Decree 20/2017/ND-CP Regulations on tax management for enterprises with related-party transactions officially came into effect on May 1, 2017.
This Decree stipulates the principles, methods, procedures, and steps for determining transfer pricing; the obligations of taxpayers in declaring and determining the prices of related-party transactions and in declaring and paying taxes; and the responsibilities of state agencies in managing, inspecting, and auditing taxes for taxpayers with related-party transactions.
Taxpayers with related-party transactions must declare these transactions; excluding factors that reduce tax liability due to the influence of the related-party relationship, in order to determine that the tax liability for related-party transactions is equivalent to that of independent transactions under the same conditions.
The tax authorities shall manage, inspect, and audit related-party transactions of taxpayers according to the arm's length principle and the substantive principle (substance over form) to disallow related-party transactions that reduce the tax liability of the enterprise to the state budget and to adjust related-party transaction prices to determine the correct tax liability as stipulated in this Decree.
The arm's-length principle is applied in accordance with the principle of transactions between independent parties with no related party relationship as stipulated in the tax agreements in force in Vietnam.
Related parties are parties that have a relationship falling into one of the following categories: one party directly or indirectly participates in the management, control, capital contribution, or investment of the other party; or the parties are directly or indirectly subject to the management, control, capital contribution, or investment of another party.
The aforementioned related parties are specifically defined as follows: One enterprise directly or indirectly holds at least 25% of the owner's equity of the other enterprise; both enterprises have at least 25% of their owner's equity held directly or indirectly by a third party; one enterprise is the largest shareholder in terms of owner's equity of the other enterprise, directly or indirectly holding at least 10% of the total shares of the other enterprise; one enterprise guarantees or lends capital to another enterprise in any form (including loans from third parties secured by the related party's financial resources and similar financial transactions) provided that the loan capital is at least 25% of the owner's equity of the borrowing enterprise and accounts for more than 50% of the total value of the borrowing enterprise's medium and long-term debts;…
"Related-party transactions" are transactions arising between related parties in the production and business process, including: Buying, selling, exchanging, leasing, renting, borrowing, lending, transferring, assigning machinery, equipment, goods, and providing services; borrowing, lending, financial services, financial guarantees, and other financial instruments; buying, selling, exchanging, leasing, renting, borrowing, lending, transferring, assigning tangible and intangible assets, and agreements to share resources such as synergy, cooperation in exploiting and utilizing human resources; and sharing costs between related parties.
View more: Regulations on Related-Party Transactions from May 1, 2017 (Anti-Transfer Pricing)
