The General Department of Taxation to require strengthening tax administration for enterprises with related party transactions in Vietnam

Hello, the editor would like to answer as follows:

1. What is related-party transaction?

According to the provisions of Clause 22, Article 3 of the Law on Tax Administration 2019,“related-party transaction” means a transaction between related parties.

Which transactions are considered related party transactions?

Clause 2, Article 1 of Decree 132/2020/ND-CP stipulates the scope of tax administration adjustments for enterprises with related party transactions:

Related party transactions covered by Decree 132/2020/ND-CP comprise such transaction activities as purchase, sale, bartering, renting, leasing out, borrowing, lending, transfer or disposal of commodities, provision of services; financial borrowing, lending, financial services, financial guarantee and other financial instruments; purchase, sale, bartering, renting, leasing out, borrowing, lending, transfer or disposition of tangible assets, intangible assets and agreement on purchase, sale and sharing of resources such as assets, capital, labor and sharing of costs between related parties, except business transactions in goods and services subject to price adjustments that the State makes under laws on prices.

2. The General Department of Taxation to require strengthening tax administration for enterprises with related party transactions in Vietnam

On December 13, 2023, the General Department of Taxation issued Official Dispatch 5654/TCT-TTKT on strengthening tax management for enterprises with related party transactions as follows:

Facing the increasing trend of integration and globalization, the problem of tax management
For businesses with related transactions, preventing the exploitation of transfer pricing to avoid corporate income tax is one of the key issues of tax management, receiving special attention from the Government and the Ministry of Finance.

In order to strengthen tax management, avoid loss of state budget revenue, and create equality among businesses, the General Department of Taxation recommends that the Tax Department perform the following tasks:

- Strengthen inspections and tax audits for businesses that have related party transactions with high transfer price risks:

Promote the inspection of tax declaration records and the analysis of the production and business activities of enterprises with related transactions in the locality; Review and synthesize information from sources about operating industries, types of businesses, investment status, declaration status, adjustment of associated transaction prices, etc. to identify businesses that show signs of transfer pricing risk (such as businesses that generate revenue and expenses with affiliated parties of great value or high proportion; enterprises that declare large and continuous losses for many years but still expand production and business scale; there is revenue growth but the amount of tax payable to the state budget is low;...).

Thereby, collect information and documents for in-depth analysis and identify businesses with signs of high transfer price risk.

The Department of Taxation, based on Official Dispatch 5127/TCT-TTKT dated November 16, 2023, will include businesses with signs of high transfer price risk (mentioned above) in the 2024 tax inspection and audit plan according to the law; which specifically defines inspection and examination of transfer prices.

- Coordinate with relevant departments, agencies, and branches in the area to promote anti-transfer pricing work:

+ Coordinate with departments, branches, and local press agencies to propagate and disseminate to businesses in the area about tax laws, including the law on tax management for enterprises with related party transactions and providing information on tax management policies for enterprises with concurrent related party transactions.

+ Enhance the exchange and collection of information and data by businesses that have related party transactions, especially foreign investment enterprises in the area, to serve tax management.

+ Capture information regularly and continuously to detect signs of violations and promptly prevent large-scale, complex fraud, new forms of transfer pricing, and tax avoidance. In the event of detecting signs of a criminal violation, promptly transfer them to the police agency for handling according to the provisions of the law.

- Regarding strengthening training, learning, and sharing experiences:

+ Organize training classes to improve tax officials' qualifications in foreign languages and expertise; organize training conferences to share experiences and problems arising in tax management for businesses that have related party transactions with local tax authorities.

+ Actively exchange and discuss at conferences and seminars on transfer pricing conducted by the General Department of Taxation in coordination with international organizations. Attend all training courses on transfer pricing inspection and testing organized by the General Department of Taxation.

- Regarding propaganda and raising legal awareness for the business community:

+ Organize business dialogue conferences with tax authorities; coordinate with business associations and relevant local departments to increase support, guidance, and answer questions for businesses through many forms: written, electronic, website, etc.To propagate tax laws, transfer pricing, and raise awareness among businesses.

+ Actively coordinate with local radio, television, and newspaper agencies to develop propaganda programs to disseminate tax laws in general and tax laws on related-party transactions in particular.

Thus, the General Department of Taxation requires local Tax Departments to strengthen tax management for businesses with related party transactions.

Specifically, Tax Departments need to improve inspection and examination work; Coordinate closely with local agencies; strengthen the training of professional human resources; and, at the same time, proactively propagate and raise awareness among the business community about tax laws and transfer pricing. Aims to strengthen control, prevent tax loss, and ensure fairness in business operations.

Best regards!