Compliance with regulations regarding related-parties transactions

What are compliance requirements for enterprises regarding related - party transactions?

Enterprises that record related-party transactions must comply with the requirements summarized below. For the period 2010 - 2016, the compliance requirements are specified in Circular 66/2020/TT-BTC (“Circular 66”).

From 2017, enterprises will comply with the requirements in Decree 20/2017/NĐ-CP (“Decree 20”), Circular 41/2017/TT-BTC (“Circular 41”).

In November 2020, the Government issued Decree 132/2020/NĐ-CP (“Decree 132”) replacing Decree 20 on tax administration for enterprises with related-party transactions. Decree 132 takes effect from December 20, 2020. Accordingly, from 2020, compliance requirements will be fulfilled in accordance with Decree 132.

Description	Decree 132	Decree 20 and Circular 41	Circular 66
Applicable tax year	Since 2020	2017-2019	2021-2016
Related-party transactions information appendix	Enterprises need to prepare 03 appendix related to related-party transactions, including: Appendix I: Interrelationship and related-party transaction information Appendix II: List of information and documents to be provided in the Local files Appendix III: List of information and documents to be provided in the Master files	Enterprises need to prepare 04 appendix related to related-party transactions, including: Appendix I: Interrelationship and related-party transaction information Appendix II: List of information and documents to be provided in the Local files Appendix III: List of information and documents to be provided in the Master files *Appendix IV():*Country-by-Country reports of profits of ultimate parent companies () Particularly, Appendix IV only applies to ultimate parent company in Vietnam, generates at least VND 18,000 billion in their global consolidated revenue and operates in many countries.	Enterprises need to prepare Form GCN-01/QLT. For the period 2013 – 2016, Enterprises need to prepare Form 03-7/TNDN (as prescribed in Circular 156/2013 / TT-BTC), replacing Form GCN-01 / QLT.)
Deadline for submission of related-party transaction information appendix	Submit with the corporate income tax finalization statement (“CIT”) (no later than the last day of the third month, from the end of the fiscal year).	Submit with the corporate income tax finalization statement (“CIT”) (no later than the 90th day, from the end of the fiscal years).
The transfer pricing files	Taxpayers shall be responsible for retaining and providing the transfer pricing files comprising information, documents, data and records, including: Interrelationship and related party transaction information provided in the form given in Appendix I hereto; Local files - prescribed in Appendix II hereto; Master files - prescribed in Appendix III hereto; Country-by-Country reports of profits of ultimate parent companies (”CbCR”) () () If a taxpayer is an ultimate parent company in Vietnam that generates at least VND 18,000 billion in their global consolidated revenue, then they shall take responsibility for preparing a CbCR. The duration of submission of these reports to tax authorities shall be 12 months starting from the ending date of the ultimate parent company’s fiscal year. For subsidiary companies, if the ultimate parent company must prepare a CbCR, the subsidiary must provide the CbCR to the tax authority. Except for the case that the ultimate parent company (or the organization that the parent company designates to act on their behalf to submit the CbCR) is established in a country that has an international agreement on taxation with Vietnam, has signed an agreement of the competent authority with Vietnam and an automatic communication mechanism, the tax authority will automatically communicate with foreign tax authorities. In addition, if there are multiple subsidiaries in Vietnam, a taxpayer may be designated as the representative to submit the CbCR to the tax authority.	Transfer pricing documentation is made before the time of annual CIT finalization and must be kept and presented as required by tax authorities. Transfer pricing documentation includes: Local files - prescribed in Appendix II hereto; Master files - prescribed in Appendix III hereto; A copy of Country-by-Country reports of profits of the ultimate Parent Company (*) (*) In case the ultimate Parent Company is not required to prepare Country-by-Country report of profits according to local regulations; The enterprise in Vietnam prepares a explanation letter stating the reason.	Transfer pricing documentation is specified in Article 7, Circular 66.
The time limit for submission of the transfer pricing file	In inspection: not specified deadline; During the pre-inspection: 30 working days; be extended only once to no longer than 15 working days.	In inspection: 15 working days; During the pre-inspection:30 working days; be extended only once to no longer than 15 working days.	Within 30 working days; be extended only once to no longer than 30 working days.

Conditions that enterprises can be exempted from compliance?

Decree 132 (and previous Decree 20) also provides a number of cases where enterprises will be exempted from transfer pricing declaration and documentation requirements. As follows.

Exemption from the transfer pricing declaration requirements referred to in Section III and IV of the Appendix I, and the transfer pricing documentation requirements prescribed only if ALL of the following conditions are met:

Taxpayers are engaged in transactions with related parties that must pay corporate income tax within the territory of Vietnam;
Taxpayers subject to the same corporate income tax rate and all of them are not offered the corporate income tax incentive within a specified taxable period.

Notice:

Exemption bases must be declared in Section I, Section II in the Form No. 01 of the Appendix enclosed herewith Decree 20.
According to the guidance in some official letters of the tax authorities, if the enterprise satisfies the condition of exemption from declaration in Section III, Section IV Form No. 01, the enterprise is also exempt from preparing transfer pricing documentation.

Exemptions from transfer pricing documentation must satisfy one of the following three cases:

Taxpayers’ total sales arising within a specified taxable period are less than VND 50 billion, and their total values of the related-party transactions arising within a specified taxable period do not exceed VND 30 billion;
Or, Taxpayers already entering into Advance Pricing Agreement (APA) have submitted the annual report in accordance with legislation on Advance Pricing Agreements;
Or, The sales of less than VND 200 billion, as well as applying the ratio of net operating profit before deducting loan interest and corporate income tax to net sales, in the following sectors:
- Distribution: 5% or over;
- Manufacturing: 10% or over;
- Processing: 15% or over.

Notice:

The related-party transaction must be declared according to Form No. 01.

What are difficulties for enterprises in complying with the regulations?

Lack of detailed instruction documents:

Compared to other tax sectors (Corporate Income Tax (“CIT”), Personal Income Tax (“PIT”), etc.), the system of regulations on transfer pricing is quite simple, consisting of two Decree and a Circular above. Transfer pricing guidance documents are also relatively limited compared to other sectors and are often focused on answering principle issues.

Therefore, enterprises often face many difficulties in the process of understanding and applying the regulations on transfer pricing in their operations as well as identifying and implementing legal compliance requirements.

Some differences in compliance requirements with international practices:

In case the taxpayer does not satisfy the exemption or reduction conditions specified in Decree 132, in addition to the transfer pricing declaration enclosed with the annual tax finalization statement, the taxpayer will have to preparation of Transfer Pricing Documentation (“Related-party transaction files”) (includes Global Files (“HSTC”), Local Files (“HSQG”), and Country-by-Country Report of Profits ("CbCR")).

The content of these three documents / reports in accordance with Decree 132 is similar to the OECD recommendation for BEPS actions. However, there are some differences, making it difficult for taxpayers to comply with the following:

Documents/ Reports	In Vietnam	International practices
CbCR	If a taxpayer is an ultimate parent company in Vietnam that generates at least VND 18,000 billion in their global consolidated revenue, then they shall take responsibility for preparing a CbCR. The duration of submission of these reports to tax authorities shall be 12 months starting from the ending date of the ultimate parent company’s fiscal year. In the remaining cases (not the ultimate parent company in Vietnam) the taxpayer should provide the tax authority CbCR, except for the case that the ultimate parent company (or the organization that the parent company designates to act on their behalf to submit the CbCR) is established in a country that has an international agreement on taxation with Vietnam, has signed an agreement of the competent authority with Vietnam and an automatic communication mechanism, the tax authority will automatically communicate with foreign tax authorities. In case the ultimate parent company is not required to prepare the CbCR, international tax treaties will be followed.	If the taxpayer is the ultimate parent company and generates global consolidated revenues greater than the minimum level (e.g. Japan is JPY 100 billion; Korea is KRW 1 trillion, etc.), then the taxpayer Tax should prepare a CbCR according to the prescribed form. Taxpayers, if not the ordinary ultimate parent company, only need to notify the tax authority, there is no need to prepare and submit a copy of the CbCR of the ultimate parent company to the tax authority.
Global Files	No regulations specific exemptions. Accordingly, taxpayers need to prepare HSTC in cases where the Group is not required to prepare according to overseas regulations.	Applicable to enterprises that satisfy certain conditions. For example: In Japan, applies to enterprises with consolidated revenue of JPY 100 billion; In Korea, applies to enterprise with consolidated revenue of KRW 100 billion and related- party transactions value of KRW 50 billion, etc.).

Documents/ Reports

In Vietnam

International practices

CbCR

If a taxpayer is an ultimate parent company in Vietnam that generates at least VND 18,000 billion in their global consolidated revenue, then they shall take responsibility for preparing a CbCR. The duration of submission of these reports to tax authorities shall be 12 months starting from the ending date of the ultimate parent company’s fiscal year.

In the remaining cases (not the ultimate parent company in Vietnam) the taxpayer should provide the tax authority CbCR, except for the case that the ultimate parent company (or the organization that the parent company designates to act on their behalf to submit the CbCR) is established in a country that has an international agreement on taxation with Vietnam, has signed an agreement of the competent authority with Vietnam and an automatic communication mechanism, the tax authority will automatically communicate with foreign tax authorities.

In case the ultimate parent company is not required to prepare the CbCR, international tax treaties will be followed.

If the taxpayer is the ultimate parent company and generates global consolidated revenues greater than the minimum level (e.g. Japan is JPY 100 billion; Korea is KRW 1 trillion, etc.), then the taxpayer Tax should prepare a CbCR according to the prescribed form.
Taxpayers, if not the ordinary ultimate parent company, only need to notify the tax authority, there is no need to prepare and submit a copy of the CbCR of the ultimate parent company to the tax authority.

Global Files

No regulations specific exemptions.
Accordingly, taxpayers need to prepare HSTC in cases where the Group is not required to prepare according to overseas regulations.

Applicable to enterprises that satisfy certain conditions. For example:
In Japan, applies to enterprises with consolidated revenue of JPY 100 billion;
In Korea, applies to enterprise with consolidated revenue of KRW 100 billion and related- party transactions value of KRW 50 billion, etc.).

Time limit to prepare transfer pricing dossier:

Taxpayers are responsible for keeping and providing the transfer pricing documentation when requested by tax authorities.

Enterprises will have to provide timely records to the tax authorities in case of inspection (not specify the deadline); and 30 working days, extended only once to no longer than 15 working days for a reasonable explanation - in the case of pre-inspection.

Compared to other countries around the world, the time limit for preparing and submitting the transfer pricing documents in Vietnam is relatively short. In other countries, this is usually from 5 to 12 months from the end of the fiscal year.

For example:

In Japan, taxpayers will be required to submit the local files to the tax authority within 45 days of the request, the Global files and the CbCR will be submitted via electronic declaration within 12 months from the ending date of the fiscal year.
In Korea, within 12 months, taxpayers need to submit transfer pricing documentations (local files, global files, and CbCR) to the tax authorities through the electronic declaration system.

Difference in time limit for preparation of transfer pricing documentations may cause taxpayers (especially FDI enterprises) to have difficulty in contacting the Group, the ultimate parent company to obtain the Global files, CbCR. In case the Group or parent company is unable to promptly prepare these documents according to the compliance deadline in Vietnam, the enterprise in Vietnam may have to consider preparing these documents by themselves, thereby generating additional time and costs.

Compliance with regulations regarding related-parties transactions/ transfer pricing