Handbook | Tax for businesses with associated transactions (Applicable from 2020)
Affiliate transactions are transactions "not at the usual price applicable to the common market" for the purpose of minimizing the amount of tax payable to the state.
Below are guidelines for businesses with related party transactions.
On November 05, 11, the Government issued Decree 2020/132/ND-CP stipulating tax administration for enterprises with associated transactions. Decree 2020/132/ND-CP takes effect from December 2020, 20 and applies from the 12 corporate income tax period.
Decree No. 20/2017 / ND-CP dated February 24, 02 and Decree No. 2017/68 / ND-CP dated June 2020, 24 of the Government on tax administration applicable to enterprises with inter-related transactions. expires from December 6, 2020
1. What is Affiliate Transaction?
According to the provisions of this Decree, associated transactions are transactions of buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring goods or providing services; borrowing, lending, financial services, financial guarantees and other financial instruments; buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring tangible and intangible assets and agreeing to buy, sell, and use resources such as assets, capital, labor cost-sharing activities and sharing between affiliated parties, except for business transactions for goods and services subject to the State's price adjustment scope, which comply with the law on prices.
In a nutshell: Affiliate transactions are almost all of the types of transactions that are possible between affiliated parties.
1.1. Why do businesses have to prepare reports when there are related party transactions?
Based on the principle: Independent transactions and the nature of operations, the transaction determines the tax liability corresponding to the value created from the nature of the transaction, production and business activities of the taxpayer.
Associated transaction is a transaction between related parties, so there may be a risk of not following the independent transaction principle of reducing the tax liability of an enterprise to the state budget.
Therefore, the tax authority shall adjust the transfer price in order to correctly determine the tax obligations provided for in this Decree.
1.2. What are related parties?
Parties that have an affiliated relationship (hereinafter referred to as "a party") are parties with a relationship in one of the following cases:
a) A party participates directly or indirectly in the administration, control, capital contribution or investment in the other party;
b) The parties are directly or indirectly under the control, control, capital contribution or investment of another party.
The affiliated parties in item (a) and (b) above are specified as follows:
1.3. Checklist to determine whether the Enterprise has related party transactions in the fiscal year or not (Applicable from 2020 onwards)
| Situation | Content to be checked |
| a | One enterprise holds, directly or indirectly, at least 25% of the equity of the other enterprise; |
| b | Both businesses have at least 25% of the owner's equity held directly or indirectly by a third party; |
| c | An enterprise is the largest shareholder in terms of the owner's equity and holds directly or indirectly at least 10% of the total shares of the other enterprise; |
| d | An enterprise guarantees or lends money to another enterprise of any kind (including third party loans secured from affiliated party finances and financial transactions of an nature in nature. similar) provided that the loan is at least 25% of the equity of the borrower enterprise and accounts for more than 50% of the total value of the medium and long-term liabilities of the borrower; |
| f | An enterprise appoints a member of the executive board or holds control of another enterprise provided that the number of members appointed by the first firm accounts for more than 50% of the total number of executive board members. or take control of a second firm; or a member appointed by the first firm has authority to decide the financial or business policies of the second firm; |
| h | Two businesses that have more than 50% of the board members or have a member of the board of directors who has the power to decide on financial policies or business activities is appointed by a third party; |
| i | The two businesses are run or controlled by personnel, finances, and business operations by individuals in one of the spousal relationships; biological parents, adoptive parents, stepfather, stepmother, mother-in-law, father-in-law; natural children, adopted children, stepchildren of husband or wife, daughter-in-law, son-in-law; siblings, siblings of the same parent, sibling of the same parent, sibling, sister-in-law, brother-in-law, brother-in-law, sister-in-law, sister-in-law of the same parent, same mother of different father; paternal grandparents, maternal grandparents; grandchildren, grandchildren; aunt, uncle, uncle, uncle and nephew; |
| j | The two business establishments have the relationship of head office and permanent establishment or are permanent establishments of the same foreign organization or individual; |
| k | Enterprises are controlled by an individual through his / her capital contribution to that enterprise or directly participate in operating the business; |
| l | Other cases in which the enterprise is subject to the actual management, control and decision on the production and business activities of the other enterprise; |
| m | The enterprise has transactions of transferring or receiving the transfer of contributed capital of at least 25% of the contributed capital of the enterprise's owner in the tax period; to borrow or lend at least 10% of the owner's equity at the time of the transactions in the tax period with the operator or controller of an enterprise or with an individual in a relationship as prescribed in point g this clause. |
This is a checklist according to Decree 132/2020/ND-CP to determine whether a business is exempted or partially exempted from preparing a Report on Related Transactions.
2. Cases exempted from declaration and preparation of Transfer Pricing Documents
Taxpayers are exempt from declaration, exempted from making transfer pricing determination documents as follows:
1. Taxpayers are exempt from related transaction price determination declaration in Section III, Section IV, Appendix I to this Decree, and exempt from preparing transfer pricing determination dossiers according to the provisions of this Decree. in case transactions only arise with affiliated parties that are taxpayers of corporate income tax in Vietnam, the same corporate income tax rate as taxpayers and neither party is eligible for tax incentives. corporate income in the tax period, but must ｄｅｃｌａｒｅ the grounds for exemption in Section I and II in Appendix I to this Decree.
2. Taxpayers shall have to ｄｅｃｌａｒｅ and determine associated transaction prices according to Appendix I to this Decree, but are exempt from preparing transfer pricing determination dossiers in the following cases:
a) Taxpayers have associated transactions but the total revenue generated in the tax period is less than VND28 billion and the total value of all related transactions arising in the tax period is less than VND28 billion;
b) Taxpayers who have signed a prior agreement on the method of tax calculation price determination shall submit the annual report according to the law provisions on the prior agreement on the method of tax calculation price determination. Transfer transactions are not covered by the Prior Agreement on method of determining taxable prices, taxpayers shall ｄｅｃｌａｒｅ and determine transfer pricing under Article 18 of this Decree;
c) Taxpayers conduct business with simple functions, do not incur no revenue or expenses from the exploitation and use of intangible assets, have turnover of less than VND 200 billion, apply the profit rate. Net interest expenses and corporate income tax (excluding difference of revenue and expenses from financial activities) on net revenue, including the following areas:
- Distribution: From 5% and up;
- Production: 10% or more;
- Processing: From 15% and up.
In case the taxpayer tracks and accounts separately the revenue and expenses of each field, the net profit margin without loan interest expense and corporate income tax on net sales corresponding to each field will be applied. .
In case the taxpayer can separately track and record revenue but cannot track and separately account costs incurred in each sector in the production and business activities, the expense shall be distributed according to the proportion of turnover. revenue of each field to apply the net profit margin without interest expense and corporate income tax on net sales corresponding to each sector.
In case the taxpayer fails to separately track revenues and expenses of each production and business field to determine the net profit margin without loan interest expenses and comparable corporate income tax. For each field, the net profit margin without interest expense and corporate income tax on net revenue of the sector with the highest rate will be applied.
In cases where taxpayers do not apply the net profit rate prescribed in this point, they must make dossiers on determination of associated transaction prices according to regulations.
3. Taxpayers who are exempt from declaring and / or preparing transfer pricing determination dossiers as provided for in Clauses 1 and 2 of this Article, and the determination of total deductible interest expenses when determining collection Taxable income of the enterprise with associated transactions is specified in Clause 3, Article 16 of this Decree.
Complying with regulations and following the right process not only helps you avoid legal risks, but also contributes to the transparency and financial health of your business.
Doing the above is not easy for businesses, the effective solution is to use a professional service: Cooperate with a financial, accounting and tax expert to ensure you follow the correct process and comply with the regulations. legislation.
See detailed information about our services in the article
Consulting service and declaration of associated transactions
