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Notes on the determination of associated parties on transfer pricing

Notes on the determination of associated parties according to Circular 66/2010/TT-BTC on transfer pricing

11/11/2019
Notes on the determination of associated parties on transfer pricing
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When declaring transaction information with associated parties using Form 03-7/TNDN (previous Form GCN-01/QLT) together with filing CIT Finalization, many companies currently tend to understand that the associated parties declared in this form, which is governed by Circular 66/2010/TT-BTC of the Ministry of Finance ("Cir. 66") are the same as the related parties presented in the Financial Statements under requirements of Accounting Standard No. 26. However, such interpretations are incorrect and therefore result in the incorrect declaration of associated transaction information under Cir. 66 as well as lead to the risk when going through tax inspection.

It can be said that when determining the associated parties, except some cases in which there is relatively similarity between accounting regulations and Cir. 66 in terms of control rights, Cir. 66 also extends many cases than accounting regulations, specifically, two enterprises shall be considered associated parties if:

  • One enterprise directly or indirectly holds at least 20% of investment capital of the owner of the other enterprise; or.
  • Both enterprises directly or indirectly hold at least 20% of investment capital of the owner of a third party; or.
  • One enterprise is the biggest shareholder regarding investment capital of the owner of the other enterprise, directly or indirectly holding at least 10% of investment capital of the owner of the other enterprise; or.
  • One enterprise guarantees or gives to the other enterprise loans in any form on the condition that such loans account for at least 20% of investment capital of the owner of the borrowing enterprise and account for over 50% of the total value of medium-term and long-term loans of the borrowing enterprise; or.
  • The two enterprises have the relationship of head office and resident establishment or are resident establishments of the same foreign organization or individual; or,
  • One enterprise manufactures or trades in products using intangible assets and/or intellectual property rights of the other enterprise for which it has to make a payment accounting for over 50% of the historical cost (or cost price) of such products; or.
  • Over 50% of the total value of raw materials, materials, supplies or input products (exclusive of fixed asset depreciation expenses) used by one enterprise for manufacturing or trading in output products are supplied by the other enterprise; or.
  • Over 50% of products (calculated for each kind of product) sold by one enterprise is directly or indirectly controlled by the other enterprise: or.
  • The two enterprises have reached a business cooperation agreement on a contractual basis.

We recommend that you should review the above-mentioned cases in order to ensure that all associated parties are declared as requested in Cir. 66. For error cases, enterprises must submit additional declaration before going through transfer pricing inspection by Tax authorities.