What are regulations on related-parties in tax administration for enterprises in Vietnam?

What are regulations on related-parties in tax administration for enterprises in Vietnam?

Pursuant to Article 5 of Decree 132/2020/ND-CP, the related-parties in tax administration for enterprises are as follows:

- related-parties (hereinafter referred to as "related-parties") are parties that have a relationship in one of the following cases:

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

+ The parties are directly or indirectly subject to the management, control, capital contribution, or investment of another party.

- The related-parties in Clause 1 of Article 5 of Decree 132/2020/ND-CP are specifically stipulated as follows:

+ A business holds directly or indirectly at least 25% of the contributed capital of the owner of another business;

+ Both businesses have at least 25% of the contributed capital of the owner held directly or indirectly by a third party;

+ A business is the largest shareholder and holds directly or indirectly at least 10% of the total shares of the other business;

+ A business guarantees or loans capital to another business in any form (including loans from third parties guaranteed by the financial source of the related-party and similar significant financial transactions) with the condition that the loan capital is at least equal to 25% of the contributed capital of the owner of the borrowing business and accounts for over 50% of the total medium and long-term debt value of the borrowing business;

+ A business appoints members of the executive management or controls another business with the condition that the number of members appointed by the first business accounts for over 50% of the total members of the executive management or control of the second business; or a member appointed by the first business has the right to decide on the financial or business policies of the second business;

+ Two businesses have more than 50% of the executive management members or share an executive management member who has the decision-making right on financial or business policies appointed by a third party;

+ Two businesses are operated or controlled in terms of personnel, finance, and business activity by individuals in one of the following relationships: husband, wife; biological parents, adoptive parents, stepfather, stepmother, in-laws; biological children, adopted children, stepchildren, daughter-in-law, son-in-law; siblings together, half-siblings, brother-in-law, sister-in-law; paternal or maternal grandparents; grandchildren; aunts, uncles, cousins, nieces, and nephews;

+ Two business establishments have a head office and permanent establishment relationship or are both permanent establishments of foreign organizations or individuals;

+ Businesses are controlled by an individual through their equity contributions to that business or directly participate in business management;

+ Other cases where the business is effectively managed, controlled, or decided by another business regarding business activities;

+ Enterprises engaging in the transfer or receiving transfer of ownership of at least 25% of the owner's contribution capital in the tax period; borrowing, lending at least 10% of the owner's equity at the time of transaction occurrence in the tax period with individuals managing, controlling the business or individuals in one relationship as prescribed in point g of this clause.

What are regulations on related-parties in tax administration for enterprises in Vietnam?(Image from the Internet)

What are regulations on comparability analysis doctrines to determine the substance of a related party transaction in Vietnam?

Based on Article 6 of Decree 132/2020/ND-CP, the comparability analysis doctrines to determine the substance of a related party transaction is as follows:

- Analysis, comparison of related-transactions performed according to the principle of the essence of the activity or transaction to determine the tax obligation for identifying the nature of related-transactions:

+ The essence of the transaction is compared between the legal agreement contracts or documents, transaction agreements of related-parties with the practical implementation by the parties.

In the case where a taxpayer arises from related-transactions but there are no written agreements or agreements inconsistent with the arm's length principle or actual implementation inconsistent with the arm's length principle between unrelated parties, the related-transaction should be determined accurately based on the business nature between independent parties, specifically:

An related-party that receives revenue or profit from related-transactions with the taxpayer must have ownership and control over business risks concerning the assets, goods, services, resources, rights bringing economic benefits, and rights generating income from shares, stocks, and other financial instruments, and the taxpayer arising costs from transactions with the related-party must receive direct economic benefits or contribute to generating revenue, added value for the production and business activities of the taxpayer in accordance with the arm's length principle;

+ The essence of the transaction is determined by collecting information, evidence, data about the transactions, and risks of the related-parties in practical production and business activities.

What are the responsibilities of relevant ministries and ministry-level agencies in tax administration for enterprises in Vietnam?

According to Article 21 of Decree 132/2020/ND-CP, the responsibilities of relevant ministries and ministry-level agencies in tax administration for enterprises are as follows:

- The Ministry of Finance within its duties and powers is responsible for:

+ Being responsible for implementing state tax administration for enterprises with related-and transactional relationships as stipulated in this Decree;

+ Leading and cooperating with the Ministry of Information and Communications to carry out information and propaganda work on state tax administration for enterprises with related-transactions;

+ Conducting inspections and audits on the implementation of tax regulations for enterprises with related-transactions according to the provisions of this Decree.

- The State Bank within its duties and powers is responsible for:

Cooperating to provide information and data about foreign loans and debt repayments of each specific enterprise with related-transactions based on the list requested by the Tax Authority, including data on loan turnover, interest rates, repayment periods, actual fund withdrawals, debt repayments (principal and interest), and other related information (if any).

- The Ministry of Planning and Investment within its duties and powers is responsible for:

Collaborating to provide data on business registration industries; database on capital structure at the time of licensing and times of adjustment, amendment of investment registration certificates, business registration certificates, and relevant information regarding investment projects when the tax authority conducts inspections and checks on enterprises with related-transactions.

- The Ministry of Science and Technology, Ministry of Agriculture and Rural Development within their duties and powers are responsible for:

Collaborating to provide databases related to technology transfer contracts; industrial property transfer contracts; transfer rights of plant varieties; intellectual property registration dossiers after establishing industrial property rights, rights over plant varieties, and providing information when requested for the Tax Authority to perform tax administration for enterprises with related-transactions.

- The Ministry of Information and Communications within its duties and powers is responsible for:

Collaborating to provide databases about businesses licensed to operate in fields under the scope of management and information on related-transactions in the digital economy as requested by the Ministry of Finance.

- The Ministry of Industry and Trade within its duties and powers is responsible for:

Collaborating to provide databases on transaction prices of goods on domestic commodity exchanges and information according to the functions and duties under the management scope of the Ministry of Industry and Trade, as required for tax administration of enterprises with related-transactions by the Tax Authority.

- The State Capital Management Committee at enterprises within its duties and powers is responsible for:

Cooperating to urge groups, corporations, and related-business groups under management to provide information as prescribed by the Tax Authority.

- People's Committees of provinces and centrally-run cities within their duties and powers are responsible for:

Directing the Department of Planning and Investment, Department of Finance, and departments, boards, and branches to build databases in their specialized management fields to serve tax administration for enterprises with related-transactions.

- The ministries and central authorities within their duties and powers are responsible for coordinating with the Ministry of Finance to implement this Decree.