THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Independence – Freedom - Happiness
No. 117/2005/TT-BTC
Hanoi, December 19th, 2005
 CIRCULAR
PROVIDING GUIDELINES ON CALCULATION OF MARKET PRICES IN BUSINESS TRANSACTIONS BETWEEN AFFILIATED PARTIES
 
Pursuant to Law on Corporate Turnover Tax 09-2003-QH11 dated 17 June 2003;
Pursuant to Decree 164-2003-ND-CP of the Government dated 22 December 2003 making detailed provisions for implementation of the Law on Corporate Turnover Tax;
Pursuant to Decree 77-2003-ND-CP of the Government dated 1 July 2003 on functions, duties, powers and organizational structure of the Ministry of Finance.
The Ministry of Finance hereby provides the following guidelines for calculation of market prices, which shall be used as the basis for declaration and calculation of the corporate turnover tax obligation of business establishments, in business transactions between affiliated parties:
A. GENERAL PROVISIONS
I. APPLICABILITY AND SCOPE OF APPLICATION
1. Applicability: organizations and individuals engaged in production and business of goods or services (hereinafter referred to as business establishments), conducting all or part of business activities in Vietnam and having business transactions with affiliated parties shall be obliged to declare and calculate the corporate turnover tax obligation in Vietnam.
2. Scope of application: transactions of sale, purchase, exchange, lease, transfer or assignment of goods and services during the course of business (hereinafter referred to as business transactions) between affiliated parties.
II. SCOPE OF NON-APPLICABILITY
Business transactions between a business establishment in Vietnam and affiliated parties related to products which are subject to price control by the State in accordance with the Ordinance on Prices dated 25 December 2001 or legal instruments amending, adding or replacing this Ordinance.
III. DEFINITION OF TERMS
1. Market price means the price of products under an objective agreement between non- affiliated parties (or independent parties) in a business transaction on the market.
2. Product is the term used in general to indicate goods and services which are the object of a business transaction.
3. Purchase price or selling price is the term use in general to indicate the price in transactions of sale, purchase, exchange, lease, transfer or assignment of products.
4. Parties shall be deemed to have a related relation (hereinafter referred to as "affiliated parties") when:
4.1. One party is involved directly or indirectly in administration, control, capital contribution or investment in any form in the other party.
4.2. Both or all parties are directly or indirectly managed or controlled by another [third] party or both or all parties make capital contribution or invest in any form in another [third] party.
4.3. Both or all parties participate directly or indirectly in administration, control of, capital contribution to or investment in any form in another [third] party.
Normally, two business establishments shall be deemed to have a related relation in a tax period if in such period:
(a) Either business establishment directly or indirectly holds at least 20% of the equity or the total property of the other business establishment; or
(b) Both business establishments have at least 20% of their equity or the total property held directly or indirectly by a business establishment or a third party; or
(c) Either business establishment is the biggest shareholder directly or indirectly holding shares with a value of at least 10% of the equity or of the total property of the other business establishment; or
(d) Either business establishment provides the other business establishment with a guarantee or a loan in any form, provided that such loan accounts for more than 50% of the total value of long and medium term loans of the borrower business establishment; or
(e) Either business establishment appoints its members to the board of management or inspection committee of the other business establishment, provided that the number of members appointed by the former accounts for more than 50% of the total members of the board of management or the inspection committee of the latter; or a member appointed by the former has the right to make decisions on financial policies or business activities of the latter; or
(f) Both business establishments jointly have more than 50% of the number of members of their board of management or jointly have a member of their board of management, who has the right to make decisions on financial policies or business activities, appointed by a third party; or
(g) Both business establishments are managed or controlled in terms of personnel, finance or business activities by individuals who are members of a family in a relation between a husband and a wife, parents and children (irrespective of whether they are natural or adopted children, daughters-in law or sons-in-law); siblings of the same parents (irrespective of whether they are natural or adoptive parents); grandparents and grandchildren who have consanguinity; both uncles or aunts and nephews or nieces who have consanguinity; or
(h) Both business establishments have a relation concerning the headquarters and permanent establishment or are permanent establishments of a foreign organization or individual; or
(i). Either business establishment is engaged in production and trading of products using intangible property and/or intellectual property rights of the other business establishment, provided that the payment for the use of such intangible property and/or intellectual property rights accounts for more than 50% of prime cost (or cost) of the products; or
(j) Either business establishment directly or indirectly provides more than 50% of the total value of raw materials, supplies or input products (excluding depreciation of fixed assets) used for production or trading of relevant output products of the other business establishment; or
(k) Either business establishment directly or indirectly controls more than 50% of turnover of sales (calculated on the basis of each type of products) by the other business establishment; or
(l) Two business establishments have agreed to conduct business co-operation on the basis of a contract.
5. Related transaction means a business transaction between affiliated parties.
6. Independent transaction means a business transaction between non-affiliated parties within the normal business context.
7. Significant difference means the difference concerning information and/or data causing an important or material effect on the price of products.
Example 1:
Enterprise V is an enterprise with 100% foreign owned capital in province X, Vietnam and has 2 transactions:
(i) Selling 2000 products to Independent Enterprise A at the selling price being the prime cost of (Z) plus (+) 6% of Z, the delivery term is at Enterprise V; and
(ii) Selling 2000 products to its parent company at the selling price being (Z) plus (+) 6% of Z, delivery term is CIF H. At the same time, the parent company agrees to provide a guarantee for a loan obtained by Enterprise V from Bank N. In practice, such guarantee is a guaranty by reputation (i.e. payment of guarantee charges is not required).
In the two above transactions:
- The difference concerning delivery terms related to costs of transportation and insurance from province X to country H has a material affect on the price of products, so it is deemed to be a significant difference.
- The difference concerning the guarantee by reputation for which the payment of charges is not required is deemed not to be a significant difference.
8. Market price margin is a collection of values of prices, gross profit ratio or profitability ratio of products calculated from independent transactions which are selected for comparison, subject to the provisions on methods of calculation of market price.
9. Tax office's database means information and data related to the calculation of the tax obligation of taxpayers and collected from different sources and analysed, stored, updated and managed by the tax office.
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