CIRCULAR NO. 41/2017/TT-BTC GUIDING THE IMPLEMENTATION OF CERTAIN ARTICLES OF DECREE NO. 20/2017/NĐ-CP OF FEBRUARY 24, 2017 ISSUED BY THE GOVERNMENT ON THE MANAGEMENT OF TAXES FOR ENTERPRISES ENGAGED IN RELATED PARTY TRANSACTIONS

CIRCULAR

Guidelines for Implementing Certain Provisions of Decree No. 20/2017/NĐ-CP dated February 24, 2017 of the Government on Tax Management for Enterprises Engaged in Related Party Transactions

On the basis of Law on Tax Administration No. 78/2006/QH11 November 29, 2006; Law Amending and Supplementing Certain Provisions of the Law on Tax Administration No. 21/2012/QH13 dated November 20, 2012;

On the basis of Law on Corporate Income Tax No. 14/2008/QH12 June 3, 2008; Law Amending and Supplementing Certain Provisions of the Law on Corporate Income Tax No. 32/2013/QH13 June 19, 2013;

On the basis of Law Amending and Supplementing Certain Provisions of Various Tax Laws No. 71/2014/QH13 November 26, 2014;

Decree No. 12/2015/NĐ-CP dated February 12, 2015 of the Government detailing implementation Law amending and supplementing certain provisions of the Tax Laws and amending and supplementing certain provisions of various decrees on tax;

Decree No. 20/2017/NĐ-CP dated February 24, 2017 of the Government on tax management for enterprises engaged in related party transactions;

Decree No. 215/2013/NĐ-CP dated December 23, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

At the proposal of the Director General of the State Revenue Administration,

The Minister of Finance guides the implementation of certain provisions of Decree No. 20/2017/NĐ-CP dated February 24, 2017 of the Government on tax management for enterprises engaged in related party transactions (hereinafter referred to as Decree No. 20/2017/NĐ-CP) as follows:

Article 1. Scope of Regulation

This Circular guides the entities subject to Decree No. 20/2017/NĐ-CP to implement certain provisions regarding comparative analysis, selection of methods to determine transfer prices, declaration of information, preparation of documentation to determine transfer prices, and application of provisions exempting the preparation of documentation to determine transfer prices as prescribed in Decree No. 20/2017/NĐ-CP.

Article 2. Comparative Analysis, Selection of Independent Comparable Objects for Comparison, Determination of Transfer Prices According to Article 6 of Decree No. 20/2017/NĐ-CP

1. The nature of related party transactions is determined by comparing the legal contracts or transaction documents of the parties with the actual performance of the parties according to Clause 1 of Article 6 of Decree No. 20/2017/NĐ-CP, which is applied as follows:

a) Collect information, identify the nature of related party transactions, economic, commercial, and financial relationships of taxpayers in contracts (including contract appendices, amendments) or documents, agreements with related parties to determine the obligations, rights, and responsibilities of the parties signing the contracts.

b) Analyze the business operations, functions of the taxpayer; compare the actual performance of the parties during the business process with the documents, agreements, and contracts signed; analyze the documents, contracts, agreements, and actual performance of the parties based on the principle of independent business conduct between the parties. Comparative factors are analyzed according to the guidance provided in Clause 3 of this Article.

In cases where the actual performance of the related parties differs from the provisions in the contracts, documents, or agreements, the information collected about the actual performance of the parties serves as the basis for comparative analysis and selection of methods to determine the transfer prices of the taxpayer.

If the actual performance of the related parties does not comply with the principle of independent business conduct, the principle of independent transactions and the nature determining the form shall be applied to re-determine the related party transactions and the business risks that the parties must bear. In cases where the related party transactions and risk allocations do not reflect the true economic, financial, and commercial relationship between independent parties, the related party transactions and business risks are re-determined and allocated for comparative analysis and selection of methods to determine the transfer prices of the taxpayer.

c) The basis for comparing contracts, documents, agreements, and economic, commercial, and financial relationships in related party transactions of the taxpayer is data and actual transaction performance between related parties to compare with decisions that could be accepted by independent parties under similar conditions. The principle of comparison emphasizes the nature and actual business practices, risks borne by the related parties rather than written agreements.

2. The range of standard independent transaction values and the basis for adjusting prices, profit margins, and profit allocation ratios of the taxpayer to determine corporate income tax liabilities according to Point c and d of Clause 2 of Article 6 of Decree No. 20/2017/NĐ-CP are determined as follows:

a) The statistical probability method applies the quartile function to determine the range of standard independent transaction values and the selected value as the basis for comparison and adjustment of related party transaction prices in cases where there is no reliable information on each independent comparable object found or no data available to exclude all significant differences. The quartile function is used to determine the range of standard independent transaction values as the basis for corresponding price adjustments, profit margins, and profit allocation ratios of the taxpayer without reducing the tax liability to the state budget. The quartile function divides the set of sorted values from low to high of prices, profit margins, and profit allocation ratios of independent comparable objects into four equal parts. The formula for calculating the quartile function, the range of standard independent transaction values, and the median value is implemented according to the guidance in Appendix 01 issued together with this Circular.

The range of standard independent transaction values determined by the quartile function is from the first quartile value to the third quartile value. Values within the range of standard independent transaction values are those lying between the first quartile value and the third quartile value. The second quartile value is the median of the range of standard independent transaction values.

b) The basis for adjusting prices, profit margins, and profit allocation ratios of the taxpayer to determine related party transaction prices, taxable income, and corporate income tax liabilities is applied as follows:

b1) In the case where independent comparables with a reliable level of comparability are found, without differences or with differences but with sufficient information and data to exclude all significant differences:

If the price level, profit margin, profit allocation ratio of the taxpayer falls within the range of arm's length transaction values of similar independent comparables, the taxpayer shall not adjust the price level, profit margin, profit allocation ratio to determine the related party transaction price.

If the price level, profit margin, profit allocation ratio of the taxpayer does not fall within the range of arm's length transaction values of similar independent comparables, the taxpayer must determine the value within the arm's length transaction range that reflects the highest degree of similarity with the related party transaction to adjust the price level, profit margin, profit allocation ratio of the related party transaction without reducing taxable income or the tax liability payable to the state budget of the taxpayer.

b2) In the case where there is only information and data to exclude most significant differences of independent comparables, at least five independent comparables must be selected according to point c Clause 2 Article 6 Decree No. 20/2017/NĐ-CP and apply the standard arm's length transaction range according to the guidance provided in point a of this clause.

If the price level, profit margin, profit allocation ratio of the taxpayer is a mid-value within the standard arm's length transaction range of similar independent comparables, the taxpayer shall not adjust the price level, profit margin, profit allocation ratio to determine the related party transaction price.

In the case where the price level, profit margin, profit allocation ratio of the taxpayer does not fall within the standard arm's length transaction range of similar independent comparables, the taxpayer must determine the mid-value within the standard arm's length transaction range that reflects the highest degree of similarity with the related party transaction to adjust the price level, profit margin, profit allocation ratio of the related party transaction and determine the taxable income and tax liability payable but without reducing taxable income or the tax liability payable to the state budget of the taxpayer.

In the case where the tax authority adjusts or determines the price level, profit margin, profit allocation ratio of the taxpayer, the adjustment or determination value is the median value of the standard arm's length transaction range.

3. The comparability factors for conducting analysis and selecting independent comparables according to points a and d Clause 3 Article 6 Decree No. 20/2017/NĐ-CP shall be applied as follows:

a) Characteristics of assets, goods, services (referred to as products) are features affecting the product price including: Physical characteristics of tangible goods such as physical attributes, product type, quality, brand of the product, reliability, availability and supply volume; service characteristics such as nature, complexity level, expertise and scope of service; intangible asset characteristics such as transfer form, asset type, ownership form, term, protection level, transfer time, rights transferred and benefits obtainable from using intangible assets.

Analyzing intangible assets, characteristics and profit allocation capacity among parties is not based solely on legal ownership but also considers all risk management activities and financial capabilities to manage risks throughout the entire process of developing, increasing, maintaining, protecting, and exploiting intangible assets between associated parties. Some characteristics of intangible assets include exclusivity; legal protection scope and duration; rights established through intellectual property certificates, licenses, and transfer agreements of intangible assets; geographic scope of intangible asset rights; lifecycle; development stage; rights for enhancement, modification, and updating of intangible assets; expected profit levels of intangible assets.

Analyzing the characteristics of intangible assets includes identifying the intangible assets used or transferred in transactions and specific, significant economic risks related to the development, increase, maintenance, protection, and exploitation of intangible assets; determining contractual agreements such as legal ownership rights over intangible assets, terms and conditions of legal agreements, registrations, license agreements, and related contracts, accompanying risks; identifying the party performing the exploitation function, managing risks related to the development, increase, maintenance, protection, and exploitation of intangible assets; determining contractual terms and actual practices of the parties; identifying actual related party transactions related to the development, increase, maintenance, protection, and exploitation of intangible assets when considering legal ownership rights of intangible assets and relevant contractual relationships, the implementation process of the parties; and determining the transaction price consistent with contributions, functions performed, assets used, and assumed risks of the parties.

b) The business functions performed by each party to the contract and the assets, production and business risks in relation to opportunity costs, economic conditions, industry conditions, and geographical location of the taxpayer are analyzed to determine factors reflecting the ability to generate profits from activities and business practices carried out by the taxpayer in conjunction with functions and the use of related assets, capital, and costs.

The analysis results reflect the main functions in the relationship between the use of various types of assets, capital, opportunity costs, as well as risks associated with investing those assets, capital, and costs with the profit-making capability that the taxpayer implements related to business transactions, specifically:

b1) Certain main functions of the enterprise analyzed throughout the entire value chain of the group include research and development such as performing contract research and development services, independent research and development, developing technology and product design; production including autonomous production, licensed production, contract production, processing, assembly, and installation of equipment; trading and managing raw materials and other trading activities; distribution including autonomous distribution, limited risk distribution, commission agency, wholesale distribution, retail distribution; providing support services such as legal, financial accounting, credit collection, training, and human resource management; providing transportation and warehousing services; implementing brand development activities such as marketing, advertising, promotion, market research, and other functions within the industry's value chain.

b2) Certain main assets of the enterprise include intangible assets such as technical know-how, copyrights, business secrets, secret formulas, patents, and other intangible assets related to commercial activities and marketing such as brands, brand building and recognition systems, customer lists, data, and relationships with customers; tangible assets such as factories, machinery, and equipment; financial assets and economic benefits from these assets during exploitation, use, and transfer of assets.

b3) Certain main risks in business include strategic or market risks due to the implementation of business strategies such as market entry, expansion, or maintenance; infrastructure or inventory risks; financial risks such as credit and bad debt risks, foreign exchange rate risks; transaction risks such as price factors and payment terms in trade transactions; product risks from design and development to quality management and post-sale services; business risks from capital investments and customer numbers and force majeure risks.

Analyzing the taxpayer's business risks throughout the entire value chain of the group aims to identify significant risks for the entire industry value chain, the ability to control risks such as making risk management decisions and handling when these risks actually occur, including: identifying major economic risks; evaluating the allocation and distribution of risks in legal contracts or documents, agreements of the taxpayer; analyzing the control and reduction of risks on legal contracts or documents, agreements; reviewing the actual implementation and bearing, allocation of risks of the taxpayer. In cases where there are differences in risk allocation in legal contracts or documents, agreements compared to actual practice, based on the results of the risk analysis, the Tax Authority will reallocate risks and adjust the transaction prices, profit margins, and profit allocation ratios of the taxpayer.

c) Contract terms when conducting transactions include certain terms regarding volume, transaction conditions, or product distribution; deadlines, conditions, and methods of payment; warranty conditions, replacement, upgrade, modification, or adjustment of products; business exclusivity conditions, product distribution; other economic conditions such as support services, quality consulting services, usage guidance, advertising support, promotions.

In cases where legal contracts or documents, agreements do not fully reflect the actual practices between related parties, comparative analyses are conducted based on reviewing actual events or financial data to determine the characteristics, economic nature, and actual business risks of the parties.

In cases where related parties do not sign legal contracts or documents, agreements to not record revenue or expenses such as technical support, corporate collaboration, sharing of business secrets, or the use of seconded or concurrently employed personnel, analyses are carried out to determine the nature of the transactions, the value of the transactions, income generated from these transactions, and the contributions of each related party. Based on this, comparisons are made with business decisions that could be accepted by independent parties under similar conditions to re-determine the related party transactions of the taxpayer.

The economic conditions of the transaction and the market conditions at the time of the transaction affect the prices, profit margins, and profit allocation ratios of the parties.

Certain economic conditions when the transaction occurs include the scale and geographic location of the production and consumption markets, the level of the market such as wholesale, retail, exclusive distribution; the degree of competition of the product in the market and the corresponding competitive position of the seller and buyer; the availability of substitute goods; the supply and demand levels in the general market and specific regions; consumer purchasing power; economic factors affecting production and business costs arising from the place of the transaction such as tax incentives; government market regulation policies; production costs, land, labor, capital costs; business cycles and positive factors affecting the taxpayer's prices, profit margins, and profit allocation ratios such as geographical, market advantages, and cost savings based on local workforce and the concentration of collaborative and specialized functions contributing to value creation by all participating related parties.

In cases where the taxpayer and comparable entities do not reside in the same country or territory, or do not provide goods or services in the same geographical market, the economic condition analysis shall include an analysis of the degree of similarity of the markets where the taxpayer and comparable entities reside concerning comparative advantages and location-specific benefits affecting competitive factors such as labor costs, raw material costs, transportation, land rental costs, training costs, financial policy incentives, tax policies, infrastructure costs, market growth rates, and other characteristics of market advantages such as population size, customers with growing spending capacity.

d) Comparative analysis excluding significant differences based on quantitative and qualitative criteria to identify and select the most similar independent comparables to the taxpayer as a basis for determining the transaction price, profit margin, and profit allocation ratio of the taxpayer according to the arm's length principle.

Some quantitative criteria include financial indicators related to revenue scale, assets, working capital, inventory, export share; intangible asset indicators such as the value of intangible assets, research and development costs, and other specific quantitative differences of the taxpayer determined based on the analysis of the comparison factors stipulated in Clause 3, Article 6 of Decree No. 20/2017/NĐ-CP and guidance at points a, b, c, and d of this clause.

Qualitative and quantitative differences that are analyzed and proven to have a significant impact on the price, profit margin, and profit allocation ratio when comparing the taxpayer with independent comparables during the appropriate business cycle consistent with the economic and commercial nature of the industry and the functional activities of the taxpayer are analyzed to find and select independent comparables similar to the taxpayer.

In cases where the taxpayer does not adjust the transaction price, profit margin, and profit allocation ratio based on independent comparables due to significant qualitative and quantitative differences, the taxpayer must re-find and select independent comparables to determine the range of arm's length transaction values ensuring reliability and similarity and adjust the related party transaction price according to the guidance provided in Clause 2, Article 2 of this Circular.

4. The comparative analysis process includes steps as prescribed in Clause 4, Article 6 of Decree No. 20/2017/NĐ-CP applied as follows:

a) Determining the nature of the related party transaction through the collection of actual implementation information of the taxpayer.

b) Comparative analysis, finding, and selecting independent comparables specifically:

b1) Determining the scope, content, and comparison factors including the comparison period; analyzing information about the taxpayer regarding functional, asset, and risk factors; product characteristics; contractual conditions; economic conditions at the time of transaction, analyzing the industry, market, operating environment, goods, services, and assets of the parties to select the associated party required to determine the related party transaction price as stipulated in Article 7 of Decree No. 20/2017/NĐ-CP and Article 3 of this Circular.

b2) Evaluating and searching for comparables prioritizing internal independent comparables based on verifying the reliability and independence of these comparables to ensure they are not arranged transactions not in accordance with the arm's length principle; establishing search criteria and identifying reliable data sources that can be used as prescribed in Article 9 of Decree No. 20/2017/NĐ-CP to conduct searches for independent comparables. Based on the analyzed and reviewed availability of independent comparable data, selecting an appropriate pricing method suitable for the operational, commercial, financial, and risk nature of the associated party required to determine the price.

b3) Analyzing the degree of similarity and reliability of the selected independent comparables based on reviewing and screening qualitative and quantitative criteria; analyzing economic, industry, and financial data of the selected comparables to verify the degree of similarity; identifying significant differences and adjusting significant differences (if any). Based on the results of selecting similar independent comparables, using the data and financial figures of the selected independent comparables to determine the basis for adjusting the taxpayer's transaction price, profit margin, and profit allocation ratio according to the guidance at point b, Clause 2 of this Article.

c) Determining the taxpayer's transaction price, profit margin, and profit allocation ratio based on the results of the comparative analysis to determine taxable income without reducing the taxpayer's tax liability to the state budget.

Article 3. The methods for comparing to determine the price of related party transactions as provided for in Article 7 of Decree No. 20/2017/NĐ-CP

1. The application of the method for comparing the profit margin of the taxpayer with the profit margin of independent comparables as provided for in point a, Clause 2, Article 7 of Decree No. 20/2017/NĐ-CP shall be applied as follows:

a) The gross profit margin on sales revenue comparison method (resale price method) shall be applied in cases where the taxpayer sells or resells products purchased from related parties to independent customers without creating intangible assets attached to the sold products; does not participate in the development, enhancement, maintenance, protection of intangible assets owned by related parties attached to the sold products; or does not perform processing, manufacturing, assembly, labeling to change the nature, characteristics of the product, attach trademarks to increase the value of the product. The resale price method shall not be applied to taxpayers who are distributors owning valuable intangible assets of the group such as brand names, trademarks, and other marketing-related intangible assets like customer lists, distribution channels, logos, images, and brand recognition elements in market research, marketing, promotional activities, or costs incurred for establishing, designing distribution channels, brand recognition, or post-sales costs.

b) The gross profit margin on cost comparison method (cost plus method) shall be applied in cases where the taxpayer does not own intangible assets and bears little business risk, performing production functions under contracts, orders, or processing, assembling, manufacturing, producing, installing equipment; purchasing, supplying products; providing services or conducting research and development for related parties according to contracts. The cost plus method shall not be applied to taxpayers who are independent manufacturers implementing product research and development functions up to building brands, trademarks, market strategies, and product warranties, customer care.

c) The net profit margin comparison method shall be applied in cases where the taxpayer lacks information to apply the comparison of arm's length transaction prices; lacks data and information about the accounting methods of independent comparables or cannot find comparable entities with similar functions and products, thus lacking sufficient basis to apply the gross profit margin comparison methods specified in points a and b of this clause; the taxpayer performs distribution or production functions without owning intangible assets or does not participate in developing, enhancing, maintaining, protecting, and exploiting intangible assets or does not fall within the scope of applying the profit allocation method between related parties as provided for in point a, Clause 3, Article 7 of Decree No. 20/2017/NĐ-CP.

2. Some significant differences when selecting the profit margin comparison method as provided for in point b, Clause 2, Article 7 of Decree No. 20/2017/NĐ-CP shall be applied as follows:

a) In the case of applying the resale price method: Some differences that may significantly affect the gross profit margin on sales revenue (net sales revenue) include expenses reflecting the function of the enterprise as a sales agent, exclusive distributor, or distributor implementing marketing; the rate of market growth for product consumption; the taxpayer's function in the supply chain such as retail, wholesale, and the accounting methods of the parties involved.

b) In the case of applying the cost plus method: Some differences that may significantly affect the gross profit margin on cost include expenses reflecting the operational functions of the enterprise such as production under designated contracts from the parent company or internal service provision of the group; contractual obligations such as delivery deadlines, quality control costs, warehousing costs, payment terms, and accounting methods for components of the taxpayer's cost and independent comparables.

c) In the case of applying the net profit margin comparison method: Some differences that may significantly affect the net profit margin include differences in functions, assets, risks; economic conditions; contractual conditions, and product characteristics as stipulated in Clause 3, Article 6, and Clause 2, Article 7 of Decree No. 20/2017/NĐ-CP and guidance provided in Clause 3, Article 2 of this Circular.

3. The determination method as provided for in point c, Clauses 1, 2, and 3, Article 7 of Decree No. 20/2017/NĐ-CP shall be applied as follows:

a) The price level, profit margin, and profit allocation ratio of the taxpayer must be adjusted according to the corresponding price levels, profit margins, and profit allocation ratios of independent comparables selected based on the results of comparative analysis as guided in point b, Clause 2, Article 2 of this Circular.

b) In the case of applying the net profit margin comparison method:

b1) For taxpayers in manufacturing, trading, and service industries: Net profit margin indicators are determined according to the provisions of accounting laws, tax management, and corporate income tax regulations as the net profit margin before interest expense and corporate income tax on sales revenue (or net sales revenue); on costs (or total costs); on assets (or fixed assets) consistent with the nature of the taxpayer's business operations.

Net profit does not include the difference between revenue and costs of financial activities used to determine the net profit margin based on data on revenue, costs, assets not controlled by related parties or transactions with related parties constituting the revenue and costs of the taxpayer already recorded according to the principle of arm's length transactions.

In the case of using financial indicators from the balance sheet for comparative analysis, quantitative screening, and determining the net profit margin, the value used is the average of the end-of-year and beginning-of-year figures on the balance sheet for the relevant indicators.

b2) For taxpayers in the banking and credit sectors: The net profit margin indicators are determined in accordance with the accounting laws, tax management regulations, corporate income tax laws, and the management of credit institutions' activities that are appropriate to the taxpayer's business model.

b3) For taxpayers who are securities companies and investment fund management companies: The net profit margin indicators are determined in accordance with the accounting laws, tax management regulations, corporate income tax laws, and the management of securities activities that are appropriate to the taxpayer's business model.

c) The adjusted price, profit margin, and profit allocation ratio of the taxpayer shall be the taxable amount, declared costs, and revenue used to determine the taxable income, without reducing the corporate income tax liability payable to the state budget of the taxpayer.

If a taxpayer does not adjust the related party transaction price according to the provisions of Decree No. 20/2017/NĐ-CP and this Circular, leading to underpayment of taxes due, they will be subject to legal sanctions under the tax laws.

Article 4. Declaration of information on related party relationships, related party transactions, and preparation of the Documentation Package for Determining Related Party Transaction Prices in accordance with Clause 8, Article 10 of Decree No. 20/2017/NĐ-CP.

1. Taxpayers subject to Decree No. 20/2017/NĐ-CP shall declare the forms prescribed in Decree No. 20/2017/NĐ-CP, replacing Model 03-7/TNDN issued together with Circular No. 156/2013/TT-BTC dated November 6, 2013, of the Ministry of Finance, and submit them along with the Corporate Income Tax Final Return Form 03/TNDN, as follows:

a) Model 01 Information on Related Party Relationships and Related Party Transactions, detailed guidance provided in Appendix 02 issued together with this Circular.

b) Model 02 List of Information and Documents Required for the National File and Model 03 List of Information and Documents Required for the Global File. The taxpayer marks the corresponding lines for the information and documents already prepared in the Documentation Package for Determining Related Party Transaction Prices.

c) Model 04 Declaration of Information on the Multinational Profit Report of the Highest Parent Company in Vietnam with consolidated global revenue of at least eighteen trillion VND operating in multiple countries and territories, detailed guidance provided in Appendix 03 issued together with this Circular.

If a taxpayer supplements declarations or discovers errors in the information declared to the tax authority in Models 01, 02, 03, and 04 as stipulated in points a, b, and c of this clause, they must supplement declarations in accordance with the Law on Tax Administration and its implementing regulations.

2. The Documentation Package for Determining Related Party Transaction Prices of the taxpayer includes:

a) The National File consists of information on related party transactions, policies, and methods for determining prices for related party transactions established and retained at the taxpayer's headquarters according to the list of contents and documents specified in Model 02 issued together with Decree No. 20/2017/NĐ-CP.

b) The Global File consists of information on multinational group operations, policies, and methods for determining related party transaction prices globally, and policies for allocating income and functions within the value chain of the multinational group according to the list of contents and documents specified in Model 03 issued together with Decree No. 20/2017/NĐ-CP.

The taxpayer establishes and provides the Global File of the multinational group where the taxpayer's financial statements are consolidated in Vietnam in accordance with the accounting system. If the taxpayer is a subsidiary of multiple parent companies belonging to different multinational groups and the taxpayer's financial statements are consolidated into multiple groups, the taxpayer provides the Global File of all these groups.

c) A copy of the Multinational Profit Report of the highest foreign parent company of the taxpayer established in accordance with the laws of the country of residence.

If the taxpayer is a subsidiary of multiple highest parent companies belonging to different multinational groups and the taxpayer's financial statements are used to prepare consolidated financial statements of multiple groups, the taxpayer retains copies of the Multinational Profit Reports of all highest parent companies.

If the taxpayer cannot provide the Multinational Profit Report of the highest parent company for the tax period corresponding to the taxpayer's final return period, the taxpayer must provide the Multinational Profit Report of the highest parent company of the immediately preceding fiscal year and explain the reasons in writing attached to the Documentation Package for Determining Related Party Transaction Prices of the taxpayer.

If the taxpayer cannot provide the Multinational Profit Report of the highest parent company, the taxpayer explains the reasons in writing attached to the Documentation Package for Determining Related Party Transaction Prices.

d) Information in the Documentation Package for Determining Related Party Transaction Prices is considered material if it affects the outcome of the selection of comparable independent entities; the method for determining related party transaction prices or the result of adjusting the price level, profit margin, and profit allocation ratio of the taxpayer.

Article 5. Exemption from filing the Transaction Price Determination File in accordance with point c, Clause 2, Article 11 of Decree No. 20/2017/NĐ-CP.

1. Taxpayers are exempted from filing the Transaction Price Determination File in accordance with point c, Clause 2, Article 11 of Decree No. 20/2017/NĐ-CP if they apply the profit margin before interest expenses and corporate income tax on revenue determined for the tax period, which is the profit margin before interest expenses and corporate income tax (excluding the difference between revenue and costs of financial activities) on net revenue.

Net revenue is determined in accordance with tax policy and accounting regulations as the difference between sales revenue and service provision revenue minus (-) the revenue reduction items within the tax period of the taxpayer.

2. In cases where taxpayers conduct simple functional operations in more than one field in accordance with point c, Clause 2, Article 11 of Decree No. 20/2017/NĐ-CP, the profit margin before interest expenses and corporate income tax on net revenue shall be applied as follows:

a) In cases where taxpayers separately track and record revenue and costs for each field, the profit margin before interest expenses and corporate income tax on net revenue corresponding to each field shall be applied.

b) In cases where taxpayers separately track and record revenue but do not separately track and record costs incurred for each field in their production and business activities, they shall allocate costs according to the revenue ratio of each field to apply the profit margin before interest expenses and corporate income tax on net revenue corresponding to each field.

c) In cases where taxpayers cannot separately track and record revenue and costs for each field of production and business activities to determine the corresponding profit margin before interest expenses and corporate income tax for each field, the profit margin before interest expenses and corporate income tax on net revenue of the field with the highest rate shall be applied.

3. Taxpayers applying the guidance provided in Clause 1 of this Article shall declare Form No. 01 attached to Decree No. 20/2017/NĐ-CP in accordance with the guidance provided in Appendix 02 issued together with this Circular.

In cases where taxpayers choose not to apply the provisions of Clause 1 of this Article, they must file the Transaction Price Determination File and declare the transaction price determination in accordance with Article 10 of Decree No. 20/2017/NĐ-CP and Clause 1 of Article 4 of this Circular.

Article 6. Effectiveness

1. This Circular takes effect from the date Decree No. 20/2017/NĐ-CP comes into force. The Circular No. 66/2010/TT-BTC dated April 22, 2010 of the Ministry of Finance guiding the implementation of market price determination in transactions between related parties and Form No. 03-7/TNDN issued together with Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance are hereby abolished.

2. During the implementation process, if there are any difficulties, it is requested that agencies, organizations, and individuals promptly report them to the Ministry of Finance for research and guidance./.