The field of tax-related transactions is always a comprehensive issue that needs to be closely controlled. In November 2020, the Government issued Decree 132/2020/ND-CP to manage taxes for enterprises with associated transactions.

To help you understand more about tax issues related to affiliate transactions, Hong Bang Law would like to advise as follows:

Legal grounds

• Decree No. 132/2020/ND-CP dated November 5, 2020 of the Government on tax administration for enterprises having associated transactions.

Identify affiliate transactions

• Affiliate transactions are transactions of buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring goods or providing services; loans, loans, financial services, financial guarantees, and other financial instruments; buy, sell, exchange, rent, lease, borrow, lend, transfer, transfer tangible assets, intangible assets and agree to buy, sell, use common resources such as assets, capital, labor activities, cost-sharing among related parties, except for business transactions for goods and services subject to the State’s price adjustment scope in accordance with the law on prices.
• Pursuant to Article 5 of Decree 132/2020/ND-CP, the parties having an association relationship are the parties having the following specific relationships:

• • One enterprise holds directly or indirectly at least 25% of the contributed capital of the owner of the other enterprise;
  • Both enterprises have at least 25% of the owner’s contributed capital held directly or indirectly by a third party;
  • One enterprise is the largest shareholder in terms of capital contributed by the owner and holds directly or indirectly at least 10% of the total shares of the other enterprise;
  • An enterprise guarantees or lends capital to another enterprise in any form (including loans from third parties secured from the related party’s financial resources and other authorized financial transactions). similar substance) provided that the loan amount is at least 25% of the contributed capital of the owner of the borrowing enterprise and accounts for more than 50% of the total value of medium and long-term debts of the borrowing enterprise;
  • An enterprise appoints a member of the management board to operate or take control of another enterprise provided that the number of members appointed by the first enterprise accounts for more than 50% of the total number of members of the executive management board. operate or take control of a second enterprise, or a member appointed by the first enterprise has the power to decide the financial policies or business activities of the second enterprise;
  • Two enterprises with more than 50% members of the management board or the same member of the management board with the right to decide on financial policies or business activities are appointed by a third party;
  • Two enterprises are operated or controlled in terms of human resources, finance and business activities by individuals in one of the husband and wife relationships; natural parents, adoptive parents, stepfather, stepmother, parents-in-law, parents-in-law; natural, adopted, step-child of a spouse, daughter-in-law, son-in-law; brother, sister, half-brother, half-brother, half-brother, half-brother, brother-in-law, brother-in-law, sister-in-law, sister-in-law of the person of the same parent or half-brother, with another mother; paternal grandparents, maternal grandparents; grandson, grandchild; aunt, uncle, uncle, aunt and nephew;
  • Two business establishments having a relationship between head office and permanent establishment or both are permanent establishments of a foreign organization or individual;
  • Enterprises that are controlled by an individual through the individual’s capital contribution to that enterprise or directly participating in the management of the enterprise;
  • Other cases in which the enterprise is subject to the actual management, control and decision on production and business activities of the other enterprise;
  • The enterprise has transactions of transferring or receiving at least 25% of the contributed capital of the enterprise’s owner in the tax period; Borrowing or lending at least 10% of the owner’s contributed capital at the time of transactions in the tax period with individuals who operate or control the business or with individuals in one of the relationships specified in Clause 1 of this Article. point g of this clause.

Obligations of taxpayers in declaration and identification of related-party transactions

• Taxpayers with related-party transactions are responsible for declaring and determining the transaction prices, without reducing the payable corporate income tax obligations in Vietnam according to regulations.
• Taxpayers are responsible for proving the selection of the method of price determination according to regulations when requested by the competent authority.
• Taxpayers having related-party transactions are responsible for declaring information on the related-party relationships and transactions and submitting them together with the corporate income tax finalization declaration.
• Taxpayers are responsible for keeping and providing the associated transaction price determination file.
• The transaction price determination file is made before the time of the annual corporate income tax declaration and finalization and must be kept and presented at the request of the tax authority. When the Tax Authority implements

For inspection and examination of taxpayers, the time limit for providing transaction price determination dossiers shall not exceed 15 working days from the date of receipt of the request for information provision.

Cases where taxpayers are exempted from declaration or preparation of transfer pricing documentation

• Taxpayers are exempted from declaration and determination of related-party transaction prices in case transactions only arise with related parties who are taxpayers of corporate income in Vietnam, subject to the same income tax rate. enterprises with taxpayers and neither party is entitled to corporate income tax incentives in the tax period.
• Taxpayers are responsible for declaring and determining transaction prices, but they are exempted from making associated transaction price determination dossiers in the following cases:
  • Taxpayers have transactions but the total revenue generated in the tax period is less than VND 50 billion and the total value of all related transactions arising in the tax period is less than VND 30 billion.
  • Taxpayers who have signed a Pre-Agreement on the method of price determination shall submit the Annual Report in accordance with the law on the Pre-Agreement on the method of price determination. Transactions that are not covered by the Pre-Agreement on Pricing Methods.
  • Taxpayers conduct business with simple functions, do not generate revenue or expenses from the exploitation and use of intangible assets, have a turnover of less than VND 200 billion, apply the net profit rate before interest and corporate income tax on sales, including the following areas: Distribution: From 5% or more; Production: From 10% or more; Outsourcing: From 15% or more. In case the taxpayer does not apply the net profit ratio, a dossier of price determination of related-party transactions must be prepared as prescribed.

Hong Bang Law Firm specializes in providing tax advice in associated transactions. If you need advice, more detailed answers as well as how to access this service, please contact directly the Deputy Director in charge of business: Lawyer Nhat Nam via hotline: 0912.35.65.75, or call our free legal consultation hotline: 1900.6575 and send service request via email: lienheluathongbang@gmail.com

Wishing you and your family good health, peace, and success!

Best regards!