What is the purpose of defining related-party transactions in Vietnam? What transactions are included in related-party transactions?

What is the purpose of defining related-party transactions in Vietnam?

Based on Clause 13, Article 17 of the Law on Tax Administration 2019, the responsibilities of taxpayers are prescribed as follows:

Responsibilities of the taxpayer

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13. Taxpayers involved in related-party transactions are obliged to prepare, store, declare, and provide documentation of information about the taxpayer and their related parties, including information about related parties residing in countries or territories outside of Vietnam, in accordance with regulations of the Government of Vietnam.

Furthermore, Clause 5, Article 42 of the Law on Tax Administration 2019 provides specific regulations on the principles of tax declaration and calculation:

Principles of tax declaration and calculation

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

a) Declare and determine related-party transaction prices based on the principle of analysis, comparison with independent transactions, and the substance-over-form principle to determine tax obligations similar to conditions in independent transactions;

b) Related-party transaction prices are adjusted according to independent transactions to declare and determine tax payable ensuring not to reduce taxable income;

c) Taxpayers with a small scale or low tax risk are exempt from implementing requirements at points a and b of this clause and are allowed to apply simplified procedures in declaring and determining related-party transaction prices.

6. Principles of tax declaration for advance pricing agreement mechanisms are as follows:

a) Application of advance pricing agreements is conducted at the request of the taxpayer and agreed upon between the tax authority and taxpayer through unilateral, bilateral, and multilateral agreements involving the relevant foreign tax authorities;

b) Application must be based on taxpayer information, verifiable commercial databases ensuring legality;

c) Application must be approved by the Minister of Finance before implementation, and bilateral or multilateral agreements involving foreign tax authorities are conducted in accordance with laws on international treaties and agreements.

Thus, the purpose of defining related-party transactions is to eliminate factors that reduce the corporate income tax obligations.

Taxpayers involved in related-party transactions are obliged to prepare, store, declare, and provide documentation of information about the taxpayer and their related parties, including information about related parties residing in countries or territories outside of Vietnam.

- Declare and determine related-party transaction prices based on the principle of analysis, comparison with independent transactions, and the substance-over-form principle to determine tax obligations as in conditions of independent transactions.

- Related-party transaction prices are adjusted according to independent transactions to declare and determine tax payable ensuring not to reduce taxable income.

- Taxpayers with a small scale or low tax risk are allowed to apply simplified procedures in declaring and determining related-party transaction prices.

What is the purpose of defining related-party transactions in Vietnam? What transactions are included in related-party transactions? (Image from the Internet)

What transactions are included in related-party transactions in Vietnam?

Based on Clause 2, Article 1 of Decree 132/2020/ND-CP, related-party transactions include:

- Transactions of purchase, sale, exchange, lease, sublease, loan, lending, transfer, and assignment of goods, provision of services.

- Loans, lending, financial services, financial guarantees, and other financial instruments.

- Purchase, sale, exchange, lease, sublease, loan, lending, transfer, assignment of tangible and intangible assets, and agreements for joint use of resources such as assets, capital, labor, cost sharing among related parties, except for business transactions in goods and services under state-regulated prices, as per legal regulations on pricing.

What are the responsibilities of taxpayers involved in related-party transactions in Vietnam?

According to Clause 13, Article 17 of the Law on Tax Administration 2019, the responsibilities of taxpayers are prescribed as follows:

Responsibilities of the taxpayer

1. Conduct taxpayer registration and use tax identification numbers according to legal regulations.

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13. Taxpayers involved in related-party transactions are obliged to prepare, store, declare, and provide documentation of information about the taxpayer and their related parties, including information about related parties residing in countries or territories outside of Vietnam, in accordance with regulations of the Government of Vietnam.

Thus, as per regulations, the responsibility of taxpayers involved in related-party transactions is to prepare, store, declare, and provide documentation of information about the taxpayer and their related parties, including information about related parties residing in countries or territories outside of Vietnam, according to regulations of the Government of Vietnam.