What is transfer pricing? Prepare anti-transfer pricing documents before being subject to tax inspection, tax assessment and penalty.
What is transfer pricing?
Transfer pricing is the implementation of pricing policy for goods, services and assets transferred between members of a corporation or affiliated group not at market price in order to minimize the amount of tax payable by the corporations. or affiliate group.
Signs of businesses changing prices
- Loss over 03 years or negative loss in equity but still operating and increasing revenue, increasing business scale.
- There is negligible business efficiency but there is always funding from loans from affiliated companies, parent companies or parties with capital contributions and investments...
- Companies that have had only one or a few customers for many years in a row often sell products only at the cost of production;
- The same goods and services in the enterprise but the selling price in the domestic market is higher than the export price
- The company has receivables and payables that have not been paid for many years but still have transactions arising.
- Origin of goods involves three or more different countries.
Transfer pricing methods of businesses
- Transfer pricing through increasing the value of contributed capital: It is the overvaluation of the original value and machinery. High investment costs lead to unprofitable operations and no or minimal tax payments.
- Transfer pricing through technology transfer: Transfer of technology and collection of copyright fees
- Transfer pricing through increasing the value of raw materials and input costs: A trick to increase input value and increase input costs to adjust taxable profits to minimize the amount of tax payable.
- Transfer pricing aims to dominate the market
- Transfer pricing through taking advantage of tax rate differences: Businesses take advantage of tax rates between different countries to shift profits to countries with better tax rates.
- Transfer pricing in domestic enterprises: Through the establishment of subsidiaries in different areas, different tax incentives are applied to transfer profits from non-preferential areas to preferential areas.
Which businesses will be included in the tax inspection and audit plan in the near future?
Assessing the seriousness of the transfer pricing problem, especially multinational companies and FDI enterprises, the General Department of Taxation has a plan to check and inspect enterprises with the following characteristics:
- Businesses suffered losses for 3 consecutive years
- Businesses have negative capital losses
- Failure to submit or late submission of transfer pricing reports (anti-transfer pricing reports)
- Enterprises in the processing industry
- Enterprises that both produce and process, especially the garment and leather shoe industries.
- Businesses are tax-exempt without making a profit
- Net profit is insignificant compared to the scale of the business
Time limit for explanation and provision of anti-transfer pricing documents
- The time limit for providing documents to determine associated transaction prices is no more than 30 days from receipt of a written request from the tax authority.
- In case the taxpayer has a legitimate reason, the time limit for providing documents to determine the price of related-party transactions is extended once for no more than 15 working days from the expiration date.
Rights of tax authorities regarding businesses with associated transactions:
- If the enterprise does not declare, declares incomplete information or does not submit Form 01
- If the enterprise does not or does not provide complete information in the dossier to determine the transfer price specified in Form No. 02, Form No. 03
- If an enterprise uses information about independent transactions that is not truthful or accurate
If an enterprise violates regulations on determining associated transaction prices The tax authority has the right to determine the tax amount payable and distribute it according to the following regulations:
- Set the price
- Set profit margin
- Set profit distribution ratio
Low tax penalty for transfer pricing
- According to the Law on Tax Administration: Penalties for transfer pricing when transfer pricing is determined are: Tax arrears as determined + 20% fine on tax arrears + Late payment interest;
- According to the Law on Pricing 2012 and the Criminal Law 2015: Transfer pricing is an act of tax evasion, causing disadvantages for honest businesses, potentially causing harm to the economy. If a business causes harm, it will be criminally prosecuted.
- According to OECD, the Organization for Economic Cooperation and Development recommends: Do not criminally handle transfer pricing violations, but should handle financial penalties according to each country's regulations.
What do businesses need to do before being inspected, tax audited and tax assessed?
- Make a declaration, declare full additional information and submit Form 01
- Prepare and provide documents to determine associated transaction prices (anti-transfer pricing report).
Reputable transfer pricing service
If your business has a transaction with a related party during the period. Please contact the transfer pricing service department for the most detailed advice.
If your unit needs the service of preparing a related party transaction report, please contact our AACS Auditing Company with the following information:
Mr: Nguyen Duy Manh – Tel: 0908 381 550 | Mail: email@example.com
AACS AUDITING COMPANY LIMITED
Tel: 028 66 500 381 – Email: firstname.lastname@example.org