A Vietnamese company, H5 Ltd, had originally declared revenue of USD 225 million for FY 2016 based on sales invoices and export documents, but subsequently reduced this to USD 207.8 million, reflecting a downward adjustment of USD 17.2 million based on a group policy-driven “Credit Note” from its Hong Kong affiliate (H7).
H5 argued that the adjustment was justified under Vietnam’s Circular 66/2010/TT-BTC, which allows related-party pricing adjustments to align profits with the arm’s length range, and claimed that their adjusted net profit margin (4.78%) fell within the acceptable range for independent transactions (2.6–5.4%).
The tax authority rejected this adjustment, treating the reduction as an unlawful under-declaration of revenue. It issued a tax reassessment and penalties totaling VND 42.3 billion, arguing that the adjustment was not due to any return, discount, or price error,
H5 appealed, claiming that its adjustments were consistent with both OECD transfer pricing principles (notably paras. 4.37–4.38) and Circular 66, aimed at preventing double taxation.
Judgment
The High Court upheld the tax authority’s view, finding that the adjustment was not due to any legitimate commercial reason affecting the transaction value at the time of sale.
The only valid revenue was that shown on the export invoices (USD 225 million), and the price adjustment policy, although applied group-wide, did not override Vietnam’s domestic tax provisions.
The court ultimately rejected H5’s appeal, affirmed the previous administrative rulings, and confirmed the legal validity of the VND 42.3 billion tax and penalty assessment.