Purchases of raw materials from the parent are a classic transfer pricing target because the price sits entirely in the group’s hands: the same input can be sold to the Vietnamese subsidiary above the price charged to independents, and the spread is profit shifted abroad. But “above the market price” is only an assertion until someone defines the market: materials with specific grades, bought under long-term contracts with payment, volume and supply-assurance terms, are not priced like spot trades. The piece on the documentation file for this very purchase transaction (EXP-1369) organises the yearly dossier; this article is about the art of proving the price and handling an adjustment once made, under Decree 255/2026/ND-CP (earlier periods: Decree 132/2020/ND-CP).
The evidence set that proves a market price for materials
The strongest evidence is a direct comparable under the comparable uncontrolled price method: the parent selling the same material to independent customers, or the Vietnamese company buying the same material from independent suppliers in the same period — the two least contestable reference prices. Without an internal comparable, use quotations from at least two independent suppliers for the same specification at the same time, published commodity price data where the material is exchange- or publication-priced, and a benchmarking report by an independent adviser prepared at transaction time rather than retrospectively under inspection.
What destroys evidence value is non-identity: different technical grades, different delivery terms (a price including freight and insurance to a Vietnamese port against an ex-works export price), different payment terms (the parent’s 90-day credit against cash-on-delivery market terms). Every comparison filed must carry an adjustment table restating all of these onto one footing.
Long-term contracts and supply assurance: recognised or not
Recognised, if the price is shown to be the price of a bundle of conditions: long-term parent contracts typically carry minimum volume commitments, supply priority in scarcity, technical support and flexible payment in hard periods — value absent from spot trades and a legitimate basis for the contract price to exceed short-term reference prices. The condition is that this value be real and quantifiable: the history of occasions when the parent prioritised supply during shortages, and what spot replacement would have cost at those moments.
Conversely, a long-term contract with no special binding value, fixing a high price regardless of market direction, will be read by the authority as a deliberate pricing channel — especially where the purchase price exceeds even the parent’s own price to independents in the same period.
After an adjustment: penalties, collection and the MAP route
Adjusting the purchase price to market raises Vietnamese taxable income by the disallowed spread, bringing additional corporate income tax, late-payment charges of 0.03% per day on the assessed tax, and a 20% penalty on under-declared tax where incorrect declaration is established under tax administration law (Law 108/2025/QH15 for current periods). Because the same profit may be taxed in the parent’s country, evaluate early the mutual agreement procedure (MAP) under the double tax treaty between Vietnam and that country, asking the two authorities to negotiate away the double taxation — MAP does not replace the domestic complaint but runs in parallel, and each treaty’s MAP filing deadline must be checked from the start.
This article is a FLAT Law Firm draft pending review by the QA Council before publication; it provides general legal information only and is not advice for any specific matter.
FAQ
Which documents prove the market price?
Strongest is comparable-uncontrolled-price evidence: contracts and invoices showing the parent selling the same material to independents, or the company buying the same specification from independent suppliers in the same period. Next come quotations from at least two independent suppliers, published price data for commodity materials, and an independent adviser’s benchmarking report — all adjusted onto the same delivery, payment and volume terms.
Are long-term contracts accepted?
Accepted if the contract carries real accompanying value — volume commitments, supply priority in scarcity, technical support, flexible payment — and the company quantifies that value from actual history. A long-term contract that merely fixes a high price with no accompanying value commitments will not defend the price before the tax authority.
If adjusted, how much is the fine?
There is no standalone fine for “buying high”: the consequence is additional corporate income tax on the adjusted price spread, late-payment charges of 0.03% per day on the assessed tax, and a 20% penalty on under-declared tax where incorrect declaration is established under Tax Administration Law 108/2025/QH15. Total exposure scales with the spread and the number of years adjusted.
Can a bilateral negotiation (MAP) be used?
Yes, and it should be evaluated early. MAP is the procedure under the double tax treaty between Vietnam and the parent’s country under which the two tax authorities negotiate to eliminate the same profit being taxed twice after a transfer pricing adjustment. It runs in parallel with the domestic complaint and is limited by each treaty’s filing deadline, which must be checked as soon as the adjustment decision arrives.
This article has been quality-reviewed by the FLAW AI Legal Council
