“With the growing need to expand operations in different fields and countries, businesses are increasingly expanding and developing their network and activities to create favorable conditions for their businesses around the world. This includes building a closed supplier eco-system. However, from tax administration perspective, transactions between enterprises in the same system or between enterprises that have capital control and management on each other are understood as related transactions. The regulation and supervision of tax authorities on these transactions are quite stringent.”
To help businesses avoid tax risks when associated transactions arise, it is necessary to check if the records have complied with tax regulations and correctly assess what the real risks are. Let us identify tax risks in affiliate transactions through this article.
According to Clause 2, Article 1 of ‘Decree 132/2020/ND-CP’, affiliate transactions are transactions of buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, assigning goods, providing services, loans, financial services, financial guarantees, other financial instruments, transferring tangible assets more intangible assets, and agreements to buy, sell, or use common resources such as assets, capital, labor activities, and cost-sharing among related parties, except for business transactions in goods and services subject to the state’s price adjustment scope in accordance with the law on prices.
When reviewing corporate tax records, tax authorities pay special attention to transactions in which purchase and sale price is not consistent with the market price or lower than the cost price, or the price in signed contracts. Service providers who do not actually generate services, payment activities on behalf of employees, costs for personnel when moving to work between affiliated enterprises, costs for trademarks, copyrights, secrets, etc … many other transactions come under the lens of the authorities.
Tax risks in associated transactions include, but are not limited to loss, damage to property or impaired business profits that may occur while performing transfer pricing activities and transfers, valuation of corporate income tax and inspection of transfer pricing issues at the enterprise.
Here are a few tax risks that frequently arise in affiliate transactions:
To avoid tax risks in related-party transactions, businesses should pay attention to the following:
Thus, these are some of the tax risks in associated transactions that we frequently encounter in the implementation process. Hopefully, this article would help businesses understand the tax risks in associated transactions and limit those risks so that plans and decisions suitable for its business activities in Vietnam can be made. This not only helps businesses optimize business profits, but also ensures compliance with tax laws and expands the scale of their business activities.
The article is based on applicable law at the time noted above and may no longer be relevant at the time the reader approaches this article due to the change in applicable law and the specific case in which the reader wishes to apply. Therefore, the article has only reference values.