What are cases of related-party transactions in Vietnam? What are principles of declaring and determining taxable price for related-party transactions in Vietnam?

What are cases of related-party transactions in Vietnam?

Based on the provisions of Clause 1, Article 5 of Decree 132/2020/ND-CP, the regulations are as follows:

Parties with related relationships

1. Parties with related relationships (hereinafter referred to as “related parties”) are those having relationships under one of the following cases:

a) One party participates directly or indirectly in the management, control, capital contribution, or investment in the other party;

b) The parties are directly or indirectly under the management, control, capital contribution, or investment of another party.

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Therefore, based on the above regulation, a related party transaction is established when:

- One party participates directly or indirectly in the management, control, capital contribution, or investment in the other party;

- The parties are directly or indirectly under the management, control, capital contribution, or investment of another party.

What are cases of related-party transactions in Vietnam? What are principles of declaring and determining taxable price for related-party transactions in Vietnam?

What are principles of declaring and determining taxable price for related-party transactions in Vietnam?

Based on Clause 5, Article 42 of the Law on Tax Administration 2019, the regulation is as follows:

Principles of tax declaration and calculation

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5. The principles for declaring and determining taxable price for related-party transactions are regulated as follows:

a) Declare and determine related party transaction pricing based on analysis and comparison with independent transactions and the principle that the nature of operations, transactions determines tax obligations to identify tax payable under conditions of transactions between independent parties;

b) Adjust related party transaction pricing according to independent transactions for declaration and determine tax payable based on the principle of not reducing taxable income;

c) Taxpayers with small scale, low tax risk are exempted from implementing the provisions of point a, point b of this clause and are allowed to apply a simplified mechanism in declaring and determining related party transaction pricing.

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The declaration and determination of taxable price for related-party transactions are carried out according to the following principles:

- Declare and determine related party transaction pricing based on analysis and comparison with independent transactions and the principle that the nature of operations, transactions determines tax obligations to identify tax payable under conditions of transactions between independent parties;

- Adjust related party transaction pricing according to independent transactions for declaration and determine tax payable based on the principle of not reducing taxable income;

- Taxpayers with small scale, low tax risk are exempted from implementing the above provisions and allowed to apply a simplified mechanism in declaring and determining related party transaction pricing.

What are regulations on related parties in Vietnam?

Based on Clause 2, Article 5 of Decree 132/2020/ND-CP, specific regulations regarding related parties are as follows:

- One enterprise holds directly or indirectly at least 25% of the owner's capital of the other enterprise;

- Both enterprises have at least 25% of the owner's capital directly or indirectly held by a third party;

- One enterprise is the largest shareholder regarding owner's capital and holds directly or indirectly at least 10% of the total shares of the other enterprise;

- One enterprise guarantees or lends capital to another enterprise in any form (including loans from third parties guaranteed from the related party's financial source and financial transactions of a similar nature) provided that the loan is at least equal to 25% of the owner's capital of the borrowing enterprise and accounts for more than 50% of the total medium- and long-term debt of the borrowing enterprise;

- One enterprise appoints executive board members or controls another enterprise, provided that the number of members appointed by the first enterprise accounts for more than 50% of the total members of the executive board or control board of the second enterprise, or one member appointed by the first enterprise has the right to decide on the financial or business policies of the second enterprise;

- Two enterprises have more than 50% of the executive board members or have one executive board member with the right to decide on financial or business policies appointed by a third party;

- Two enterprises are managed or controlled on personnel, finance, and business operations by individuals in relationships such as spouse; biological parents, adoptive parents, step-parents, parents-in-law; biological children, adopted children, stepchildren of one’s spouse, daughters-in-law, sons-in-law; siblings, half-siblings, brothers-in-law, and sisters-in-law; paternal and maternal grandparents; grandchildren; aunts, uncles, cousins, nephews and nieces;

- Two business establishments have a headquarter and permanent establishment relationship or are permanent establishments of a foreign organization or individual;

- Enterprises are controlled by an individual through their capital contribution to that enterprise or directly participate in managing the enterprise;

- Other cases where an enterprise is under the management, control, and de facto decision in the business operations of another enterprise;

- An enterprise has transactions such as the transfer, acquisition of owner's capital of at least 25% during the tax period; lending or borrowing at least 10% of owner's capital at the time of transaction during the tax period with the person managing, controlling the enterprise or with individuals in relationships regulated at point g, Clause 2, Article 5 of Decree 132/2020/ND-CP.

related-party transactions