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Vietnam: Expenses for Intra-Group Services

Most multinational enterprises (MNEs) have invested in Vietnam in the form of subsidiaries or branches. In order to maximize profit, MNE groups have de-localized the management authority and exercised their control over the locally-based subsidiaries by specializing in certain functions such as processing, manufacturing, outsourcing hubs, consumer market research, etc. and charging administrative, technical, financial, and commercial services. Expenses for intra-group services (IGS) will impact the tax paid by MNEs and consequently this has become a center of focus by the Vietnam tax authorities.

Intra-Group Services

IGS are those provided by one or more member companies to other companies within an MNE group. IGS could be in the form of administrative, technical, financial, human resources, IT, marketing, procurement, research and development, technical services, etc. Fees charged for IGS may often be referred to as management fees, regional or head office charges or shared service charges.

From the Regulatory Requirements…

Before 2017, expenses for IGS would normally be considered as deductible for tax purposes if a set of standard documents, including service agreements, general transfer pricing documents, commercial invoices or value-added tax (VAT) invoices, and general explanation on the nature of the transactions were in place. From 2017, Decree 20/2017/ND-CP (Decree 20) dated February 24, 2017 issued by the government introduced a major change to the tax treatment of IGS expenses: the substance over form principle.

Substance over form is a principle where the tax authorities will normally leave aside legal forms or structures of a transaction, and instead scrutinize its commercial substance. Under this principle, in order for IGS expenses to be deductible, the following criteria (minimum) apply:

  • the IGS provider must enter a service agreement with the Vietnam taxpayer and provide such services in accordance with the agreement;
  • the IGS must have economic, financial and commercial values and directly benefit the taxpayer’s production or business activities;
  • IGS would also have been paid for by independent parties under similar circumstances;
  • fees charged are calculated and charged at arm’s length; and
  • sufficient supporting documents should be made available for verifying the facts above.

…to Practical Challenges by the Tax Authorities

The Vietnam tax authorities , by relying on the principles in the transfer pricing regulations, tend to raise the following points during the assessment for tax deductibility of expenses for IGS:

  • whether the service has been rendered and the benefit has been conferred;
  • whether the service creates economic and commercial value for the recipient;
  • whether the service enhances the operational efficiency of the recipient to facilitate delivery of the services/goods to the end customer; and
  • whether there is any duplication of rendered services from the service render compared to the local service provider/local service recipient’s business functions and whether documentation for the non-duplication is in place.

In terms of documentation, taxpayers must have the following documents (as a minimum) in place:

  • IGS agreement with the following contents: contracting parties, details of work, service fee, payment terms and conditions, date of effect, etc., plus invoice from the rendering company with a clear description and/or reference to a specific contract; details for supporting tasks, tasks conducted under the IGS, written forms from the overseas entities on the work/services rendered;
  • documents supporting the business activities of the recipient company as well as not duplicating other expenses incurred for its operations;
  • evidence of foreign contractor withholding tax (FCT) payment, if applicable (i.e. FCT return and payment vouchers);
  • pricing documentation, as well as compliance with transfer pricing regulations and ensuring that the price is conducted on an arm’s length principle, and other transfer pricing regulations (e.g. submission of transfer pricing declaration form and availability of transfer pricing documentation, etc.).


In the event that the tax authorities conclude the transactions as being not priced in accordance with the arms’ length principle, or the supporting documents are not convincing, they will reject the deductibility of expenses for IGS recorded in the CIT declaration. Therefore, it is recommended that companies take necessary measures to ensure that the transactions are compliant with the tax laws at the very first instance, during the declaration and throughout tax audits.

Before and During Implementation of IGS Agreements

To minimize the tax risk, before and during the implementation of any intra-group agreement, companies should:

  • clearly consider the main contents of the intra-group agreement (contracting parties, details of work, the service fee, payment terms and conditions, date of effect);
  • fully prepare and file both the internal documents and external documents/evidence among the parties involved to prove the transaction actually occurred, was related to the business scope, with no duplication, as well as determine the nature and value of the IGS to the local tax authority.

Declaration Compliance

Taxpayers that enter into inter-company transactions are required to disclose these transactions in the annual CIT returns, including details of types of transactions, value of contracts, and method of arm’s-length price comparison. In addition, taxpayers that fall under certain conditions under Decree 20 must have a master file and country-by-country report, which are normally prepared by the company headquarters.

Tax and Transfer Pricing Audits

The tax authorities have always had a mindset that intra-group transactions are intended as a tool to ship the benefits to the MNE’s group by minimizing as much tax payable in the host countries as possible. Recent tax practices in Vietnam have shown a general tendency of launching routine tax audits on a yearly basis. The tax authorities have been effectively using more sophisticated methods to identify target entities from across different industry sectors.

  • In the event of a tax or transfer pricing audit, taxpayers generally have a short time frame (typically one or two weeks) to explain and provide supporting documents in response to potential challenges from the tax auditors. Thus, business interruption can be the first challenge triggered by a tax audit that requires effective management and careful preparation. An up-to-date database with proper documentation is the key point to reduce the assessment time in a tax audit.
  • Companies also face financial risks arising from non-tax compliance and lack of clear guidance on specific business circumstances whereby tax impact and compliance needs to be reviewed and systematically controlled to minimize the financial burden and reputational damage.
  • Given that the current tax and transfer pricing regulations only provide a general guidance on determination of legitimate expenses for IGS, transactions between companies within an MNE’s group can be in various forms and nature. Local tax authorities’ interpretations of laws could lead to tax controversy that needs to be well managed with a rational explanation, proper negotiation and settlement discussions in order to resolve disputes efficiently and favorably.

To get through a tax audit successfully requires appropriate strategy, careful preparation, and a strong understanding of how the Vietnam tax system works. Hence, seeking support from professional advisers is recommended.