Vietnam: What is the purpose of analyzing and comparing related-party transactions of enterprises?

According to the Decree No. 132/2020/NĐ-CP of Vietnam’s Government, transfer pricing analyses shall be carried out according to the substance-over-form doctrine under which a transaction determining tax liability is analyzed to determine the substance of a related party transaction:

- The substance of a transaction prescribed by a legally binding agreement, a written document or agreement regarding the transaction performed by related parties is compared to the reality of execution of the transaction by these related parties. In case where any taxpayer performs a related party transaction without entering into any agreement in writing or with agreements incompliant with the arm's length doctrine, or the realistic execution of the transaction does not adhere to the doctrine of arm’s length transactions between unrelated parties, the related party transaction must be determined by the very substance of business transactions between independent parties, i.e. the related party receiving revenue or income from the related-party transaction with the taxpayer shall have the right to own and control risks in trading assets, commodities, services and resources, and the right to create economic benefits and the rights to generate income from shares, stocks and other financial instruments while the taxpayer incurring expenses from the transaction with the related party must either directly receive economic benefits or values, or contribute to creating revenue, values added to business activities of the taxpayer in conformity with the arm’s length doctrine;

- The substance of the transaction is defined by the method of collecting information, evidence and data on transactions or risks posed to related parties in the reality of business activities.

View more details at the Decree No. 132/2020/NĐ-CP of Vietnam’s Government, effective from December 20, 2020.

Thuy Tram

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