Identifying linkages becomes a crucial step in helping businesses correctly identify economic relationships and ensure compliance. Decree 132/2020/ND-CP, Decree 20/2025/ND-CP Amendments and additions to Decree 132 regulating related-party transactions and related guiding documents on transfer pricing prevention are necessary. Accurately identifying related-party transactions not only protects businesses from legal risks but also contributes to building a transparent and sustainable long-term financial strategy.
General introduction
What is the concept of defining a relationship?
Identifying related relationships plays a fundamental role for businesses to comply with tax laws, especially in managing related transactions and anti-transfer pricing. In the context of businesses increasingly having transactions with companies in the same group or with partners with mutual ownership and control relationships.
Determining the nature of an affiliated company involves not simply checking ownership percentages, but also comprehensively assessing relationships that influence control, guarantees, management, borrowing, or even the power to make business policy decisions.
For example: If company A only holds 25% of the capital in company B but directly appoints the Chief Financial Officer and has the authority to approve large contracts, it may still be considered to have an "affiliated relationship" under tax law.
The newly issued Decree 20/2025/ND-CP continues to inherit and amend a number of points of Decree 132/2020/ND-CP, aiming to clarify the criteria and methods for determining linkages. This helps create a tight legal framework, ensuring that businesses properly fulfill their tax obligations, while limiting transfer pricing practices that cause budget losses.
The important role of identifying relationships
The importance of identifying linkages is demonstrated in that:
- If a business misidentifies or omits related relationships, it will lead to errors in reporting related transactions. The consequences may include being fined by the tax authority, having to pay back taxes, or being assessed as non-transparent.
- On the contrary, if done correctly and promptly, businesses not only avoid legal risks but also optimize compliance costs and enhance their reputation in the market.
In the following sections, the article will delve into: legal basis, principles of determination, implementation process, illustrative examples, common mistakes and solutions for businesses. Thereby, helping you understand how to apply in practice and comply with new regulations effectively.
Identifying related-party relationships becomes a crucial issue for every business. If done correctly, businesses will control related-party transactions well, prevent transfer pricing, optimize tax obligations and create competitive advantages.
Legal basis related to determining affiliated relationships
To properly identify related-party transactions, businesses need to rely on the current legal framework. This is a crucial foundation that provides businesses with a basis for preparing documentation, declaring related-party transactions, and demonstrating transparency in their business operations.
Decree 132/2020/ND-CP on related-party transactions
Decree 132/2020/ND-CP is considered the first milestone that lays a clear foundation for tax management for enterprises with related-party transactions in Vietnam. This document provides detailed regulations on:
- Criteria for determining linkage relationships.
- Obligation to declare information on related transactions.
- Transfer pricing documents (Local file, Master file, Country-by-Country report).
In particular, Decree 132/2020 has clarified many situations arising from related parties (for example: businesses borrowing capital from related parties, businesses being controlled by individuals or organizations that exert influence, or having involvement in management and appointing senior personnel).
Decree 20/2025/ND-CP amends and supplements Decree 132.
To update the practice and overcome some shortcomings of Decree 132, the Government issued Decree 20/2025/ND-CP. This document not only inherits but also adds many new points, helping to determine the relationship of association to become clearer and more consistent with international standards. Some notable contents include:
- Adjust the criteria for ownership ratio and control rights.
- More specific regulations on financial transactions (loans, guarantees).
- Additional guidance on documentation to prove affiliation.
Thanks to that, businesses have a solid legal basis to apply, avoiding misinterpretation leading to legal risks.
Understanding the legal basis for determining related relationships is not only a mandatory requirement according to regulations but also brings many practical benefits to businesses. First of all, businesses have a full legal basis to prepare reports and demonstrate compliance when working with tax authorities. At the same time, this understanding also helps to significantly reduce the risk of being taxed due to incorrect declaration or lack of important information. Furthermore, the correct application of regulations on determining related relationships also contributes to improving transparency in business strategies, thereby strengthening trust with partners, investors and management agencies, creating favorable conditions for sustainable development.
Principles for determining linkage relationships
To help businesses easily visualize, current law has provided many important principles in determining the relationship of association. These principles are not only based on the capital contribution ratio, but also extend to management control, financial relations and the combination of many other factors. The table below will briefly summarize the main criteria, along with specific illustrative examples for businesses to refer to and apply.
| Criteria | Detailed description |
| Equity ownership ratio | The first and most important criterion. If a business holds a certain amount of capital or has financial and operational control, the two parties are considered to have an affiliated relationship. |
| Control and management rights | Even if a business doesn't own a large enough capital base, it can still be considered an affiliate if it has the power to make strategic decisions, approve financial policies, or appoint senior personnel in another business. |
| Financial relations | Loans, guarantees or financial support from related parties can lead to influence in investment decisions, capital allocation and risk management. |
| Combination of many factors | In reality, capital, management and financial factors may coexist, creating a more complex connection. Enterprises need to evaluate comprehensively and based on clear legal evidence. |
In summary, determining the nature of an affiliated company involves more than just financial figures or capital ratios; it encompasses various aspects of control, management, loan relationships, and the actual impact on business operations. Businesses wishing to comply with the law need a comprehensive approach, thoroughly analyzing each case to avoid overlooking or misjudging the nature of the affiliated company.
Procedure for determining the relationship
Determining a related relationship cannot be done emotionally, but requires a clear process to ensure accuracy and compliance with the law. Normally, this process starts with collecting basic information about the business and the parties involved in the transaction. The business must carefully review legal documents, economic contracts, financial reports and related documents to determine the factors that can form a related relationship.
Once the data is available, the next step is to classify the potential affiliated entities. For example, parent companies, subsidiaries, within the same group, or individuals holding significant management rights in the enterprise are all considered. At this point, the enterprise needs to compare the legal criteria, including the capital ownership ratio, controlling rights, loan relationships, guarantees, or participation in management and operations.
Next, the enterprise must analyze and compare the collected information to determine the relationship in accordance with the provisions of Decree 20/2025/ND-CP.
Example: If Company A holds 30% of Company B's capital and has the right to approve large-value contracts, then it is clear that A and B have an affiliated relationship. Or in the case where Company C borrows all of its working capital from Company D and is financially guaranteed by D, then an affiliated relationship is also established even if there is no direct capital contribution.
Once the related parties have been identified, the enterprise needs to prepare a dossier and report the related party transactions according to the prescribed form. This is an important step to demonstrate transparency and avoid risks when the tax authority conducts an inspection. This dossier not only records the related party transactions but also analyzes the basis for identification, valuation methods and supporting documents.
Finally, businesses should conduct periodic reviews, as the relationship may change over time due to capital adjustments, changes in management personnel or new financial transactions. Regular updates will help businesses promptly adjust reports, minimizing the risk of being assessed as non-compliant.
The process of determining the relationship is a continuous process, from information collection, criteria analysis, legal comparison to reporting and periodic updating. If businesses implement it seriously and systematically, they will not only avoid unfortunate mistakes but also build a solid tax management foundation.
Common mistakes when determining relationships
In the process of determining related-party relationships, many businesses often make mistakes that cause inaccurate reporting of related-party transactions and lead to legal risks. Specifically:
- Misunderstanding the capital ownership ratio, many businesses believe that only when the parent company holds more than 501 TP3T of the subsidiary's capital can it be considered an association, while current law stipulates that only 251 TP3T or even 101 TP3T in some special cases is enough to form an association. This misunderstanding leads to the omission of many entities that must be declared.
- Another mistake is to ignore financial relationships, especially loans and guarantees. In practice, many businesses tend to focus only on the capital contribution factor, but do not pay attention to the fact that a loan from a parent company, a sister company or an executive is also a basis for determining the relationship. Even interest-free loans or loan guarantees are enough to establish a relationship and need to be transparently reported.
- Another common mistake lies in updating legal regulations. Many businesses still rely on outdated documents, failing to grasp the changes from Decree 20/2025/ND-CP, which amends and supplements several articles of Decree 132/2020/ND-CP, leading to the incorrect application of criteria. This not only compromises the accuracy of determining related-party relationships but also puts businesses at risk of being subject to tax arrears and additional tax assessments by the tax authorities.
Mistakes in the process of determining affiliated relationships often stem from misunderstanding regulations, missing financial relationship elements, slow updating of new documents or incomplete records. To avoid risks, businesses need to build strict control processes, regularly review transactions and consult experts to ensure compliance.
Solutions for businesses when determining affiliate relationships
To ensure accurate and compliant identification of related-party relationships, businesses need a well-structured management strategy that combines legal and internal governance elements. Establishing a system for periodically reviewing all financial, management, and contractual relationships helps businesses promptly identify new relationships that could potentially form linkages, thereby reducing the risk of overlooking entities that should be declared in related-party transaction reports.
At the same time, the work of preparing documents for related-party transactions needs to be seriously invested. The documents do not stop at declaring according to the form, but must also prove the legal basis, method of determining transaction price and accompanying documents. A complete, logical and transparent set of documents will become an important legal "shield", helping businesses stand firm when tax authorities conduct inspections.
However, in reality, not every business has the resources and experience to implement this entire process effectively. Understanding this, MAN – Master Accountant Network offers a professional solution with transfer pricing services and Transfer pricing consultancy We assist businesses in identifying related-party relationships and preparing related-party transaction documentation in compliance with Decree 20/2025/ND-CP. Our team of experts is knowledgeable and constantly updates their understanding of changes in tax policies and international tax laws regarding related-party transactions, such as the Primary Two Taxation Mechanism.
Reference: Deadline for submitting Related Party Transaction Documents.
Conclude
Accurately identifying business relationships is crucial for every business, especially during the peak accounting season. This is not only a legal obligation but also a key to minimizing risks, enhancing reputation, and optimizing transparent and sustainable business strategies.
Contact MAN – Master Accountant Network for timely advice and support!
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- E-mail: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Answering questions about relationships
An enterprise is considered to have an affiliated relationship when one of the following elements exists: Most commonly, it possesses ownership of capital in accordance with the prescribed ratio, has control or influence over operations, has a loan or financial guarantee relationship, or has involvement in management and the appointment of key personnel. Simply meeting one of the 11 conditions under Article 5 of Decree 132 constitutes an affiliated relationship for the enterprise.
If a business lends a significant portion of its working capital or provides financial guarantees, it still forms an affiliated relationship.
Yes, an alliance is formed if: The individual holds managerial or operational control, has the ability to influence financial decisions, or simultaneously controls multiple businesses.
Businesses may face: tax arrears, administrative penalties, tax assessments, and increased risk of in-depth audits.
It's very necessary. Even small businesses can: Borrow capital from related parties, have shared ownership or be controlled by an individual.When are businesses considered to be related?
Is lending without contributing capital considered a joint venture?
Can individuals create connections?
What are the consequences of incorrectly identifying a relationship between two people?
Do small businesses need to pay attention to and clearly define their business relationships?