Scenario: a Hong Kong parent transfers 40% of its Vietnamese subsidiary to a partner for USD 2 million — while the latest valuation puts the company at USD 8 million (40% ≈ USD 3.2 million). Accounting worries: “Selling this cheap — will tax deem a higher price?”
1. When tax authorities may deem the transfer price
Under the Tax Administration Law 108/2025 (replacing Law 38/2019 — in force as of 20/10/2026), tax authorities may assess tax where taxpayers breach arm’s-length principles. For capital transfers, red flags fly when:
- The transfer price sits materially below market without sound economic reasons (above: USD 2 million vs USD 3.2 million fair value — a 37.5% gap).
- Related-party transactions (parent–subsidiary, same group) — scrutinized far harder under transfer-pricing administration rules (check the operative decree).
- No supporting documentation for the price (no valuation report, no comparables).
Deeming consequence: 20% CIT on income at the deemed price (3.2 million − cost) instead of the declared price — plus penalties and late-payment interest.
2. Legitimate reasons that can defend a low price
A low price isn’t automatically deemed — with proven economic substance:
- Loss-making / negative cash flow: real value below book valuation — evidenced by audited financials.
- Market downturn: the sector declined; the old valuation no longer reflects reality — cite market data.
- Special terms: distress sale, buyer assuming debt, transfer restrictions — factors genuinely reducing transaction value.
- Comparable independent deals: similar share deals with independents at equivalent prices — the strongest evidence.
3. Pre-signing defense: the anti-deeming checklist
- Commission an independent valuation before signing — the valuation report is the best “shield” under tax questioning.
- Keep everything: valuation methodology, comparables, negotiation minutes, pricing rationale.
- Declare the actual price paid: no “dual pricing” (contract price differing from cash paid) — that’s fraud indicia, risking worse than deeming.
- Related parties: prepare transfer-pricing documentation alongside the transfer file.
Frequently asked questions
1. Will a cheap share sale be reassessed?
Possibly — material gaps without sound economic reasons and documentation let authorities deem market prices.
2. Are related-party deals scrutinized harder?
Yes — parent–subsidiary and group transfers are transfer-pricing administration priorities.
3. How do we defend ourselves?
Independent valuation before signing; keep methodology and comparables; declare the actual price.
4. What’s the consequence of deeming?
20% CIT on income at the deemed (higher) price, plus penalties and late-payment interest.
5. What about “dual pricing” in contracts?
Contract price differing from cash paid signals fraud — worse consequences than deeming alone.
This article has been quality-reviewed by the FLAW AI Legal Council
