On February 24th 2017, the Government issued the Decree 20/2017/ND-CP regulating rules, methods, sequences, procedures which define price of associated transactions, taxpayers ‘obligations in tax declaration; define price of associated transactions and declare payable tax, responsibilities of the state authorities in tax administration, examination, inspection to taxpayers who involve in associated transactions. In the aim of counteracting the transfer of prices in Vietnam and enhancing transparency in associated transactions, the Decree contains some noticeable contents as follow:
– Issuing the principle “substance over form”: basing on the data, the facts of implementing transactions among associated parties in order to make comparison with independent transactions in the similar conditions, regardless of the form of transactions stated in the contracts, documents among parties involving associated transactions.
– Associated parties are prescribed by the following thresholds:
The ownership threshold from 25% or more in capital ownership, loan, loan guarantee
The threshold in managing, voting, controlling enterprises from 50% or more
Enterprises managed or controlled by individuals on marital relationship, parents, one’s own children, siblings, sister in laws, grandparents, grandchildren, uncles, and aunts.
The Decree abrogated the regulation that two enterprises having sales or purchases of goods over 50% in each other’s sales is associated transaction.
– Declaration record: enterprises with associated transactions have to declare information about associated transaction in accordance with sample 01 attached in the Decree and submit along with the declaration document of corporate income tax finalization. The samples 02, 03, 04 and other documents are kept at enterprises and enterprises are in charged with providing for tax authorities within 15 days since the requested day. Record sample consists of many new contents such as: national record, global record, cross-national profit statement.
In the declaration record of associated transactions, enterprises are not allowed lessening the obligation of payable corporate income tax in Vietnam.
The Decree also regulates that companies providing consultancy on tax, external audit are permitted to provide services on making record which defines the price of associated transactions.
– Some entities are exempted from making record defined the price of associated transaction including:
Enterprises arising associated transactions but total annual income is less than 50 billion Vietnamese dong and the price of those transactions is less than 30 billion Vietnamese dong.
Enterprises singed advanced pricing agreements
Enterprises make a simple business with annual income below 200 billion Vietnamese dong, the rate of earnings before interest and corporate income tax over revenue at least as follow: distributing 5%, manufacturing 10%, processing 15%.
– The expense of tax calculation in the situations that business arises associated transactions:
Total deductible expense of loan interest for calculating tax doesn’t exceed 20% of total net earnings before interest, tax, depreciation and amortization.
In term of internal services, taxpayers have to prove those internal services probably flow economic benefits to them, as well as show out the evidence on the reasonableness of the method of defining price.
The Decree also stipulates that tax authority has its power to set a fixed price, a rate of return, taxable income or payable amount of tax in case enterprises fail to declare or incompletely declare in accordance with sample 01, don’t provide the record of defining associated transactions, dishonestly declare associated transactions or use illegal, unauthentic evidence for the proved purpose.
This Decree becomes effective as from May 01st 2017.
