Under Decree 20/2017/NDCP prescribing a tax administration for enterprises engaged in transfer pricing, the total deductible loan interest for enterprises, which must not exceed 20% of their net profits, is low and unsuitable for the country’s development of its economy and real estate market, according to a HoREA report written for the prime minister and the Ministry of Finance.

HoREA said that the regulation is aimed at increasing the transparency of transactions, encouraging firms to access various sources of funding besides bank loans, and boosting the efficiency of loan usage.

Further, the regulation is considered to be an effective tool to manage and control transfer pricing, mainly found in multinational groups.

HoREA chairman Le Hoang Chau said that real estate firms currently depend on two major funding sources: loans from banks and cash from their customers.

Enterprises are in dire need of bank credits to finance their projects until they can mobilize capital from their customers, Chau said, adding that if their dependence is heavy, they will be at high risk, resulting in pushing their property projects to fail.

In addition, beginning January 1 commercial banks must apply the maximum ratio of short-term funds used for medium- and long-term loans at 40%, from the previous 45%. The figure may drop to 35% or even 30% in the future, according to the State Bank of Vietnam.

SGT