On November 05, 11, the Government issued Decree 2020/132 / ND-CP on tax administration for enterprises with associated transactions.
Decree 132/2020 / ND-CP takes effect from December 20, 12 and applies from the corporate income tax period of 2020.
Decree No. 20/2017 / ND-CP dated February 24, 02 and Decree No. 2017/68 / ND-CP dated June 2020, 24 of the Government on tax administration applicable to enterprises with inter-related transactions. expires from December 6, 2020
What is affiliate trading?
According to the provisions of this Decree, associated transactions are transactions of buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring goods or providing services; borrowing, lending, financial services, financial guarantees and other financial instruments; buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring tangible and intangible assets and agreeing to buy, sell, and use resources such as assets, capital, labor cost-sharing activities and sharing between affiliated parties, except for business transactions for goods and services subject to the State's price adjustment scope, which comply with the law on prices.
In a nutshell: Affiliate transactions are almost all of the types of transactions that are possible between affiliated parties.
Why do businesses have to report when there is an associated transaction?
Based on the principle: Independent transactions and the nature of operations, the transaction determines the tax liability corresponding to the value created from the nature of the transaction, production and business activities of the taxpayer.
Associated transaction is a transaction between related parties, so there may be a risk of not following the independent transaction principle of reducing the tax liability of an enterprise to the state budget.
Therefore, the tax authority shall adjust the transfer price in order to correctly determine the tax obligations provided for in this Decree.
Parties that have an affiliated relationship (hereinafter referred to as "a party") are parties with a relationship in one of the following cases:
a) A party participates directly or indirectly in the administration, control, capital contribution or investment in the other party;
b) The parties are directly or indirectly under the control, control, capital contribution or investment of another party.
The affiliated parties in item (a) and (b) above are specified as follows:
Checklist table determines whether the enterprise has associated transactions in the fiscal year (Applied from 2020 onwards)
|Case||Affiliate relationship||Yes / No|
|a||One enterprise holds, directly or indirectly, at least 25% of the equity of the other enterprise;|
|b||Both businesses have at least 25% of the owner's equity held directly or indirectly by a third party;|
|c||An enterprise is the largest shareholder in terms of the owner's equity and holds directly or indirectly at least 10% of the total shares of the other enterprise;|
|d||An enterprise guarantees or lends money to another enterprise of any kind (including third party loans secured from affiliated party finances and financial transactions of an nature in nature. similar) provided that the loan is at least 25% of the equity of the borrower enterprise and accounts for more than 50% of the total value of the medium and long-term liabilities of the borrower;|
|đ||An enterprise appoints a member of the executive board or holds control of another enterprise provided that the number of members appointed by the first firm accounts for more than 50% of the total number of executive board members. or take control of a second firm; or a member appointed by the first firm has authority to decide the financial or business policies of the second firm;|
|e||Two businesses that have more than 50% of the board members or have a member of the board of directors who has the power to decide on financial policies or business activities is appointed by a third party;|
|g||The two businesses are run or controlled by personnel, finances, and business operations by individuals in one of the spousal relationships; biological parents, adoptive parents, stepfather, stepmother, mother-in-law, father-in-law; natural children, adopted children, stepchildren of husband or wife, daughter-in-law, son-in-law; siblings, siblings of the same parent, sibling of the same parent, sibling, sister-in-law, brother-in-law, brother-in-law, sister-in-law, sister-in-law of the same parent, same mother of different father; paternal grandparents, maternal grandparents; grandchildren, grandchildren; aunt, uncle, uncle, uncle and nephew;|
|h||The two business establishments have the relationship of head office and permanent establishment or are permanent establishments of the same foreign organization or individual;|
|i||Enterprises are controlled by an individual through his / her capital contribution to that enterprise or directly participate in operating the business;|
|k||Other cases in which the enterprise is subject to the actual management, control and decision on the production and business activities of the other enterprise;|
|l||The enterprise has transactions of transferring or receiving the transfer of contributed capital of at least 25% of the contributed capital of the enterprise's owner in the tax period; to borrow or lend at least 10% of the owner's equity at the time of the transactions in the tax period with the operator or controller of an enterprise or with an individual in a relationship as prescribed in point g this clause.|
Taxpayers are exempt from declaration, exempted from making transfer pricing determination documents as follows:
1. Taxpayers are exempt from related transaction price determination declaration in Section III, Section IV, Appendix I to this Decree, and exempt from preparing transfer pricing determination dossiers according to the provisions of this Decree. in case transactions only arise with affiliated parties that are taxpayers of corporate income tax in Vietnam, the same corporate income tax rate as taxpayers and neither party is eligible for tax incentives. corporate income in the tax period, but must declare the grounds for exemption in Section I and II in Appendix I to this Decree.
2. Taxpayers shall have to declare and determine associated transaction prices according to Appendix I to this Decree, but are exempt from preparing transfer pricing determination dossiers in the following cases:
a) Taxpayers have associated transactions but the total revenue generated in the tax period is less than VND28 billion and the total value of all related transactions arising in the tax period is less than VND28 billion;
b) Taxpayers who have signed a prior agreement on the method of tax calculation price determination shall submit the annual report according to the law provisions on the prior agreement on the method of tax calculation price determination. Transfer transactions are not covered by the Prior Agreement on method of determining taxable prices, taxpayers shall declare and determine transfer pricing under Article 18 of this Decree;
c) Taxpayers conduct business with simple functions, do not incur no revenue or expenses from the exploitation and use of intangible assets, have turnover of less than VND 200 billion, apply the profit rate. Net interest expenses and corporate income tax (excluding difference of revenue and expenses from financial activities) on net revenue, including the following areas:
Distribution: From 5% or more;
Production: From 10% or more;
- Processing: From 15% or more.
In case the taxpayer tracks and accounts separately the revenue and expenses of each field, the net profit margin without loan interest expense and corporate income tax on net sales corresponding to each field will be applied. .
In case the taxpayer can separately track and record revenue but cannot track and separately account costs incurred in each sector in the production and business activities, the expense shall be distributed according to the proportion of turnover. revenue of each field to apply the net profit margin without interest expense and corporate income tax on net sales corresponding to each sector.
In case the taxpayer fails to separately track revenues and expenses of each production and business field to determine the net profit margin without loan interest expenses and comparable corporate income tax. For each field, the net profit margin without interest expense and corporate income tax on net revenue of the sector with the highest rate will be applied.
In cases where taxpayers do not apply the net profit rate prescribed in this point, they must make dossiers on determination of associated transaction prices according to regulations.
3. Taxpayers who are exempt from declaring and / or preparing transfer pricing determination dossiers as provided for in Clauses 1 and 2 of this Article, and the determination of total deductible interest expenses when determining collection Taxable income of the enterprise with associated transactions is specified in Clause 3, Article 16 of this Decree.
|Document||Effective date||Expiration date|
|Decree 20/2017 / ND-CP on tax administration applicable to enterprises with associated transactions||01-05-2017||19-12-20|
|Decree 68/2020 / ND-CP amending Clause 3 Article 8 of Decree 20/2017 / ND-CP on tax administration applicable to enterprises with associated transactions||24-06-20||19-12-20|
|Decree 132/2020 / ND-CP on tax administration applicable to enterprises with associated transactions||Take effect from 20-12-2020 and apply from the corporate income tax period 2020|
2020: What businesses need to do to comply with the transfer pricing regulations
1. Review according to the checklist of cases of associated transactions subject to declaration and documentation of related transactions
2. Researching the provisions in this Decree applicable from the enterprise income tax period of 2020 (the finalization of corporate income tax in 2020).
Consequences if the company does not comply, does not comply with this Decree if there is an associated transaction
1. To be subject to tax assessment:
Tax authorities have the power to set prices; profit margin; rate of profit distribution; taxable income or corporate income tax payable for taxpayers who do not comply with regulations on declaration and determination of associated transactions; failure to provide or provide incomplete information or data to determine associated transaction prices in the following cases:
a) Taxpayers fail to declare or provide insufficient information or submit Appendix I to this Decree;
b) Taxpayers provide incomplete information on transfer pricing documentation specified in Appendix II and Appendix III to this Decree or fail to present inter-transaction price determination documents. results and data, vouchers and documents used as a basis for analysis, comparison and price determination in the transfer pricing determination dossier at the request of the tax authority within the time limit prescribed in This Decree. Information in the transfer pricing determination dossier is determined to be material if it affects the results of analysis and selection of similar independent comparables; the method of determining the transfer price or the result of the taxpayer's price level adjustment, profit rate or profit distribution ratio;
c) Taxpayers use untruthful or untruthful information about independent transactions to analyze, compare, declare and determine associated transaction prices or rely on documents, data and evidence. from the unlawful, invalid or unspecified origin to determine the price, rate of profit or distribution of profit applicable to the related transaction;
d) The taxpayer commits a violation of the transfer pricing regulations in Article 19 of this Decree;
2. A fine of between VND 8.000.000 and 15.000.000 shall be imposed for the following acts:
Do not submit appendices according to regulations on tax administration for enterprises with associated transactions and corporate income tax finalization dossiers.
Applicable to businesses with associated transactions in 2017-2018-2019
Clause 3, 4 Article 22 stipulates:
3. Declaration and finalization of corporate income tax in 2017 and 2018:
a) Taxpayers subject to additional declarations for 2017 and 2018 CIT finalization declaration as prescribed in Clause 2 Article 2 of Decree No. 68/2020 / ND-CP dated June 24, 6 of the Government but not yet made additional declarations in the CIT finalization dossier, which will continue until January 2020, 01;
b) The taxpayer has been inspected and examined by a tax authority or a competent authority and has obtained the inspection conclusion, examination, and handling decision for the tax period 2017 and 2018. but in the case of re-determination of the payable tax amount under Point c, Clause 2, Article 2 of Decree No. 68/2020 / ND-CP dated June 24, 6, but until the effective date of this Decree, no proposal has been submitted. If it is proposed to the tax office, the taxpayer may request the supervisory tax office to re-determine the payable tax amount;
c) If the amount of corporate income tax or late payment interest paid to the state budget in 2017 or 2018 is larger than the amount of corporate income tax, late payment interest has been re-determined, the the difference shall be offset against the corporate income tax amount from 2020 to the end of 2024. At the end of the above time limit, the remaining tax amount not yet fully cleared shall not be handled.
4. For the case of transferring interest expenses to the next tax period upon finalization of corporate income tax in 2019 according to the provisions of Decree No. 68/2020 / ND-CP, the time for transferring interest expenses calculated continuously, not exceeding 05 years from the CIT period of 2020. In case after 05 years, the payment is not fully transferred, the remaining interest expense shall not be transferred to the next tax period.