Scenario: a Vietnamese subsidiary reports losses every year while its foreign parent posts big profits. Review shows: the subsidiary buys inputs from the parent at double the market price, sells finished goods back at 60% of market, and pays an 8%-of-revenue annual “group management fee”. Vietnamese minority shareholders suspect transfer pricing. Who is liable, and how to claim?
What transfer pricing is — and why it kills the subsidiary twice
Transfer pricing means pricing related-party transactions (parent–subsidiary, sister–sister) off-market to shift profits. Above, the subsidiary is squeezed at both ends: inflated inputs, depressed outputs, plus management fees — producing chronic losses although real operations create value.
The damage plays out on two independent legal fronts:
- The tax front: Decree 255/2026/ND-CP (replacing Decrees 132/2020 and 20/2025 from 01/7/2026, applying to 2026 corporate income tax periods) governs tax for enterprises with related-party transactions under the arm’s-length principle. Off-market related-party prices → tax authorities may reassess prices, back-charge tax, and penalize. The subsidiary, as taxpayer, takes the first hit.
- The corporate front: the parent forcing buy-high/sell-low deals is precisely “forcing the subsidiary into business contrary to normal business practice” — triggering parent liability under Article 195(2) of the 2020 Law on Enterprises: the parent answers for loss caused to the subsidiary.
Proving transfer pricing: numbers talk
Transfer-pricing disputes are won on valuation evidence, not rhetoric. The file needs: (1) related-party contracts and the group’s internal pricing policy; (2) independent market quotes/valuations for identical goods (the comparable uncontrolled price — CUP — method is preferred where data exists); (3) the subsidiary’s related-party transaction disclosure dossiers (enterprises with related-party deals must prepare transfer-pricing documentation); (4) multi-year financials showing an abnormal loss pattern versus industry margins.
Claiming: a three-pronged attack
- Prong 1 — Parent compensation: the subsidiary’s shareholders/creditors (holding at least 1% of charter capital) claim damages from the parent in their own or the subsidiary’s name (Article 195(4)).
- Prong 2 — Sue the managers: the subsidiary director who knowingly signed loss-making transfer-pricing deals faces a derivative suit under Article 166 of the 2020 Law on Enterprises.
- Prong 3 — Tax tip-off/complaint: feed the tax authority information on abnormal related-party deals. A tax reassessment conclusion is “golden” evidence for the other two prongs — an independent state assessment of the prices’ unreasonableness.
Strategic note: stop the subsidiary signing renewal addenda to the transfer-pricing contracts during the dispute — each renewal is a fresh year of loss and weakens the “coercion” narrative.
Frequently asked questions
Is internal transfer pricing illegal?
Yes, on two fronts: tax (related-party prices must follow arm’s length under Decree 255/2026/ND-CP; deviations bring reassessment, back-tax, penalties) and company law (a parent forcing disadvantageous deals must compensate the subsidiary under Article 195, 2020 Law on Enterprises).
The subsidiary was reassessed for transfer-pricing tax — who bears it?
The subsidiary as taxpayer owes the state first. But the subsidiary (via 1% shareholders/creditors) may claim full compensation from the parent, including back-taxes caused by the parent’s pricing policy (Article 195(4)).
What proves transfer pricing?
Group contracts and pricing policy, independent market comparables (CUP preferred), related-party disclosure dossiers, and multi-year financials showing abnormal losses.
Can a tax reassessment be used in the civil suit?
Yes, powerfully. It is the state’s independent assessment of the related-party prices’ unreasonableness — strong evidence for parent-compensation and manager-liability claims.
This article has been quality-reviewed by the FLAW AI Legal Council Content prepared by the AI Legal Council of FLAT Law Firm for general reference only; it has not been reviewed by a human lawyer for your specific situation.