The Ministry of Finance has recently released a first-ever draft decree on management of transfer prices of associated transactions in an attempt to prevent losses of state budget revenues.
The draft defines associated transactions as transactions among associated parties in the production and trading process. These transactions include purchasing, selling, exchanging, renting, leasing, borrowing, lending and transferring goods, services and assets, or shared use of resources, such as cooperation in employment of human resources or sharing of costs among associated parties.
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According to the draft, associated parties are the parties having relations in one of the following three cases. The first is when one party directly or indirectly participates in the management or control of, contribution of capital to, or investment in, the other party. In the second case, the parties are directly or indirectly managed or controled by, or receive capital contribution or investment from, another party. The third is when the parties directly or indirectly take part in the management or control of, contribution of capital to, or investment in, another party.
The draft goes on to stipulate methods for determining transfer prices of associated transactions; obligations of taxpayers in declaration and determination of transfer prices of associated transactions; and responsibilities of state agencies in tax administration and inspection for taxpayers involved in associated transactions.
Specifically, taxpayers must declare their associated transactions as well as elements which lead to wrong determination of their tax obligations for such transactions and, on that basis, determine their tax obligations for such transactions as for independent transactions with similar conditions.
Meanwhile, tax agencies would be responsible for managing and inspecting transfer prices of associated transactions in order not to recognize associated transactions that cause losses of state budget revenues, and to adjust transfer prices of associated transactions for determination of tax obligations.
Particularly, the draft clarifies responsibilities of related ministries in control of transfer prices of associated transactions. Accordingly, the Ministry of Finance would be answerable before the Government for performing the state management of transfer prices of associated parties, while the State Bank of Vietnam would have to provide the Ministry of Finance with information on monetary transactions of businesses having associated relations with foreign parties. The Ministry of Planning and Investment must provide information relating to investment projects that show signs of transfer pricing for the purpose of tax evasion.
At the same time, the Ministry of Science and Technology would be required to formulate a Regulation on transfer of technologies and intellectual property assets, while the Ministry of Information and Communications and the Ministry of Industry and Trade would develop databases on licensed enterprises and franchising and prices of goods on international goods trading floors.- (VLLF)
