At present, transfer pricing inspection is one of the most important contents and accounts for the highest collection of tax authorities. Therefore, businesses that fall under the regulations on transfer pricing need to prepare carefully before the tax authorities come to inspect.

Through the conclusions from the inspections in recent years, we would like to send to our readers the content to prepare for the transfer pricing inspection.

We have 5 steps as follows:

First step: “Defining associated transaction”.

The company needs to determine whether it falls within the “definition” of an associated transaction, or not.

Specifically:

• From 2010 to 2016, see Circular No. 66.
• From 2017 to 2019, see Decree No. 20 and Circular No. 41.
• From 2020 to present, see Decree No. 132.

Second step: “Checking compliance”.

When an enterprise falls within the “definition” of an associated transaction, it is necessary to check for "compliance". “Compliance” includes the following tasks:

• Whether the related transaction declaration has been made or not. Make a declaration of 4 forms according to regulations.
• Prepare documents to prove details for declaration forms including: national records, global records, inter-country profit reports.

Third step: “Risk assessment”.

Risk assessment is to consider the impact of the associated transaction, so that there is an initial assessment of risk of transfer pricing, as follows:

• Consider the size of transactions arising with related parties such as: buying goods or selling goods; borrow or lend, buy a service or sell a service.
• Consider transactions arising with one or more related parties.

Step Four: “Comparison of Similarities”.

The content of comparison of similarities is as follows:

• Compare the price of the company's transaction with an independent party. If there is a difference, is it beneficial or detrimental to the company, and how much is it worth?.
• Reviewing the company's financial statements profit or loss, more or less profit, more or less loss. Determine the cause of the company's profit and loss.
• Consider whether there are any special causes affecting the business results in the financial year or not. This cause considers both the company and the independent comparison. Purpose to exclude when calculating.
• Considering transactions with related companies, what is the tax rate at these companies?. Is it higher or lower than tax rate of your company? At the same time, compare the general interest rate of the group with the company's interest rate that higher or lower, find out reason.

Fifth step: “Financial calculation and preparation”.

According to the provisions of tax law on transfer pricing as follows:

• When the taxes payable is higher than the taxes payable of the price comparison result, the company must increase the amount of taxes payable compared to the amount declared and paid.
• When the taxes payable is lower than the taxes payable of the price comparison result, the company will not reduce the declared taxes payable.

Conclusion:

The tax inspection on transfer pricing is a very important inspection content, which the company should pay special attention. Companies that fall under the "definition" of related-party transactions need to consider "compliance" and "risk assessment", so that they can "compare", "calculate", and have a good prepared for the presentation in the transfer pricing inspection.