Technology transfer penalties
The National Assembly issued Decree 51/2019/ND-CP in June which sets out penalties under the Law on Technology Transfer 2017 (“LTT 2017”). LTT 2017 came into effect on 1 July 2018 and Decree 51 was issued to define violations in technology transfer arrangements and provide corresponding penalties. Below are some notable points from a transfer pricing perspective.
LTT 2017 requires that in certain cases the pricing of the technology to be transferred must be audited in accordance with tax and transfer pricing regulations. A number of authorities, including the tax authority, may carry out an audit. Decree 51 describes two situations in which a taxpayer will be considered to have breached LTT 2017 and the penalties which may be levied. These are as follows:
The language of Decree 51 is not particularly clear. However, our understanding is that in both situations if the Vietnam tax authority requires a taxpayer to provide evidence to support the pricing of a royalty payable for transfer of technology (which is typically done in the form of a benchmarking study), and the taxpayer is not able to provide such support, the taxpayer will be audited and could be fined between VND30m and VND40m for failure to have evidence to support the pricing of the royalty.
Any taxpayer in Vietnam which is party to a technology transfer agreement and either pays or receives royalties should be able to support the arm’s length nature of the royalty payable with benchmarking.