5 Principles for Determining Control Rights and the Interest Ratio of the Parent Company

05 principles for determining control, parent company's interest rate (illustrative image)

Article 9 of Circular 202/2014/TT-BTC stipulates 05 principles for determining the control, interest rate of the parent company and the non-controlling shareholders holding in the subsidiary

1. Control is established when the parent company holds directly or indirectly through other subsidiaries over 50% of the voting rights in the subsidiary, except in special cases where it can be proven that such holding does not entail control.

2. The interest of the parent company and the non-controlling shareholders in the subsidiary includes direct and indirect interests acquired through other subsidiaries. The determination of the interests of the parties is based on their respective capital contribution ratios (direct and indirect) in the subsidiary unless there is another agreement. In case of discrepancy between the capital contribution ratio according to the business registration certificate and the actual contributed capital ratio, the interest rate shall be determined according to the company charter or the consensus between the parties.

3. When there are potential voting rights or other derivative financial instruments with potential voting rights, the interest of the parent company is only determined based on the current capital contribution (direct and indirect) in the subsidiary, excluding the execution or conversion of potential voting rights, unless there is another agreement with the non-controlling shareholders.

4. If the subsidiary has cumulative unpaid preferred dividends held by external entities, the parent company can only determine its share of profit or loss after adjusting for the preferred dividends that the subsidiary must pay, whether announced or not.

5. Determining control and interest rate of the parent company, non-controlling shareholders in some cases:

Determining voting rights: The parent company can hold direct voting rights in the subsidiary through the capital that the parent company invests directly in the subsidiary.

Determining the interest rate of the parent company and non-controlling shareholders concerning the subsidiary:

- Determining the direct interest rate: The parent company has a direct interest in the subsidiary if the parent company owns a part or all of the net assets of the subsidiary. If the subsidiary is not wholly owned by the parent company, the non-controlling shareholders of the subsidiary also have a direct interest in the subsidiary. The direct interest is determined based on the investor's ownership ratio in the net asset value of the investee.- Determining the indirect interest rate: The parent company holds an indirect interest in a subsidiary if a part of the subsidiary's net assets is directly held by another subsidiary within the group. The indirect interest rate of the parent company in the subsidiary is determined through the interest rate of the directly investing subsidiary.

Indirect interest rate (%) of the parent company in the subsidiary = Interest rate (%) in directly investing subsidiary x Interest rate (%) of the directly investing subsidiary in the indirectly investing subsidiary

Details can be found in Circular 202/2014/TT-BTC effective from February 27, 2015.

Ty Na

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE