Tax administration regulations applicable to enterprises with associated transactions
On November 25th, 2020, the Government issued Decree No. 132/2020/ND-CP on tax administration applicable to enterprises with associated transactions.
Accordingly, this Decree prescribes the principles, methods and order of determining the factors that form associated transaction prices; rights and obligations of taxpayers in determining transfer pricing, declaration procedures; Responsibilities of state agencies in tax administration for taxpayers with associated transactions.
Regarding related transactions covered by the Decree:
Transactions include: buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring goods, 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.
Regarding the principles of application:
Taxpayers with associated transactions must exclude factors that reduce tax liability dominated by the association relationship, the effect of declaring and determining tax obligations for related transactions similar to independent transactions which has the same conditions.
Regarding the taxpayer's competence to manage, examine and inspect the transfer pricing of transactions:
The tax authority that manages, checks and inspects according to the principles of independent transactions and the nature of operations and transactions shall decide the tax liability corresponding to the value created from the transaction nature, production and business activities. Taxpayers' joint venture, not recognizing associated transactions that are not in accordance with the principles of independent transactions, reduce the enterprise's tax liability to the state budget and adjust the associated transaction price for correct determination of tax obligations in this Decree.
In addition to the above issues, the Decree also specifies the determination of the tax calculation expenses for enterprises with transaction association. In which, clearly stating the payment of deductible loan fee when determining taxable income of enterprise income tax for enterprises with transaction association:
- Total deductible interest expenses after deducting deposit and loan interests in the period of the taxpayer when determining taxable income of corporate income tax does not exceed 30% of the total net profit from business operating in the period plus loan interest costs after deducting deposit and loan interest incurred in the period plus depreciation costs incurred in the period of the taxpayer;
- Non-deductible interest expenses specified in point a shall be carried over to the next tax period when determining total deductible interest expenses in case the total deductible interest expenses of the next tax period according to the lower level specified at Point a of this Clause. The time to transfer loan interest expenses is continuous not exceeding 5 years from the year following the year the interest expense arises.
- Point a does not apply to loans of taxpayers being credit institutions under the Law on Credit Institutions; to organize insurance business under the Law on Insurance Business; Official development assistance (ODA) and concessional loans of the Government, which are done by the way the Government borrows foreign loans to enterprises; loans for the implementation of the national target program (new rural program and sustainable poverty reduction); loans for investment in programs and projects to implement the State's social welfare policies (resettlement housing, housing for workers, students, social housing and other public welfare projects);
Taxpayers shall declare the loan interest rate ratio in the tax period according to Appendix I to this Decree.
