Prepare compliance reports affiliate transactions is a mandatory requirement for all affiliated businesses, especially in the context of increased inspections and audits by tax authorities. Preparing complete and correct records not only helps businesses demonstrate compliance with Decree 132/2020/ND-CP, but also minimizes the risk of collection and penalties. A thorough and early preparation today will help businesses feel secure when inspections come knocking.
Why do businesses need to prepare related party transaction compliance reports before inspection?
Prepare reports related party transaction compliance It is an important legal obligation for businesses to demonstrate transparency when being inspected. Or if the preparation of the transfer pricing compliance report is incorrect or incomplete, the business may be subject to tax assessment, administrative fines and lose the opportunity to demonstrate the method of determining reasonable prices.
Legal requirements for preparing transfer pricing compliance reports
According to Decree 132/2020/ND-CPTaxpayers who have related-party transactions must prepare a dossier to determine the price of related-party transactions, fully declare the prescribed indicators and keep documents and records as a basis for analysis (scope, methods, comparison factors, financial data, related contracts, etc.) and present them when necessary when the tax authority inspects.
Requirements for businesses to prepare compliance reports on related party transactions
To comply with the provisions of Decree 132/2020/ND-CP, enterprises need to clearly understand the important obligations associated with the process of preparing a compliance report on related-party transactions. Each requirement is not only a formality, but also plays a decisive role in proving that the transaction is carried out according to the principle of independence and reasonable price. Below are the mandatory tasks that enterprises must perform, from preparing documents to determine the price of related-party transactions, declaring related-party information, to storing and providing documents when the tax authority conducts inspections and checks.
Prepare a dossier to determine the price of related-party transactions before declaring annual corporate income tax settlement.
In order to prepare a dossier for determining the transfer pricing in accordance with Decree 132/2020/ND-CP, enterprises need to ensure that the dossier is fully prepared, has a basis and accurately reflects the nature of the transaction. Below are the core contents that must be included in the dossier that the tax authority will consider during inspection and examination:
- The dossier must fully describe the nature of the transaction, the analysis of functions - assets - risks, the applied valuation method and the source of comparative data. This dossier is the basis for demonstrating compliance with the arm's length principle.
After completion Transfer pricing compliance dossier With full analysis and comparative data, the next step that enterprises must take is to declare information on related-party transactions according to the Appendix issued with Decree 132/2020/ND-CP. This is the basis for tax authorities to compare data, assess compliance and determine appropriate tax obligations.
Declare Appendix I of related party transactions when submitting the declaration
When declaring Appendix I of related party transactions, enterprises need to pay attention to fill in the correct and complete information according to the prescribed form. The following contents are mandatory items in the Appendix that the tax authority will consider when assessing transparency and compliance:
- Taxpayers must declare the indicators according to Appendix I issued with the Decree. In some cases, they are exempted from preparing the Transfer Pricing Document but still have to declare Appendix I on the basis of exemption. (For example: exemption conditions based on revenue threshold and value of related transactions).
See details: Declare related party transactions on the accounting system according to Decree 132/2020/ND-CP
Completing the declaration of the New Related Party Transactions Annex is only part of the compliance process. Enterprises must also keep and be ready to provide records when the tax authority conducts an inspection or examination. This is an important step to help demonstrate the transparency and reasonableness of the transaction and minimize the risk of being taxed.
Keep and provide records when requested by the Tax Authority
Enterprises not only need to complete documents but also ensure that records are stored on time, easily accessible and transparent when requested by tax authorities. Below are the specific requirements that enterprises need to implement:
- When the tax authority requests the provision of documents (pre-inspection consultation or during the inspection/examination process), the period for provision shall not exceed 30 working days from the date of receipt of the request and may be extended once by 15 days if there is a legitimate reason. The taxpayer is responsible for the completeness and accuracy of the information.
See details: Time for preparing and submitting the affiliated transaction dossier according to Decree 132/2020/ND-CP.
In order to properly maintain and provide records, businesses need to clearly understand the required components of records and documents in the transfer pricing compliance report. Being fully prepared from the beginning not only helps reduce risks during inspections, but also demonstrates the business's compliance management capacity.
Documents required to prepare a compliance report on related party transactions
In the process of preparing a compliance report on related-party transactions, enterprises need to ensure that the dossier is fully built at three levels according to the OECD's guidelines and Decree 132/2020/ND-CP. Each group of dossiers has its own role and purpose, serving to demonstrate the transparency and reasonableness of related-party transactions. The following table summarizes the important dossier components and documents that enterprises need to prepare:
Board: Components of the dossier required to prepare a compliance report on related party transactions.
| File | Content | Purpose |
| National profile | Business information, corporate structure, pricing policy. | Provide an overview of affiliate transactions |
| Local profile | Transaction details, functional analysis, risks, profits. | Demonstrate compliance with market price principles. |
| Country-by-Country Reporting (CbCR) | Applicable to multinational corporations. | Compare global transfer pricing risks. |
Fully preparing the above three sets of documents not only helps businesses meet the legal requirements under Decree 132/2020/ND-CP, but also demonstrates tax management capacity and transparency in transfer pricing activities. When the tax authority conducts an inspection, a complete and consistent set of documents will be a solid basis for businesses to prove the reasonableness of related-party transactions, while minimizing the risk of being taxed or administratively sanctioned.
Errors in the preparation of related party transaction compliance reports
Although businesses have a clear understanding of the required documents, in reality, the process of preparing and completing a transfer pricing compliance report still has many potential errors. These errors may stem from incomplete understanding of regulations, lack of independent comparison data, or inconsistent record keeping, leading to the risk of being taxed and administratively sanctioned by tax authorities. Below are the most common errors that businesses need to pay special attention to avoid during the report preparation process.
- Lack of basis for comparing market prices.
- Data not updated to latest fiscal year.
- Do not retain electronic documents upon request for verification.
- The records are for formality only and do not reflect the nature of the transaction.
In fact, businesses that are aware of the importance of reporting compliance with related-party transactions often proactively review and complete their documents before the tax authorities conduct inspections. This proactive approach not only helps businesses minimize the risk of errors, but also increases transparency and strengthens trust with tax authorities. Below are some ways that many businesses are proactively preparing their documents to be ready for upcoming inspections and audits.
Enterprises proactively prepare compliance reports on related-party transactions during inspections.
In fact, more and more enterprises, especially FDI corporations and large-scale enterprises, have proactively established a systematic process for preparing compliance reports on related-party transactions, instead of waiting for the tax authorities to request it. This proactive model not only helps control risks, but also demonstrates the enterprise's compliance management capacity and transparency..
Board: Enterprises proactively prepare compliance reports on related-party transactions before inspections and audits.
| Work | Goals and benefits |
| Periodic internal review | Detect data discrepancies early, ensuring records are consistent before tax authorities inspect. |
| Inter-departmental coordination (Accounting – Legal – Tax) | Collect complete data, avoid missing documents or duplicate information. |
| Update on the latest OECD regulations and guidelines | Ensure that records and pricing methods are always in accordance with current standards. |
| Establish clear processes and timelines for each filing period | Helps control progress, reduce pressure and errors when submitting documents. |
| Application of technology and electronic record keeping | Increase transparency and traceability during inspection. |
| Use independent consultants to review compliance | Increase objectivity and strengthen the basis for accountability to tax authorities. |
Enterprises that proactively prepare transfer pricing compliance reports not only significantly reduce tax risks, but also improve management capacity and create a transparent image with management agencies. Implementing the above steps in a clear, controlled process and supported by independent experts is a solid foundation for enterprises to effectively respond to tax inspections and audits.
Conclude
In the context of tax authorities increasingly strengthening inspections and tightening control over related-party transactions, preparing a compliance report on related-party transactions is not only a legal requirement, but also a "shield" to protect businesses from the risk of collection and penalties. A well-prepared set of documents with consistent data, logical arguments and transparency in documents will help businesses be proactive and confident when working with the inspection team.
If the enterprise is still uncertain about the readiness of the dossier, or needs an objective view from an independent expert, proactively review it in advance with a team of consultants specializing in transfer pricing. With experience accompanying many FDI enterprises and large corporations, MAN - Master Accountant Network will support enterprises in building, reviewing and preparing a standard compliance report on related party transactions. Enterprises preparing a standard compliance report on related party transactions will help enterprises feel secure before any tax inspection.
Contact information MAN – Master Accountant Network
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