The Ministry of Finance has issued Circular 66/2010/TT-BTC, which amends the current transfer pricing regulation Circular 117/2005/TT-BTC. Circular 66 will take effect on 6 June 2010.
Circular 66 limits the application to transactions between enterprises and their affiliated parties and, unlike Circular 117, does not cover individuals.
Under Circular 66, the definition of "related parties" includes limited liability companies.
Under Circular 117, there was a test of affiliation whereby a 20% ownership of "total assets" in another company will render the parties as being related. Circular 66 has replaced this test with these criteria in determining related party relationships, i.e. 2 companies are related if:
|-||one provides the other with a guarantee or grants a loan which constitutes at least 20% of the owner's equity of the guaranteed party / borrower, and that loan accounts for more than 50% of the total value of long and medium term loans of the guaranteed party / borrower; or|
|-||they both hold, either directly or indirectly, at least 20% of the owner's equity of a third party.|
Under Circular 66, any factor that triggers at least a 1% increase/decrease in the unit price of transacted products, or 0.5% increase/decrease on the gross profit ratio or profitability ratio, is considered as a "material difference", for which appropriate adjustments in the financial information of the comparable transactions should be made.
Circular 66 emphasizes that, for aggregated transactions:
|-||the sale price is the highest price; and|
|-||the purchase price is the lowest price.|
Arm's length price
Circular 66 provides guidance on how to determine arm's length prices in unique sale and purchase transactions. An adjustment of the transfer price shall be made as follows:
|-||Sales transaction: if the price, gross profit ratio or profitability ratio is lower than the median of the inter-quartile range, the arm's length value is a value equal to or higher than the median of the range. This aims to ensure that the Vietnamese seller charges the highest possible price within the arm's length range with respect to cross-border controlled transactions.|
|-||Purchase transactions: if the price is higher than the median of the inter-quartile range, the arm's length value is a value equal to or lower than the median of the range. This limits the purchase price that the Vietnamese purchaser can purchase goods or services to a value equal to or lower than the median of the arm's length range with respect to cross-border controlled transactions.|
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