268 3568 tbui@deloitte.com Minh Bui Tax Partner +84 (4) 6268 3568 mbui@deloitte.com

For further information, visit our website at www.deloitte.com/vn

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