Vietnam switch pricing audits

Switch pricing (TP) has grow to be more and more essential in Vietnam’s tax management and inspection actions. It’s understood that probably the most necessary missions of the Vietnamese tax authority is to implement the nationwide TP regime and to take acceptable measures to counter the unlawful acts or conduct of TP in Vietnam. In truth, statistics present 72 Vietnamese taxpayers had been the topic of a selected TP audit, in addition to 212 billion Vietnamese dong (9.16 million {dollars}) in TP arrears and 1367 billion Vietnamese dong in discount of losses by way of TP in the midst of the one first semester 2020.

In view of the above, this text will current our observations on the potential challenges throughout a tax audit in addition to our suggestions to proactively mitigate the TP danger earlier than or throughout the audit.

The switch pricing audit isn’t an unique audit

There’s a mistaken perception amongst taxpayers in Vietnam {that a} TP audit needs to be a single take, i.e. the audit can solely happen in a really specialised TP setting. This perception was certainly right prior to now, earlier than there was a restructuring of the Vietnamese tax administration: the tax authorities on the common division degree and the big provinces comparable to Hanoi, Ho Chi Minh Metropolis, Dong Nai and Binh Duong used to ascertain and keep specialised providers. TP audit and inspection items. Nonetheless, the dispersal of those large-scale TP items in 2017 made this understanding of taxpayers inaccurate.

Having heard of this improvement, the query arose for the international direct funding entities in Vietnam whether or not the TP was now not an space of ​​curiosity. Sadly, the reply isn’t any. Although these specialised TP items had been dissolved, their workers was transferred to every tax audit unit, thus making certain that TP issues could be definitively coated as soon as the tax audit discover was despatched to taxpayers. Nonetheless, for the reason that TP is taken into account a part of company tax, many audit opinions usually are not explicitly declared as such, so taxpayers had been shocked when paperwork referring to their transactions checked. had been distinguished, even within the first part of the audit. .

In mild of the above, it is suggested that that is certainly the suitable time for taxpayers to contemplate finishing their tax data; understanding that the discount in prices presently might result in a big variety of changes, penalties and re-collections, in addition to a detrimental status not just for the Vietnamese subsidiary but in addition for the group as an entire.

Why had been my TP compliance paperwork rejected?

The rejection of TP compliance documentation is now not an uncommon remark in Vietnam. Though Vietnamese taxpayers have seen a big enchancment in consciousness of TP compliance, the speed of rejection of compliance paperwork has gone in the wrong way and has elevated sharply in recent times. One can even observe a mistaken perception that so long as a taxpayer has one thing to undergo the tax administration, no additional dispute will probably be made.

Frequent areas of negligence that will result in documentation rejection as described above will probably be mentioned under.

Late preparation

Late preparation is likely one of the commonest points that might result in the rejection of compliance paperwork. In truth, the present Vietnamese TP laws stipulate that compliance paperwork have to be ready (i) on an annual foundation, and (ii) earlier than company tax is finalized; failure to adjust to any of those circumstances will subsequently represent a violation.

It was additionally noticed that the Vietnamese tax administration, following the enhancements of the TP audits, now requests the submission of the TP service contract, examines whether or not the date of the contract is authentic or not, and initially rejects any compliance doc. . which is ready late.

From our observations, many compliance paperwork, irrespective of how refined or pricey to arrange, have been unnecessarily dismissed and not using a look on the content material, and moreover, there may be completely no assure that another rationalization for the delay will probably be accepted by Vietnam tax. authority. Due to this fact, taxpayers, firstly, needs to be extra conscious of those necessities and guarantee their essential compliance, with a purpose to mitigate the danger.

Inconsistent info

Inconsistent info might additionally result in rejection of compliance paperwork and contribute considerably to a substantial quantity of annual TP arrears. Generally, taxpayers who have interaction in TP enterprise by coming into into managed transactions are required to:

  • put together the annual disclosure type;
  • put together the annual TP compliance report; and
  • complement the above with adequate supporting paperwork (i.e. monetary knowledge, accounting data, authorized paperwork, and so on.).

Any inconsistency which will come up between these items of knowledge will almost definitely be the reason for a dispute between the tax administration and the taxpayer throughout the audit and, above all, the rejection of something that has been rigorously ready.

Primarily based on our observations, the most typical inconsistency that has occurred is the place the taxpayer ready the disclosure type internally and employed a service supplier to arrange the annual TP compliance report with out have these paperwork reviewed. This might result in inaccuracies and inconsistencies within the disclosure in comparison with the evaluation.

The second commonest inconsistency difficulty arises from improper delegation, by which a taxpayer, on this case the shopper, generally fingers your entire ledger with none directions to the service supplier, leading to time and time. pointless effort not just for the tax agent in filtering via your entire knowledge load but in addition for the consumer by reviewing the whole lot over and over throughout his overview. This carries the danger of monumental time consumption and inaccurate disclosure to the taxpayer himself.

In mild of the above, overview and consolidation are basically necessary processes within the post-preparation part of compliance paperwork. Redemption actions, on this case the modification of compliance paperwork, are at all times free so long as the submissions are made earlier than a tax audit.

Lack of coverage, proactive planning and session

Lastly, the shortage of planning and session could possibly be seen as a possible danger for taxpayers. It needs to be famous that the preparation of compliance paperwork is at all times based mostly on historic knowledge, that’s, issues which have already occurred. On this regard, the taxpayer could be uncovered to a really excessive danger if there was a transaction that unintentionally violates the TP laws. Dangers can also come up within the occasion of an unexpected occasion which might trigger the taxpayer’s revenue margin to lower and make it decrease than that of his friends.

Working totally on historic knowledge, it could be too late for an adjustment to be advised by the tax advisor, for the reason that books are closed and transactions are already settled. Because of this, the tax administration reserves the suitable to problem the taxpayer’s TP place, as any incorrect rationalization might result in the rejection of the compliance paperwork. The taxpayer on this scenario ought to have taken extra steps to guard themselves from any such danger, fairly than later remorse when issues had gone too far.

Planning factors

In view of the above, it is suggested {that a} taxpayer take extra proactive motion on TP issues. Particularly, a uniform TP coverage is the perfect information to arrange and apply, which may consider the TP laws in every jurisdiction of origin and make sure the compliance standing of every occasion concerned. As well as, advert hoc planning and session can also be extremely advisable, by which every potential motion and / or transaction may be rigorously thought of to acquire the most effective steering and keep operational effectivity.

In abstract, TP issues require extra consideration from Vietnamese taxpayers with a purpose to defend themselves from publicity to pointless danger, leading to important penalties and arrears. For the needs of danger mitigation, Vietnamese taxpayers participating in managed transactions are advisable to ascertain an acceptable motion schedule to arrange their compliance paperwork, have interaction in acceptable planning and advisory actions, and full a switch pricing coverage, not solely to fulfill compliance necessities. but in addition to create a sustainable fiscal working framework.

This column doesn’t essentially mirror the opinion of the Workplace of Nationwide Affairs, Inc. or its homeowners.

Nguyen Dinh Du is a tax companion and Do Vu Bao Khanh is a tax director at Grant Thornton Vietnam.

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