Offshore structuring and the Singapore holding route

Nam Trinh

The transaction made by Thailand’s Berli Jucker of MM Mega Market Vietnam is an illustration of how internal restructurings may qualify for relief, but only under strict conditions.

Rather than acquiring equity directly in MM Mega Market Vietnam, Berli Jucker executed the transaction through its Singapore subsidiary, C-Distribution Asia, by purchasing all shares in TCC Land International (Singapore), the entity holding the entire equity interest in MM Mega Market Vietnam.

Formally, the transaction took place offshore and involved shares in a Singaporean company. Economically, however, the value being transferred is largely derived from assets and business operations in Vietnam. This gap between legal form and economic substance sits at the centre of Vietnam’s long-running debate over taxing rights on indirect capital transfers.

The ownership structure adds another layer of complexity. Both the buyer and seller ultimately fall under the control of TCC Group. This may support the view that the deal is an internal group restructuring rather than a third-party acquisition – a distinction that matters under Decree No.320/2025/ND-CP when considering tax relief.

New tax approach

Historically, capital transfers by foreign organisations in Vietnam were taxed based on net gains, typically at 20 per cent of taxable income calculated as the transfer price minus acquisition cost and allowable expenses. While economically coherent, the approach frequently led to disputes over cost bases, deductible expenses, and how much value should be allocated to Vietnam when the transfer occurred offshore.

Decree 320, implementing amendments to the Law on Corporate Income Tax, signals a shift in regulatory thinking. In certain cases, foreign entities’ income from capital transfers may be taxed using a deemed rate of 2 per cent applied to “taxable revenue arising in Vietnam”. The objective is to simplify administration and improve collectability, especially where tax authorities face practical difficulties verifying costs at offshore holding levels.

Crucially, this is not a blanket 2 per cent levy on the entire global transaction value. For indirect transfers, the key question becomes how much of the consideration should be treated as taxable revenue attributable to Vietnam. That assessment will depend on legal interpretation, valuation methodology, and the strength of supporting evidence.

Although Decree 320 sets out legal conditions on paper, its application to indirect transfers still raises practical uncertainties in complex holding structures.

Firstly, it does not prescribe a single method for determining “taxable revenue arising in Vietnam” where the transferred entity is a holding company with assets or operations in multiple jurisdictions. If the Singapore entity is effectively a single-asset vehicle holding only MM Mega Market Vietnam, authorities may view most or all of the transfer value as Vietnam-derived. Where additional offshore assets or income streams exist, taxpayers may argue for a proportionate allocation, supported by valuation reports and financial data.

Secondly, the boundary between market value and internal restructuring logic remains unclear when determining whether a transaction generates taxable income. Internal transfers may be priced at book value or acquisition cost for restructuring purposes rather than to realise gains.

However, where the transfer price diverges materially from economic value, authorities may challenge whether pricing is market-consistent and exercise their power to reassess. This goes directly to the “no income arises” condition under the internal restructuring exemption.

Thirdly, Decree 320 does not set out a definitive evidentiary threshold for qualifying an internal restructuring for exemption. Open questions include the level of detail required in ownership charts, documentation needed to demonstrate the ultimate parent remains unchanged, financial evidence required to show no income is generated, and proof of compliance with non-cash settlement requirements. In the absence of settled administrative practice, outcomes may depend heavily on case-by-case review.

A frequently cited reference point is the tax amount produced by applying the 2 per cent deemed rate to the full transaction value. On a headline deal value of $772 million, the tax would be approximately $15.4 million. However, that figure relies on the assumption that the entire consideration constitutes taxable revenue arising in Vietnam. Where offshore assets or activities exist, the determination becomes more nuanced and dependent on valuation methodology and documentation.

Impact on future deals

Decree 320 introduces an exemption for internal group restructurings, potentially taking a transaction outside the deemed tax regime if two cumulative conditions are met. Firstly, the transfer must not result in a change to the ultimate parent company of entities that directly or indirectly own the Vietnamese business after the restructuring. Secondly, the transaction must not generate taxable income.

In practice, meeting these conditions typically requires robust valuation work and a coherent commercial rationale. Where book value or acquisition cost is used, the business purpose must be articulated clearly to address potential questions of market consistency. Without this preparation, the risk of reassessment increases.

Because the transferring entity is Singapore-based, the Vietnam–Singapore double taxation agreement will naturally be considered. However, treaty protection is not automatic. Vietnam may retain taxing rights in certain circumstances, notably where the value of transferred shares is derived principally from immovable property located in Vietnam.

Whether this threshold is met depends on the asset composition of the underlying business. Modern retail operations can derive substantial value from leasehold rights, goodwill, and distribution networks, which may not be classified as immovable property for treaty purposes.

Treaty benefits may also be denied if the intermediary lacks economic substance or does not qualify as the beneficial owner under treaty rules. Documentation demonstrating substance in Singapore – such as personnel, premises, and genuine decision-making functions – becomes important where double taxation relief is contemplated.

Vietnam’s approach to indirect transfers is not new. The 2016 Big C transaction remains a prominent example of tax authorities applying substance-over-form reasoning where economic value was clearly rooted in Vietnam. Offshore structuring did not prevent Vietnam from asserting taxing rights when the underlying assets and business operations were domestic.

What distinguishes the Berli Jucker–MM Mega Market Vietnam transaction is the potential availability of an internal restructuring exemption under Decree 320. That opportunity exists, but only where conditions are satisfied and properly substantiated. Otherwise, the deemed tax regime may apply, with disputes likely focusing on the scope of taxable revenue and valuation assumptions.

For cross-border deals involving Vietnam, tax compliance can no longer be treated as a post-closing exercise. Tax obligations arise upon completion of the transfer, making early planning critical. At a minimum, parties should prepare ownership and control records showing the ultimate parent remains unchanged; valuation analyses and a clear commercial rationale supporting the pricing and restructuring logic; payment documentation demonstrating compliant non-cash settlement; and, where relevant, substance evidence to support treaty claims. Investors and deal advisers should also build tax risk allocation into transaction documents, including representations, warranties, and indemnities aligned with the evolving enforcement environment.

Decree 320 marks a significant evolution in Vietnam’s approach to taxing capital transfers involving foreign entities. While the deemed 2 per cent rate may improve administrative efficiency, it shifts the centre of debate to how taxable revenue arising in Vietnam is identified, allocated, and evidenced in indirect transfers.

For investors, the message is clear: careful structuring, early tax analysis, and robust documentation are no longer optional. They are integral to deal success in Vietnam’s new tax environment.