Can Tho City Tax Department provides guidance on the implementation of Decree 20 on related-party transactions

Can Tho Tax Department provides guidance on the implementation of Decree 20 on related-party transactions

On February 17, 2025, the Can Tho City Tax Department issued Official Dispatch 876/CTCTH-TTHT of 2025 regarding the implementation of Decree 20/2025/ND-CP.

>>> View the full text of Official Dispatch 876/CTCTH-TTHT of 2025 here

The Can Tho City Tax Department notes several points as follows:

(1) Amendments and supplements to Points d, k and addition of Point m of Clause 2, Article 5 of Decree No. 132/2020/ND-CP regulating related parties.

- A guarantor or lender that is an economic organization operating under the Law on Credit Institutions (referred to as Bank) will no longer be considered a related party to the borrowing enterprise if they do not directly or indirectly manage, control, contribute capital, or invest in the borrowing enterprise. Additionally, the Bank and borrowing enterprise, or guarantor, do not directly or indirectly undergo management, control, capital contribution, or investment from another party.

- Addition of the case in which related parties include "credit institutions with their subsidiary or controlling or affiliated companies as per the regulations of the Law on Credit Institutions and any amendments, supplements, or replacements thereto (if any)."

(2) Amendments and supplements to Clause 2, Article 21 of Decree No. 132/2020/ND-CP stipulating the responsibilities of the State Bank with businesses having related-party transactions.

The State Bank is responsible for coordinating the provision of information reported according to legal regulations concerning related persons of the Board of Directors members, Members' Council members, Supervisory Board members, General Director (Director), Deputy General Director (Deputy Director), and equivalent titles as stated in the credit institution's charter; related persons of shareholders holding 01% or more of the charter capital of the credit institution; related companies of the credit institution as per the State Bank’s data management system when requested by the Tax authority.

(3) Replacement of Appendix I - Information on related-party relationships and related-party transactions

Appendix I - Information on related-party relationships and related-party transactions issued with Decree No. 132/2020/ND-CP is replaced by Appendix I issued with Decree 20/2025/ND-CP.

Can Tho City Tax Department provides guidance on the implementation of Decree 20 on related-party transactions? (Image from Internet)

When are taxpayers exempted from transfer pricing declaration and documentation requirements in Vietnam?

Based on Article 19 of Decree 132/2020/ND-CP regulating cases where taxpayers are exempted from transfer pricing declaration and documentation requirements, including:

(1) Taxpayers are exempted from filing transfer pricing determination at Section III, Section IV of Appendix I issued with Decree 132/2020/ND-CP, exempted from preparing transfer pricing documentation as stipulated in Decree 132/2020/ND-CP in cases of transactions solely arising with related parties subject to corporate income tax in Vietnam, applying the same corporate income tax rate as the taxpayer, and where no party enjoys corporate income tax incentives during the tax calculation period, but they must declare the basis for exemption at Section I, Section II of Appendix I issued with Decree 132/2020/ND-CP.

(2) Taxpayers are obliged to declare transfer pricing determination according to Appendix I issued with Decree 132/2020/ND-CP, but are exempted from preparing transfer pricing documentation in the following cases:

- Taxpayers have related-party transactions while the total revenue generated in the tax period is less than VND 50 billion, and the total value of all related-party transactions generated in the tax period is under VND 30 billion;

- Taxpayers who have entered into an Advanced Pricing Agreement (APA) and submit an annual report as required by law on APAs. Related-party transactions not covered by APAs require taxpayers to comply with transfer pricing determination regulations as per Article 18 of Decree 132/2020/ND-CP;

- Taxpayers engage in simple functional activities without revenue or expenses from the exploitation and use of intangible assets, generate revenue below VND 200 billion, and apply a net profit margin before interest and corporate income tax (excluding financial revenue and expense differentials) over net sales, including sectors such as:

+ Distribution: From 5% or more;

+ Manufacturing: From 10% or more;

+ Processing: From 15% or more.

In cases where taxpayers separately track and account for revenues and expenses of each sector, they shall apply the net profit margin before interest and corporate income tax over net sales corresponding to each sector.

If taxpayers separately track and account for revenues but not expenses of each sector in their production and business activities, they shall allocate expenses according to the revenue proportion of each sector to apply the net profit margin prior to interest and corporate income tax over net sales corresponding to each sector.

In cases where taxpayers do not separately track and account for revenues and expenses of each sector of operation to determine the net profit margin before interest and corporate income tax corresponding to each sector, they shall apply the highest net profit margin before interest and corporate income tax over net sales of their highest sector.

In cases where taxpayers do not apply the net profit margin specified in this point, they must prepare transfer pricing documentation as per regulations.

(3) Taxpayers eligible for exemption from transfer pricing declaration and documentation requirements under Clause 1, Clause 2 of Article 19 of Decree 132/2020/ND-CP, the determination of total deductible interest expenses when computing taxable income from corporate income tax for companies with related-party transactions is to be conducted in accordance with Clause 3, Article 16 of Decree 132/2020/ND-CP.

What are the principles for determining taxable prices for related-party transactions in Vietnam?

According to Clause 5, Article 42 of The Law on Tax Administration 2019, the principles for determining taxable prices for related-party transactions are as follows:

- Determining related-party transaction prices based on analyses, comparisons with independent transactions and the principle that the essence of operations, transactions determine tax obligations to establish tax obligations as if transactions were between independent parties;

- Related-party transaction prices are adjusted according to independent transactions to determine the tax liabilities payable, ensuring no reduction in taxable income;

- Small-scale taxpayers with low tax risk are exempted from implementing the provisions at Point a, Clause 5, Article 42 of The Law on Tax Administration 2019, Point b, Clause 5, Article 42 of The Law on Tax Administration 2019 of this clause, and they are subject to simplified mechanisms in determining related-party transaction prices.