This study aims at discovering the relationship between the improvement in the capacity of tax authorities and its effect on the transfer pricing activities of foreign direct investment (FDI) enterprises in four provinces/cities of Vietnam: Ha Noi, Ho Chi Minh, Dong Nai, and Binh Duong province. These are the first localities in Vietnam to establish the Division of Transfer Pricing Inspectorate in local Tax Department, under the direction of General Department of Taxation of Vietnam. The paper then proposes a further study on how the tax authorities of Vietnam should improve their capacities to make FDI enterprises more compliant with the transfer pricing regulations in Vietnam. The authors deploy the method of quantitative research through collecting self-administered closed format questionnaires from people in charge of finance/accounting/transfer pricing of FDI enterprises operating in Ha Noi, Ho Chi Minh, Dong Nai, and Binh Duong province of Vietnam. The findings suggest that there was a strong probability that the capacity of tax authorities would impact on the transfer pricing activities of FDI enterprises in Ha Noi, Ho Chi Minh, Dong Nai, and Binh Duong of Vietnam. Vietnamese Government should enhance the capacity of the tax authorities; establish Transfer Pricing Inspectorate Division in all local Tax Departments of Vietnam. The authors believe that the improvement of tax officials’ capacity especially those in charge of transfer pricing auditing will prevent the FDI enterprises from transfer pricing manipulation, hence these enterprises will be more compliant to transfer pricing regulations of Vietnam. The most significant value of the study is to support Vietnamese policymakers, especially those in the field of Finance (Ministry of Finance, General Department of Taxation) to improve their capacity when carrying out transfer pricing audit in FDI enterprises. The more transparent and aggressive the tax officials are, the better these enterprises follow the regulations.