Decree No. 20/2017/ND-CP on tax management for enterprises with related party transactions

DECREE

On the management of tax for enterprises with related party transactions

there is an associated transaction

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Pursuant to the Law on Government Organization dated June 19, 2015;

WHEREAS, the Law on Tax Administration dated November 29, 2006; the Law Amending and Supplementing Certain Provisions of the Law on Tax Administration dated November 20, 2012;

WHEREAS, the Law on Corporate Income Tax dated June 3, 2008; the Law Amending and Supplementing Certain Provisions of the Law on Corporate Income Tax;
June 19, 2013;

Pursuant to the Law amending and supplementing certain Articles of Laws on Taxation dated November 26, 2014;

Pursuant to the Investment Law dated November 26, 2014;

Pursuant to the Enterprise Law dated November 26, 2014;

Pursuant to the Accounting Law dated November 20, 2015;

At the proposal of the Minister of Finance;

THE GOVERNMENT issues this Decree to stipulate the management of tax for enterprises with related party transactions.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Decree stipulates principles, methods, procedures, and formalities for determining the price of related party transactions; the obligations of taxpayers in declaring and determining the price of related party transactions and paying taxes; the responsibilities of state agencies in managing, inspecting, and auditing taxes for taxpayers who have related party transactions.

2. The related party transactions within the scope of regulation of this Decree are transactions arising from business activities of taxpayers having related party relationships as prescribed in Article 5 of this Decree, except for transactions involving goods and services subject to state pricing regulations implemented in accordance with laws on pricing.

Article 2. Applicability

1. Organizations engaged in production and business of goods and services (hereinafter referred to as taxpayers) who are subject to corporate income tax under the declaration method and have transactions with parties having related party relationships as prescribed in Article 5 of this Decree.

2. Tax authorities include the General Department of Taxation, Tax Bureaus, and Tax Sub-bureaus.

3. Other state agencies, organizations, and individuals involved in the application of regulations on the management of prices of related party transactions, including tax authorities of countries and territories with valid tax agreements with
Vietnam.

2. Industrial emission testing must ensure timeliness, accuracy, objectivity, compliance with procedures, and adherence to legal provisions.

1. Taxpayers with related party transactions must declare such transactions; eliminate factors reducing tax liabilities due to related party relationships to determine tax liabilities for related party transactions equivalent to independent transactions under similar conditions.

2. Tax authorities shall manage, inspect, and audit the prices of related party transactions of taxpayers according to the principle of independent transactions and the substance over form principle to not recognize related party transactions that reduce corporate tax liabilities to the state budget and adjust the prices of related party transactions to accurately determine tax liabilities as prescribed in this Decree.

3. The principle of independent transactions is applied according to the principle of transactions between independent parties without related party relationships under valid tax treaties in Vietnam.

Article 4. Definitions        

1. "Tax Treaty" refers to the Agreement to Avoid Double Taxation and Prevent Fiscal Evasion with Respect to Taxes on Income signed between Vietnam and other countries, regions, and amendments and supplements to existing treaties in force in Vietnam.

2. "Partner Tax Authority" is the tax authority of the country or region that has signed a tax treaty with Vietnam.

3. "Related Party Transaction" is a transaction occurring between parties with related party relationships during production and business operations, including: Purchase, sale, exchange, lease, lending, borrowing, transfer, assignment of machinery, equipment, goods, provision of services; lending, borrowing, financial services, financial guarantees, and other financial instruments; purchase, sale, exchange, lease, lending, borrowing, transfer, assignment of tangible and intangible assets, and agreements on joint use of resources such as joint ventures, cooperative exploitation and use of human resources; sharing costs among related parties.

4. "Independent Transaction" is a transaction between parties without related
party relationships.

5. "Comparable Independent Entity" is an independent transaction or enterprise conducting an independent transaction selected based on comparative analysis to determine a comparable object for determining the price level; profit margin; profit allocation ratio to ensure taxpayers' tax liabilities paid to the state budget comply with the Law on Tax Administration and the Law on Corporate Income Tax.

6. "Material Difference" is a difference in information or data significantly affecting the price level; profit margin and profit allocation ratio of the parties involved in the transaction.

7. "Tax Authority's Database" is information and data built, managed, collected, analyzed, stored, updated, and managed by the tax authority in accordance with the Law on Tax Administration related to determining taxpayers' tax liabilities from various sources, including databases and information exchanged with tax management agencies and competent authorities abroad.

8. The "Substance Over Form" Principle is a principle aimed at analyzing taxpayers' business activities to determine the nature of related party transactions as a basis for comparison with equivalent independent transactions, ensuring related party transactions reflect the true commercial, economic, and financial nature conducted between independent parties without related party relationships, preventing these relationships from influencing and distorting taxpayers' tax liabilities to the state budget. This principle is based on data and actual implementation of transactions between related parties to compare with independent transactions under similar conditions, regardless of the form of the transaction reflected in contracts or documents between related parties. Determining the economic, financial, and commercial nature of related party transactions is based on comparisons and contrasts with independent transactions under similar conditions.

9. "Range of independent transaction values" refers to a set of values regarding price levels; profit margins or profit allocation ratios of independent comparable entities selected by the Tax Authority and the taxpayer based on the data specified in Article 9 of this Decree. The values within this set have equivalent reliability levels. In necessary cases, the probability statistical method shall be applied to determine the standard range of independent transaction values and the representative value to increase the reliability of the set of independent comparable entities.

10. "Top parent company of a group" refers to the legal entity that directly or indirectly holds capital in other legal entities of a multinational group and is not owned by any other legal entity. The consolidated financial report of the top parent company of a group shall not be consolidated into the financial reports of any other legal entity globally.
worldwide.

Chapter II

DETAILED REGULATIONS

Article 5. Related Parties

1. Related parties (hereinafter referred to as "related party") are parties having a relationship falling under one of the following cases:

a) One party participates directly or indirectly in the management, control, capital contribution, or investment in the other party;

b) Both parties are directly or indirectly subject to the management, control, capital contribution, or investment from another party.

2. The related parties mentioned in Clause 1 of this Article are specifically defined as follows:

a) A business holding directly or indirectly at least 25% of the owner's capital contribution of another business;

b) Both businesses each hold at least 25% of the owner's capital contribution held directly or indirectly by a third party;

c) A business is the largest shareholder in terms of capital contribution of another business, holding directly or indirectly at least 10% of the total shares of the other business;

d) A business guarantees or lends funds to another business in any form (including loans from a third party guaranteed by the related party's financial resources and similar financial transactions), provided that the loan amount is at least 25% of the owner's capital contribution of the borrowing business and accounts for more than 50% of the total value of medium and long-term debts of the borrowing business;

đ) A business designates members of the executive board or holds control over another business, provided that the number of members designated by the first business constitutes more than 50% of the total number of members of the executive board or those holding control over the second business; or a member designated by the first business has the authority to decide the financial policies or business operations of the second business;

e) Two businesses each have more than 50% of the members of the executive board or share a member of the executive board who has the authority to decide the financial policies or business operations designated by a third party;

g) Two businesses are managed or subject to personnel, financial, and business operation control by individuals belonging to one of the relationships of spouse, husband, wife, biological father, adopted father, biological mother, adopted mother, biological son, adopted son, biological daughter, adopted daughter, full brother, full sister, half-brother, half-sister, brother-in-law, sister-in-law, father-in-law, mother-in-law, grandson, granddaughter, grandfather, grandmother, grandson, granddaughter, aunt, uncle, maternal uncle, paternal uncle, cousin, and nephew;

h) Two business establishments have a main office and permanent establishment relationship or both are permanent establishments of foreign organizations or individuals;

i) One or more businesses are controlled by an individual through the individual's capital contribution to the business or direct participation in managing the business;

k) Other cases where a business is actually subject to management and control decisions affecting the production and business operations of another business.

Article 6. Comparative analysis, selection of independent comparables for comparison, determination of transaction prices in related party transactions

1. Principles for comparative analysis with independent transactions and the principle that substance prevails over form to determine the nature of related party transactions similar to independent comparables.

a) The nature of the transaction is compared between the legal contract or agreement of the related parties with the actual practice of the parties. In cases where the taxpayer enters into a related party transaction but there is no written agreement or the agreement does not comply with the principles of independent transactions or the actual implementation does not comply with the principles of independent transactions between non-related parties, the related party transaction must be determined according to the true business nature between independent parties, specifically: The related party receiving revenue and profit from the related party transaction with the taxpayer must have ownership and control over the risks associated with assets, goods, services, resources, rights generating economic benefits, and other financial instruments creating income from shares and other financial instruments, and the taxpayer incurring costs from the transaction with the related party must receive direct benefits or contribute to generating revenue and added value for the taxpayer's production and business activities in accordance with the principles of independent transactions;

b) The nature of the transaction is determined through the method of collecting information, evidence, and data on the transaction and the risks of the related parties in their actual business operations.

2. Comparative analysis must ensure similarity between independent comparables and related party transactions, without significant differences affecting the price level; profit margin or profit allocation ratio among the parties. In cases where there are significant differences affecting the price level; profit margin or profit allocation ratio, an analysis, determination, and adjustment to exclude significant differences must be made according to the factors specified in Clause 3 of this Article and in accordance with each method of determining the price of related party transactions as stipulated in Article 7 of this Decree.

Comparative analysis seeks independent comparables that are similar:

a) Selecting internal independent comparables as transactions between the taxpayer and non-related parties, ensuring similarity without significant differences affecting the price level; profit margin or profit allocation ratio among the parties. In cases where there are no similar internal independent comparables, the selection of comparables shall be carried out according to points b and c of Clause 3 of Article 9 of this Decree. The comparison between related party transactions and independent transactions shall be conducted on a transaction-by-transaction basis for each similar product. In cases where it is impossible to compare transactions by product, the consolidation of transactions must ensure consistency with the nature, business practices, and the application of methods for determining the price of related party transactions as stipulated in Article 7 of this Decree;

b) Financial data of comparables must ensure reliability for tax declaration and calculation purposes, in compliance with accounting, statistical, and tax regulations. The time of occurrence of independent comparables' transactions must coincide with the time of occurrence of the related party transaction or within the same fiscal year as the taxpayer's, except in special cases where the comparison period is extended according to point d of this clause. Data formats must ensure comparability and calculability of prices at the time of transaction or within the same tax period; data on profit margins or profit allocation ratios must ensure at least three consecutive tax periods. For relative values such as ratios, the taxpayer rounds off to the second decimal place. In cases where relative figures are taken from published data without absolute figures accompanying them and do not follow this rounding rule, they should be taken based on the published data with cited sources;

c) The minimum number of independent comparables selected after comparative analysis and adjustment of significant differences is chosen as follows: One comparable in cases where the related party transaction or the taxpayer's related party transaction and independent comparable have no differences; three comparables in cases where the independent comparable has differences but sufficient information and data are available to eliminate all significant differences; and five or more comparables in cases where only information and data are available to eliminate most of the significant differences of the independent comparable;

In cases where the selected comparables do not have equivalent reliability, statistical probability methods shall be applied to determine the range of standard independent transaction values and select the middle value of the set to adjust and re-determine the taxpayer's transaction price, profit margin, or profit allocation ratio according to the methods of determining the price of related party transactions stipulated in Article 7 of this Decree;

d) For unique or specialized related party transactions that cannot find independent comparables for comparison, the scope of comparative analysis shall be expanded to industry, geographic market, and comparison period to find independent comparables. The expansion of the scope of comparative analysis shall be carried out as follows: Select independent comparables according to the highest similarity economic sectors with the taxpayer's operating sector in the same geographic market; expand the geographic market to countries in the region with similar industry conditions and levels of economic development.

In cases where the scope of comparative analysis for selecting independent comparables is expanded to other geographic markets, qualitative and quantitative similarities and significant differences must be analyzed according to point e of this clause and Clause 2 of Article 7 of this Decree; or use data and information of independent comparables in the previous fiscal period and make adjustments for significant differences due to time factors (if any).

The extended period for collecting data and information on independent comparables shall not exceed one fiscal year compared to the fiscal year of the taxpayer if the pricing method specified in Clause 2, Article 7 of this Decree is used.

d) Based on the pricing method and selected independent comparables, adjust the price level; profit margin or profit allocation ratio of the taxpayer to determine the corporate income tax liability of the taxpayer without reducing the tax obligation payable to the state budget.

3. Comparative analysis applies the method of comparison, review, and adjustment of significant differences in comparative factors to select independent comparables.

a) Comparative factors include the product characteristics of goods, services, assets (hereinafter referred to as product characteristics); functional activities and assets, business production risks; contractual conditions and economic conditions at the time of transaction occurrence;

b) Analyze functional activities and assets, business production risks, it must be determined the main functions associated with the use of various types of assets, capital, costs, including cooperation in exploiting human resources, cost sharing between related parties, and risks from asset and capital investment, as well as risks related to the ability to generate profits from transactions. Functional analysis serves as the basis for determining and reallocating actual business production risks of related parties;

c) Analyze specific intangible asset comparative factors, it must review and analyze economic benefits rights stipulated in contracts, agreements, and non-contractual relationships that bring economic benefits to the parties. Intangible asset analysis must be based on ownership rights; potential profits from intangible assets; geographical limitations on the use and exploitation of intangible asset rights; the life cycle of intangible assets; rights and relationships generating economic benefits; whether the licensee participates in developing intangible assets and the operational functions, actual risk control capabilities of each related party throughout the entire process of developing, increasing, maintaining, protecting, and exploiting intangible assets;

d) Economic condition analysis at the time of transaction occurrence must include cost advantages based on geographic location, specialized function; market development level and industry economic conditions of the taxpayer's business operations;

Comparative analysis, excluding significant differences involves analyzing qualitative and quantitative exclusions of information or financial data significantly affecting the factors used to determine the transfer pricing according to each pricing method specified in Article 7 of this Decree. Determining significant differences is based on both quantitative and qualitative criteria, including: Quantitative differences are absolute differences in business cycles, years of establishment and operation of enterprises, or relative differences such as financial indicators specific to the industry or functional activities, differences in working capital; qualitative differences are information determined based on each pricing method;

Information determined as significant includes: Differences in product characteristics, contractual conditions, functions, assets, and business risks, and industries, economic conditions of taxpayers and independent comparables; differences in policies, investment environments, and impacts of production and business input costs in different geographic markets;

Quantitative and qualitative differences must be reviewed and adjusted accordingly with significant comparative factors affecting the transfer pricing determination methods specified in Article 7 of this Decree;

The analysis results serve as the basis for selecting appropriate independent comparables for each transfer pricing determination method specified in Article 7 of this Decree;

4. The comparative analysis process includes the following steps:

a) Determine the nature of the related party transaction before conducting a similarity analysis with independent comparables;

b) Comparative analysis, search, and selection of similar independent comparables based on the comparison period, product characteristics, contractual conditions; analyze industry, market, and economic conditions at the time of transaction occurrence; analyze related party transactions and taxpayers conducting related party transactions; data source; transfer pricing determination method and adjustment of significant differences (if any);

c) Determine the price level, profit margin, or profit allocation ratio based on the analysis results of independent comparables to serve as a basis for comparison and application to determine the corporate income tax liability of the taxpayer, without reducing the tax obligation payable to the state budget. Calculation methods must be consistently applied during the production and business cycle suitable to the functional and business model as prescribed in Article 7 of this Decree.

Article 7. Methods for Comparing to Determine the Price of Related Party Transactions

The method for comparing to determine the price of related party transactions (hereinafter referred to as the related party transaction pricing method) shall be applied in accordance with the principle of independent transactions, the nature of the transaction, and the function of the taxpayer throughout the entire production and business cycle based on calculations and consistent application; using financial data of independent comparables selected according to the principles of comparative analysis prescribed in Article 6 of this Decree. The related party transaction pricing method shall be chosen from among the methods prescribed below, based on the characteristics of the related party transaction, the availability of information and data, and the nature of the pricing method.

The related party transaction pricing methods are specified as follows:

1. Method of comparing the price of related party transactions with the price of independent transactions (hereinafter referred to as the independent transaction price comparison method):

a) Cases applying the independent transaction price comparison method include: Taxpayers conducting related party transactions for each type of goods, tangible assets, service types that have conditions for trading and circulating widely on the market or have prices published on domestic and international commodity and service trading floors; payment of royalty fees when exploiting intangible assets; interest payments in borrowing and lending activities; or taxpayers conducting both independent and related party transactions for products with similar product characteristics and contractual conditions.

b) The independent transaction price comparison method is carried out on the principle that there should be no significant differences in product characteristics and contractual conditions when comparing the price of independent transactions and the price of related party transactions that significantly affect the product price. In cases where there are significant differences affecting the product price, these significant differences must be excluded.

Factors of product characteristics and contractual conditions that significantly impact the product price include: Product features, quality, brand, trademark; scale and volume of transactions; supply and transfer conditions of products: quantity, delivery period, payment period, and other contract conditions; distribution rights, consumption of goods, services, assets affecting economic value and the market where the transaction takes place; and other factors impacting the product price are economic conditions and the operational functions of the taxpayer.

c) Determination method: The product price in related party transactions is adjusted according to the product price in independent transactions or the value between the standard range of independent transaction prices of independent comparables as stipulated in this Decree.

In cases where the product price is published on domestic and international commodity and service trading floors, the product price in related party transactions is determined according to the published price at the same time and under comparable transaction conditions.

Taxpayers purchasing machinery and equipment from related parties abroad must provide documentation and evidence proving that the purchase price of the machinery and equipment adheres to the principle of independent transactions at the time of purchase: For new machinery and equipment, the comparison price is the invoice price of the related party purchasing the machinery and equipment from an independent party; for used machinery and equipment, original invoices and documents at the time of purchase must be provided, at which point the asset value is reassessed according to current legal regulations guiding the management, use, and depreciation of fixed assets.

d) The result of determining the price of related party transactions is the taxable price for declaration and determination of the corporate income tax payable, but it does not reduce the taxpayer's tax liability to the state budget.

2. Method of comparing the profit margin of the taxpayer with the profit margin of independent comparables:

a) Cases applying the method of comparing the profit margin of the taxpayer with the profit margin of independent comparables include: Taxpayers lacking databases and information to apply the independent transaction price comparison method prescribed in Clause 1 of this Article or taxpayers unable to compare transactions by product based on individual transactions for similar products, consolidation of transactions being conducted to ensure compliance with the nature, business practices, and selection of appropriate profit margins of independent comparables, or taxpayers not exercising autonomous functions over the entire production and business chain or not participating in comprehensive and specialized related party transactions as prescribed in Clause 3 of this Article.

b) Application principle: The profit margin comparison method is applied on the principle that there should be no significant differences in operational functions, assets, risks; economic conditions, and accounting methods when comparing the taxpayer with independent comparables that significantly affect the profit margin. In cases where there are significant differences affecting the profit margin, these significant differences must be excluded.

Factors of operational functions, assets, business risks, and economic conditions that significantly impact the profit margin include: Asset and capital factors; actual control and decision-making powers serving the implementation of the taxpayer's main functions; industry characteristics and product production and consumption markets; product cost structure and accounting methods; and economic conditions where the transaction occurs.

Other influencing factors are determined based on practical implementation between related parties, including commercial or financial relationships within multinational corporations; technical support; sharing of business secrets; use of seconded or concurrently employed personnel; and economic conditions of the taxpayer's industry and business sector. Other comparative factors are product characteristics and contractual conditions.

The taxpayer conducting business with simple functions, without strategic decision-making roles and generating low-value-added transactions, including businesses engaged in production or distribution activities that do not bear inventory risks, market risks, and do not generate revenue or costs from intangible asset exploitation, shall not be liable for losses arising from such risks in their production and business operations.

c) Method of determination: The profit margin comparison method uses the gross profit margin or net profit margin of independent comparables selected to determine the corresponding gross profit margin or net profit margin of the taxpayer. The selection of profit margins includes gross profit margin and net profit margin calculated based on revenue, expenses, or assets depending on the nature and economic conditions of the transaction; the function of the taxpayer and the accounting methods of the parties. The basis for determining the profit margin includes revenue, expenses, or assets which are accounting figures of the taxpayer not controlled or determined by related parties in the transaction price.

- The gross profit margin comparison method on revenue (resale price method):

The purchase price of goods, services, assets (cost) from related parties equals (=) the selling price (net revenue) of goods, services, assets resold to independent parties minus (-) the gross profit margin on the selling price (net revenue) of the taxpayer minus (-) other costs included in the purchase price: Import tax; customs fees; insurance and international transportation costs (if any).

The gross profit margin on the selling price (net revenue) of the taxpayer is determined from independent comparables equal (=) the selling price (net revenue) of the taxpayer multiplied (x) by the gross profit margin on the selling price (net revenue) of the selected independent comparables.

The gross profit margin on the selling price (net revenue) of the selected independent comparables is a value within the range of standard arm's length transactions of the gross profit margin on the selling price (net revenue) of the selected independent comparables adjusted in accordance with the principles prescribed in this Decree.

The purchase price from related parties (or cost) is adjusted according to independent comparables as the taxable price, expense declaration, and determination of corporate income tax payable by the taxpayer.

- The gross profit margin comparison method on cost (cost plus method):

The selling price or net revenue of goods, services, assets sold to related parties is determined equal (=) to the cost of goods, services, assets purchased from independent parties plus (+) the gross profit margin on the cost of the taxpayer.

The gross profit margin on the cost of the taxpayer is determined from independent comparables equal (=) to the cost of the taxpayer multiplied (x) by the gross profit margin on the cost of the selected independent comparables.

The gross profit margin on the cost of the selected independent comparables is a value within the range of standard arm's length transactions of the gross profit margin on the cost of the selected independent comparables adjusted in accordance with the principles prescribed in this Decree.

The selling price to related parties (or net revenue) is adjusted according to independent comparables as the taxable price, expense declaration, and determination of corporate income tax payable by the taxpayer.

- The net profit margin comparison method:

The unadjusted net profit margin before interest expenses and corporate income tax on revenue, expenses, or assets of the taxpayer engaging in related party transactions is adjusted according to the unadjusted net profit margin before interest expenses on revenue, expenses, or assets of the selected independent comparables, thereby adjusting and determining the taxpayer's tax liability.

Net profit does not include differences in financial activity revenues and expenses.

The selected net profit margin is a value within the range of standard arm's length transactions of the net profit margin of the selected independent comparables adjusted to determine taxable income and tax liability payable by the taxpayer in accordance with the principles prescribed in this Decree.

The indicators of the unadjusted net profit margin before interest expenses and corporate income tax are determined in accordance with the laws on accounting, tax administration, and corporate income tax.

3. Profit allocation method between related parties:

a) Cases applying the profit allocation method of related parties, including: The taxpayer participating in comprehensive, unique, closed transactions within a group, new product development activities, exclusive technology usage, involvement in the group's exclusive transaction value chain, or processes for developing, maintaining, protecting, and exploiting exclusive intangible assets, without a basis to determine prices between related parties or closely related simultaneous transactions, complex financial transactions involving multiple global financial markets; or the taxpayer participating in digital economy related party transactions without a basis to determine prices between related parties or participating in value addition derived from synergies within the group, or the taxpayer performing autonomous functions over the entire production and business process and not subject to the provisions of Clause 1 and Clause 2 of this Article.

b) Principle of application: The profit allocation method is a method for allocating the total profit of related party transactions to determine the taxpayer's profit. The profit allocation method shall be applied to: The actual and potential profits of related party transactions as specified in point a of this clause, which are determined based on reasonable and valid financial data; the value and profit of related party transactions must be determined according to the same accounting method throughout the period during which the profit allocation method is applied;

c) Method of determination: The adjusted profit of the taxpayer is allocated from the total profit of related party transactions, including the actual and potential profits that the parties involved in the related party transactions may obtain.

The adjusted profit of the taxpayer consists of basic profit and excess profit. Basic profit is determined according to the profit comparison method prescribed in Clause 2 of this Article. Excess profit is determined based on a distribution ratio based on one or more factors such as revenue, costs, assets, or personnel of associated parties participating in the transaction, in accordance with the arm’s length principle.

In cases where there is insufficient information or data to allocate adjusted profit as prescribed above, the allocation may be based on one or more factors such as revenue, costs, assets, or personnel of associated parties participating in the transaction, in accordance with the arm’s length principle.

d) The adjusted profit of the taxpayer serves as the basis for determining taxable income and the corporate income tax payable, but does not reduce the taxpayer's obligation to pay into the state budget.

Article 8. Determining expenses for tax calculation in certain specific cases for enterprises with special related party transactions

1. Related party transactions that do not conform to the nature of independent transactions or do not contribute to generating revenue or income for the taxpayer's production and business activities shall not be deductible as tax-calculating expenses for the period,
including:

a) Expenses paid to associated parties that do not carry out any production or business activities related to the taxpayer's industry or production and business activities;

b) Expenses paid to associated parties that have production and business activities but whose asset scale, number of employees, and production and business functions are not commensurate with the value of the transactions received from the taxpayer;

c) Expenses paid to associated parties that do not have rights or responsibilities related to the assets, goods, or services provided to the taxpayer;

d) Expenses paid to associated parties who are residents of countries or territories that do not impose corporate income tax and do not contribute to generating revenue or added value for the taxpayer's production and business activities.

2. Related party service provision transactions:

a) Except for the expenses specified in point b of this clause, the taxpayer may deduct service fees as tax-calculating expenses for the period if they meet the following conditions: The services provided have commercial, financial, and economic value and directly serve the taxpayer's production and business activities; services from associated parties are only recognized as provided under circumstances similar to those in which independent parties would pay for these services; service fees are paid based on the arm’s length principle and the transfer pricing method or the allocation of service fees among associated parties must be uniformly applied within the group for similar types of services, and the taxpayer must provide contracts, invoices, and information about the calculation methods, allocation factors, and pricing policies of the group for the services provided.

In cases involving functional centers responsible for specialized functions and value creation for the group, the taxpayer must determine the total value created by these functions, allocate profits appropriately based on the contributions of associated parties after deducting (-) the corresponding service fees for the associated party performing coordination and service-providing functions of independent transactions with similar characteristics.

b) Service costs that are not deductible when determining taxable income include: Costs arising from services provided solely for the benefit or value creation for other associated parties; services serving the interests of shareholders of associated parties; overlapping service fees charged by multiple associated parties providing the same type of service without identifying additional value for the taxpayer; services that are essentially benefits received by the taxpayer due to being a member of a group and costs added by associated parties for third-party services provided through intermediaries without adding value to the service.

3. Total interest expenses incurred in the period by the taxpayer can be deducted when determining taxable corporate income not exceeding 20% of the taxpayer's net operating profit plus interest expenses and depreciation expenses in the period.

This provision does not apply to taxpayers subject to the Law on Credit Organizations and the Law on Insurance Business.

The taxpayer declares the interest expense ratio for the tax period according to Form No. 01 attached to this Decree.

Article 9. Databases used for declaration, determination, and management of related party transaction prices the price of the associated transaction

1. Databases used for declaration and determination of related party transaction prices by taxpayers include:

a) Databases provided by business information organizations, including financial information and enterprise data collected from public sources and managed for use (hereinafter referred to as commercial databases);

b) Publicly disclosed information and data of enterprises listed on stock markets;

c) Information and data published on domestic and international commodity and service trading platforms;

d) Information publicly disclosed by domestic ministries and agencies or other official sources.

2. Databases used by the Tax Authority for managing related party transaction prices include:

a) Databases specified in Clause 1 of this Article;

b) Information and data exchanged with partner tax authorities;

c) Information provided by domestic ministries and agencies to the Tax Authority;
d) The Tax Authority's database.

The Tax Authority's database is used for risk management and setting related party transaction prices in cases of violations as stipulated in Clause 3, Article 12 of this Decree.

The tax authority's database used for risk management and setting the price of associated transactions in cases of violation of the provisions of Clause 3, Article 12 of this Decree.

3. Selection criteria for independent comparables for analysis and determination of arm's length range in accordance with the comparison analysis principles and methods for determining related party transaction prices prescribed in this Decree shall be prioritized in the following order:

a) Internal comparables of the taxpayer;

b) Comparables residing in the same country or territory as the taxpayer;

c) Comparables in countries within the region with similar industry conditions and economic development levels.

In cases where foreign comparables are selected from different geographic markets, a qualitative and quantitative analysis of similarities and significant differences must be conducted according to Point e, Clause 3, Article 6 and Clause 2, Article 7 of this Decree.

Article 10. Rights and obligations of taxpayers in declaring and determining the price of associated transactions

Article 10. Rights and Obligations of Taxpayers in Declaration and Determination of Related Party Transaction Prices

1. Taxpayers engaged in related party transactions within the scope regulated by this Decree have rights as prescribed by the Law on Tax Administration.

2. Taxpayers engaged in related party transactions within the scope regulated by this Decree are responsible for declaring and determining related party transaction prices without reducing corporate income tax obligations in Vietnam as stipulated in this Decree.
request.

Taxpayers are responsible for proving the selection of price determination methods as prescribed in this Decree when requested by the competent authority.

3. Taxpayers engaged in related party transactions within the scope regulated by this Decree are responsible for declaring information about related party relationships and transactions according to Form No. 01 attached to this Decree and submitting it together with the Corporate Income Tax Final Return.

4. Taxpayers are responsible for retaining and providing the Documentation for Determining Related Party Transaction Prices including:
a) National documentation according to Form No. 02 attached to this Decree;

b) Global group information documentation according to Form No. 03 attached to this Decree;

c) Multinational Profit Report of the Ultimate Parent Company according to Form No. 04 attached to this Decree.

If the taxpayer is the Ultimate Parent Company in Vietnam with consolidated global revenue during the tax period of VND 18 trillion or more, they are responsible for preparing the Multinational Profit Report in the Documentation for Determining Related Party Transaction Prices according to Form No. 04 attached to this Decree.

If the taxpayer has an Ultimate Parent Company abroad, the taxpayer is responsible for providing copies of the Multinational Profit Report of the Ultimate Parent Company if the Ultimate Parent Company is required to submit this report to the local tax authority according to the local tax authority's filing form or Form No. 04 attached to this Decree. If the taxpayer cannot provide the Multinational Profit Report, the taxpayer must provide a written explanation of the reasons, legal basis, and specific provisions of the partner country's laws regarding the prohibition on providing the Multinational Profit Report.

5. Documentation for Determining Related Party Transaction Prices must be prepared before the annual Corporate Income Tax Final Return filing deadline and must be retained and provided upon request by the Tax Authority. When the Tax Authority conducts inspections or audits of taxpayers, the deadline for providing Documentation for Determining Related Party Transaction Prices does not exceed 15 working days from the date of receipt of the information request.

Documentation for Determining Related Party Transaction Prices and the financial information, documents, and vouchers provided by taxpayers to the Tax Authority must comply with tax administration laws. Data, vouchers, and documents used as bases for comparative analysis and determination of related party transaction prices must clearly state their source. If the data of independent comparables are accounting figures, taxpayers are responsible for storing and providing them to the Tax Authority in electronic format, in spreadsheet format.

6. Taxpayers are responsible for providing complete and accurate information and documents in the Documentation for Determining Related Party Transaction Prices when requested by the Tax Authority during pre-audit consultations as stipulated in Article 12 of this Decree. The deadline for providing Documentation for Determining Related Party Transaction Prices does not exceed 30 working days from the date of receipt of the Tax Authority's request. If taxpayers have legitimate reasons, the deadline for providing Documentation for Determining Related Party Transaction Prices may be extended once for up to 15 working days from the expiration date.

7. Consulting firms, independent auditing companies, or businesses handling tax procedures that represent taxpayers in preparing Documentation for Determining Related Party Transaction Prices are responsible for complying with tax administration laws for businesses with related party relationships as prescribed in this Decree and are liable under the law as stipulated.

8. The Ministry of Finance shall provide specific guidelines on the content of information to prepare Forms No. 01, No. 02, No. 03, and No. 04 attached to this Decree.

Article 11. Cases Where Taxpayers Are Exempted from Filing and Establishing Documentation for Determining Transfer Pricing

1. Taxpayers are exempted from filing to determine transfer pricing at Section III and Section IV of Form No. 01 attached to this Decree in cases where transactions only occur with related parties that are taxpayers subject to corporate income tax in Vietnam, applying the same corporate income tax rate as the taxpayer and none of them enjoy corporate income tax benefits during the tax period, but must declare the exemption basis at Section I and Section II of Form No. 01 attached to this Decree.

2. Taxpayers have the responsibility to file to determine transfer pricing according to Form No. 01 attached to this Decree but are exempted from establishing documentation for determining transfer pricing in the following cases:

a) Taxpayers have transactions with related parties but the total revenue generated during the tax period is less than 50 billion VND and the total value of all related party transactions during the tax period is less than 30 billion VND;

b) Taxpayers have signed Advance Pricing Agreements regarding the method of determining prices and submit annual reports as prescribed by law. For related party transactions not covered by Advance Pricing Agreements, taxpayers must file to determine transfer pricing as stipulated in Article 10 of this Decree;

c) Taxpayers engage in simple business operations without generating revenue or costs from intangible asset exploitation activities, with revenue below 200 billion VND, applying profit margins before interest and corporate income tax on revenue, including the following sectors:

- Distribution: 5% or more;

- Manufacturing: 10% or more;

- Processing: 15% or more.

In cases where taxpayers do not apply the profit margin rates specified herein, they must establish documentation for determining transfer pricing as prescribed.

Article 12. Responsibilities and Authorities of Tax Authorities in Managing Transfer Pricing

1. Implement risk management in tax administration for transfer pricing in accordance with tax laws.

2. Tax authorities base on comparison analysis principles, transfer pricing determination methods prescribed in this Decree, and tax declaration information of enterprises with related party transactions to carry out tax assessment in the following cases:

a) When enterprises fully comply with accounting records, invoices, and receipts: The assessment of revenue, expenses, or taxable income to determine tax obligations is carried out based on comparison analysis principles, transfer pricing determination methods, and the database used in managing transfer pricing as prescribed in this Decree;

b) Other cases: Tax assessment is based on the database of tax authorities according to regulations on assessing taxes for enterprises that have not fully complied with accounting records, invoices, and receipts or other regulations on handling tax violations.

3. Tax authorities have the right to set price levels; profit margins; profit allocation ratios used for tax declarations, assess taxable income or corporate income tax payable for taxpayers with related party transactions during the tax period based on information, data, and evaluations by tax authorities, in cases where taxpayers violate regulations on determining transfer pricing as follows:

a) Taxpayers fail to declare, declare incomplete information, or do not submit Form No. 01 attached to this Decree;

b) Taxpayers provide incomplete information for documentation for determining transfer pricing as stipulated in Form No. 02 and Form No. 03 attached to this Decree or do not present documentation for determining transfer pricing and relevant data, documents, and materials used for comparison analysis and price determination as required by tax authorities within the time limit prescribed in this Decree;

c) Taxpayers use inaccurate or non-factual independent transaction information for comparison analysis and declaring transfer pricing or rely on illegal, invalid, or untraceable sources of data, documents, and materials to determine prices, profit margins, or profit allocation ratios for related party transactions;

d) Taxpayers violate regulations on determining transfer pricing as stipulated in Article 11 of this Decree.

4. Tax authorities are responsible for protecting information provided by taxpayers related to determining transfer pricing as prescribed in this Decree. Information provision to agencies and organizations shall be carried out according to the provisions of Clause 5 of this Article.

5. In cases where audits and inspections of transfer pricing reveal issues related to mechanisms and policies concerning specialized industries and fields, tax authorities will seek opinions from relevant agencies, organizations, and individuals, specifically:

a) Specialized management agencies, specialized organizations, and associations;

b) Tax authorities are responsible for providing files, information, and materials related to determining transfer pricing to specialized agencies and organizations seeking opinions. Agencies and units receiving opinions are responsible for protecting information in accordance with the law.

6. Tax authorities exchange information with taxpayers and partner tax authorities through pre-audit, audit, and post-audit consultation procedures for transfer pricing as follows:

a) In the case where risk management is applied in tax administration for related party transaction prices, if the Tax Authority deems it necessary to exchange information beforehand with the taxpayer regarding Form No. 01 attached hereto and the Documentation for Determining Related Party Transaction Prices of the taxpayer, the Tax Authority shall send a letter requesting consultation with the taxpayer to exchange and provide information on the Documentation for Determining Related Party Transaction Prices of the taxpayer as prescribed herein;

b) In the case where the Tax Authority needs to contact and exchange information with the Partner Tax Authority regarding the Multinational Profit Report and other relevant information pursuant to the provisions on bilateral agreement procedures and information exchange under the relevant Tax Agreement, if necessary, the Tax Authority shall notify the taxpayer in writing about the temporary suspension of inspection and examination to conduct information exchange with the Partner Tax Authority in accordance with tax laws;

The Tax Authority has the responsibility to facilitate the taxpayer in proving and explaining the data and figures of independent comparables used in the Documentation for Determining Related Party Transaction Prices;

7. In the case where the Tax Authority signs a Pre-Agreement on Pricing Method with the taxpayer, the Tax Authority shall be responsible for:

a) Managing, inspecting, and auditing related party transactions not within the scope of application of the Pre-Agreement on Pricing Method according to the principle of risk management;

b) Managing, inspecting, and auditing the taxpayer's compliance with the Pre-Agreement on Pricing Method as prescribed;

Article 13. Responsibilities of ministries, agencies at the ministerial level, and People's Committees of provinces and centrally governed cities

1. Ministry of Finance:

a) Shall be responsible for state management of related party transaction prices in accordance with this Decree;

b) Shall take the lead and coordinate with the Ministry of Information and Communications to implement information dissemination and publicity on state management of related party transaction prices;

c) Shall inspect and audit the implementation of regulations on related party transaction prices as prescribed in this Decree;

2. State Bank

Shall cooperate in providing information and data on foreign loans and repayments of specific enterprises engaged in related party transactions based on the list requested by the Tax Authority, including data on loan amounts, interest rates, interest payment periods, principal repayment periods, actual capital withdrawal, repayment (principal, interest), and other relevant information;
(if applicable).

3. The Ministry of Planning and Investment

Shall cooperate in providing registration data on business activities of enterprises; databases on investment capital structure at the time of licensing and at times of adjustment and modification of investment certificates and business registration certificates, and related information for investment projects when the Tax Authority conducts inspections and audits to determine signs of transfer pricing to evade taxes upon request of the Tax Authority;

4. The Ministry of Science and Technology, the Ministry of Agriculture and Rural Development within their respective duties and powers shall be responsible for

Cooperating in providing databases related to technology transfer contracts; industrial property rights transfer contracts; plant variety rights transfer; intellectual property registration files after establishment of industrial property rights and plant variety rights, and providing information when solicited by the Tax Authority to perform tax administration for related party transactions;

5. The Ministry of Information and Communications

Shall cooperate in providing databases on enterprises licensed to operate in sectors under its management and information on related party transactions in the digital economy sector upon request of the Ministry of Finance;

6. The Ministry of Industry and Trade

Shall cooperate in providing databases on commodity transaction prices on domestic commodity exchanges and information within the scope of functions and tasks under the management of the Ministry of Industry and Trade, as required for related party transaction price management by the Tax Authority;

b) Take the lead in allocating local budgets for developing inland waterway transportation under their management;

Directing the Provincial Planning and Investment Departments, Provincial Finance Departments, and other departments and agencies to build specialized industry databases to serve related party transaction price management;

Chapter III

IMPLEMENTING PROVISIONS

Article 14. Effective Date

This Decree shall take effect from May 1, 2017;

Article 15. Responsibility for Implementation

1. The Ministry of Finance shall provide detailed guidance on Articles 6, 7, Clause 8 of Article 10, point c Clause 2 of Article 11; take the lead and coordinate with relevant ministries, agencies, and
People's Committees of provinces and centrally governed cities to implement this Decree;

2. Ministers, Heads of agencies at the ministerial level, Heads of government agencies, Chairmen of provincial and centrally governed city People's Committees, and related organizations and individuals shall be responsible for implementing this Decree./.