In order to strengthen tax management for enterprises with related-party transactions, the General Department of Taxation issued Official Letter No. 5654/TCT-TTKT dated December 13, 2023, with the following notable guidelines.
1. Some contents of official document No. 5654/TCT-TTKT
1.1. Strengthen tax inspection and auditing for businesses with high-risk transfer pricing transactions involving related-party transactions.
Strengthen the inspection of tax declarations and analyze the production and business activities of enterprises with related-party transactions in the area; review and synthesize information from various sources on business sectors, types of enterprises, investment status, declaration and adjustment of related-party transaction prices, etc., to identify enterprises with signs of transfer pricing risk (such as enterprises with large or high-value revenue and expenses with related parties; enterprises declaring large and continuous losses for many years but still expanding production and business scale; enterprises with revenue growth but low tax payments to the state budget;...). Through this, collect information and documents for in-depth analysis and identify enterprises with high transfer pricing risk.
The Tax Department, based on the guidance in Official Letter No. 5127/TCT-TTKT dated November 16, 2023, regarding the preparation of the 2024 tax inspection and audit plan, will include enterprises with high-risk indicators regarding transfer pricing (as mentioned above) in the 2024 tax inspection and audit plan as prescribed; specifically identifying transfer pricing inspection and audit as the focus.
1.2. Coordinate with relevant departments and agencies in the area to strengthen efforts to combat transfer pricing.
– Coordinate with local departments, agencies, and media outlets to disseminate information to businesses in the area regarding tax laws, including laws on tax management for businesses with related-party transactions, and provide information on tax management policies for businesses with related-party transactions.
– Strengthen the exchange and collection of information and data from businesses with related-party transactions, especially foreign-invested enterprises in the area, to serve tax management purposes.
– Regularly and continuously gather information to detect signs of violations and promptly prevent large-scale and complex fraudulent activities, as well as new forms of transfer pricing and tax avoidance. In cases where signs of criminal violations are detected, promptly refer the matter to the police for handling according to the law.
2. What should businesses do to avoid tax risks?
To proactively comply with regulations and mitigate related-party transaction risks, businesses need to equip themselves with knowledge about related-party transactions. You can read our guide on related-party transactions here.
See more: Knowledge of related-party transactions
To proactively comply with regulations and mitigate related-party transaction risks, businesses should take the following steps:
- Carefully study the legal regulations on tax management for businesses with related-party transactions, especially those recently enacted.
- Develop internal regulations on transfer pricing and procedures for determining transfer pricing that are appropriate to the specific operations of the enterprise.
- Prepare complete documentation to prove independent transaction prices between related parties.
- Strengthen accounting practices and the archiving of documents and records related to related-party transactions.
- Proactively provide accurate, complete, and timely information as requested by the tax authorities.
- Regularly review and reassess transaction prices to ensure they comply with the independent trading principle.
Remember, complying with regulations and following proper procedures not only helps you avoid legal risks but also contributes to the transparency and financial health of your business.
Implementing the above is not easy for businesses; the effective solution is to use professional services: Collaborate with financial, accounting, and tax experts to ensure you follow the correct procedures and comply with legal regulations.
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