An FDI enterprise buys components from its Japanese parent and sells finished goods to a sister company in Thailand. After an audit, the tax authority concluded the component purchase prices were above market, disallowed part of the deductible costs and assessed corporate income tax arrears for three years, even though the enterprise had prepared a full transfer pricing file. Transfer pricing is the most technical tax dispute an FDI company faces: both sides speak of a market price while using entirely different comparable datasets, and the outcomes differ by tens of billions of dong.
The legal framework: Decree 255/2026/ND-CP replaces Decree 132/2020 from 1 July 2026
From 1 July 2026 the transfer pricing framework is replaced by Decree No. 255/2026/ND-CP, which supersedes the former Decree No. 132/2020/ND-CP and applies to the 2026 corporate income tax period onward. The decree continues the arm length principle: prices in related-party transactions must equal prices in independent transactions under comparable conditions, and enterprises must declare, prepare and keep transfer pricing documentation in the familiar three-tier structure of master file, local file and country-by-country reporting, according to their scale and related-party transaction thresholds. Where the enterprise does not comply, or its file fails to prove the arm length nature of its prices, the tax authority may reset the price or profit margin and assess the tax difference plus late payment amounts under the Law on Tax Administration No. 108/2025/QH15.
Enterprises must watch the transition carefully: earlier tax periods are still examined under the Decree No. 132/2020/ND-CP framework and its contemporary instruments, while the 2026 period onward falls under Decree No. 255/2026/ND-CP. A single audit spanning several years can therefore require arguing under two rulebooks in parallel. Beyond domestic complaints, the Law on Tax Administration No. 108/2025/QH15 recognises advance pricing agreements (APA), under which the enterprise asks the tax authority to agree in advance the pricing method for related-party transactions over a future period; and Vietnam is party to eighty-one double tax treaties containing a mutual agreement procedure (MAP) clause for resolving double taxation arising from transfer pricing adjustments.
Applying the rules: the fight is over comparables and the functional analysis
Tax authorities reject transfer prices usually for three reasons: the functions, assets and risks (FAR) analysis in the file does not match how the enterprise actually operates; the independent comparable dataset is attacked as non-equivalent in market, product or transaction conditions; or the enterprise profit margin sits outside the arm length range for consecutive years without a convincing market explanation. Reversing the conclusion means attacking exactly those points with economics, not only legal argument: rebuild the FAR analysis along the real value chain, test every comparable the authority used, prove material differences and how to adjust them, or field a replacement comparable set with higher equivalence. That is why large transfer pricing cases almost always need an independent pricing specialist working alongside counsel from the explanation stage, before the inspection conclusion is issued.
On money, enterprises always ask how much tax rises when prices are reset; the honest answer is that nobody can compute it before knowing which method the authority chose and to which point in the arm length range it moves the margin. The increase equals the adjusted taxable income difference multiplied by the applicable rate for each year, plus late payment interest on the increase and possibly penalties if the authority finds misdeclaration. An underrated consequence is two-sided double taxation: profit adjusted upward in Vietnam while the related counterparty abroad gets no corresponding downward adjustment, so the same profit is taxed twice. Corresponding adjustments and MAP under the double tax treaty are the escape route for that part, but the procedure is long and must be triggered early, in parallel with the domestic complaint rather than after it ends.
Checklist for responding to a transfer pricing adjustment
When the tax authority signals it will not accept the related-party prices, the enterprise should deploy the following:
- Map the entire transfer pricing file against Decree No. 255/2026/ND-CP for the 2026 period onward and Decree No. 132/2020/ND-CP for earlier periods, marking which framework governs each audited year.
- Require the authority to disclose the pricing method, comparable dataset and arm length range it used as the basis for the adjustment, so the enterprise has a concrete target to rebut.
- Engage an independent transfer pricing adviser to review the enterprise own FAR analysis and comparable set, and prepare a replacement set or economically grounded adjustments for material differences.
- Model three tax scenarios (adjustment to the nearest point, the median and the worst point of the range) plus late payment amounts, so the board can decide how hard to fight and what to reserve.
- Assess early the corresponding adjustment and MAP under the double tax treaty with the counterparty country, and consider filing an APA for future periods under the Law on Tax Administration No. 108/2025/QH15.
Frequently Asked Questions
What if the tax authority disagrees with our internal transfer prices?
The enterprise explains and rebuts during the audit using its transfer pricing file, the functions-assets-risks analysis and independent comparable data. If an arrears decision still issues on the basis of reset prices, the enterprise complains against that decision through the tax administrative complaint procedure, and considers the mutual agreement procedure (MAP) under the double tax treaty to handle the double-taxed portion abroad. Transfer pricing rebuttal is economic and technical argument, so a pricing specialist should join the legal team from the very start.
How much will tax increase if our transfer prices are reset?
There is no fixed figure. The increase depends on the method the authority selects under the Decree No. 255/2026/ND-CP framework, the arm length point to which the enterprise margin is adjusted, and the rate applicable to each adjusted year. Late payment interest on the increase comes on top. The only way to a reliable number is to re-run the authority entire computation with both their dataset and yours, producing a range of exposure and a negotiation scenario.
How do we prove our transfer prices are reasonable?
Through a transfer pricing file prepared on time and in the correct structure, where the functions, assets and risks analysis describes the enterprise true role in the value chain; the pricing method selected fits the nature of the transaction; and the independent comparable dataset is carefully screened for equivalence with material differences adjusted. A price is treated as reasonable when the enterprise profit falls within the arm length range of equivalent comparables, and every deviation is explained by concrete market factors.
Should we sign an APA to avoid disputes?
For an enterprise with large, recurring related-party transactions and a stable business model, an APA under the Law on Tax Administration No. 108/2025/QH15 deserves serious consideration: the pricing method is agreed with the tax authority in advance for a period, sharply reducing the risk of price resets for APA years. In exchange, an APA file demands deep transparency over the global value chain and a non-trivial negotiation timeline. An APA cannot cure past periods already in dispute, so companies commonly combine both: complain for old years, APA for new ones.
This article has been quality-reviewed by the FLAW AI Legal Council
