Is an independent branch considered an affiliate?

Whether an independent branch is considered an affiliated party is a question many businesses ask when filing tax returns. affiliate transactions, This is especially true in the context of independently accounting branches having their own tax identification numbers, separate accounting systems, and potentially numerous transactions with the parent company. In reality, many businesses believe that simply having an independently accounting branch automatically makes it an independent entity, and that transactions between the parent company and the branch are considered related-party transactions.

Determining whether an independent branch is an affiliated party requires consideration based on the provisions of the Enterprise Law regarding the legal status of branches and the cases for determining affiliated relationships. Article 5 of Decree 132/2020/ND-CP. Only by correctly identifying the subject and the relevant relationship can a business accurately fulfill its declaration and reporting obligations. related-party transaction pricing documentation and mitigate tax risks. This article will provide a comprehensive analysis of the legal basis and clarify common misconceptions businesses have when determining whether an independent branch is an associate party.

What is an independently accounting branch? How does it differ from a dependent accounting branch?

Before answering the question of whether an independent branch is an associate party, it is necessary to clarify the legal and accounting-tax nature of this type of branch, as this is the factor that determines how to define the associate relationship.

Branches under the Enterprise Law

Legally, a branch is a subsidiary unit of a business, tasked with performing all or part of the business's functions, including authorized representation. Branches do not have independent legal personality; however, from a tax management perspective, the accounting methods and tax declaration obligations of the branch are the decisive factors in determining whether it can be considered a separate business for the purpose of assessing the affiliation, rather than its legal personality.

Independent accounting branches: Self-declare and pay corporate income tax separately.

An independently accounting branch is a unit that organizes its own accounting, determines its own business results, and declares and pays corporate income tax to the tax authority directly managing the branch, independently of the head office. This is the type of branch that falls within the scope of the debate regarding whether an independent branch is considered an affiliated party.

Dependent accounting branch: Not an independent corporate income tax payer.

Conversely, dependent accounting branches do not determine their own business results, nor do they independently declare and pay corporate income tax; instead, their figures are consolidated into the head office's tax settlement report. Because they are not independent corporate income tax payers, dependent branches are not considered separate businesses when considering the criteria for determining affiliated parties. This distinction will be clarified further later in this article.

Legal basis for determining current associate parties

To accurately answer the question of whether an independent branch is an affiliated party, businesses need to adhere strictly to the currently effective legal documents, specifically as follows:

Article 5 of Decree 132/2020/ND-CP: Principles for determining related parties

Clause 1, Article 5 of Decree No. 132/2020/ND-CP stipulates the general principle: Related parties are those parties whose relationship falls under one of the following cases:

One party is directly or indirectly involved in the management, control, capital contribution, or investment of the other party; or the parties are directly or indirectly subject to the management, control, capital contribution, or investment of another party.

Clause 2 of Article 5 specifically lists 11 groups of cases identified as related parties, including the group of relationships concerning capital ownership (from 25% capital contribution or more), guarantee or loan relationships, personnel management relationships, family relationships, and especially other cases in which the enterprise is subject to the actual management, control, and decision-making of the other enterprise regarding its production and business activities.

Learn more: What are related-party transactions?

Amendments to Clause 2, Article 5 in Decree 20/2025/ND-CP

On February 10, 2025, the Government issued... Decree No. 20/2025/ND-CP Amendments and additions to several articles of Decree No. 132/2020/ND-CP, including amendments to points d and k and the addition of point m to Clause 2, Article 5 regarding related parties.

Specifically, point k, clause 2, Article 5 of Decree No. 132/2020/ND-CP previously only stipulated:

Other cases in which an enterprise is actually under the management, control and decision-making power over the production and business activities of another enterprise.

This content has been amended in Decree No. 20/2025/ND-CP as follows:

Other cases in which an enterprise (including an independent accounting branch that declares and pays corporate income tax) is subject to the actual management, control, and decision-making on the production and business activities of the other enterprise.

Thus, since Decree 20/2025/ND-CP came into effect, the scope of the concept of enterprise in point k, clause 2, Article 5 has been expanded to include independently accounting branches that declare and pay corporate income tax. This is the clearest legal basis to affirm that independent branches can be identified as affiliated parties.

See also: Key new points in Decree 20 regarding related-party transactions.

So, are independent branches considered affiliates of the parent company?

The answer is Have. If a branch operates independently, self-declares and pays corporate income tax, and is subject to the actual management, control, and decision-making of the enterprise (headquarters or another enterprise within the same system), then that branch and the enterprise are considered related parties according to the provisions of Clause 2, Article 5 of Decree No. 132/2020/ND-CP, as amended and supplemented by Decree No. 20/2025/ND-CP.

Why is an independently accounting branch considered a separate business entity when considering its affiliation?

According to the regulations on taxpayers in corporate income tax law, an independently accounting branch is a unit that self-declares and pays corporate income tax. Therefore, the branch and the enterprise that established the branch are two entities responsible for independently declaring and paying corporate income tax. Because it acts as a separate taxpayer, an independently accounting branch is eligible to be considered an enterprise in a relationship of management and control with the other enterprise, as stipulated in point k, clause 2, Article 5 above.

This is the core reason why the answer to whether an independent branch is an affiliated party is always yes, regardless of whether the branch has its own legal personality. 

In cases where the head office controls a branch with independent accounting. 

In cases where the head office directly manages, controls, and makes decisions regarding the production and business activities of its independently accounting branch, the head office and the independently accounting branch are related parties, regardless of whether the branch has separate legal personality.

This applies to cases where two independently accounting branches are both managed by the same enterprise.

The principle for determining an affiliated party is not limited to a two-way relationship between the head office and a branch. If a business controls business A, and branch X, which is a subsidiary of A, is accounted for independently, then that business and branch X are still considered affiliated, even if they do not directly own or operate branch X.

Similarly, two independently accounting branches that are both managed and controlled by a single enterprise are also considered to be affiliated with each other, in accordance with the principle of being jointly managed and controlled by another party as stipulated in Clause 1, Article 5 of Decree 132/2020/ND-CP.

Is a dependent accounting branch considered an affiliated party?

To clarify the scope of application, the following question needs to be asked: Is a dependent accounting branch considered an affiliated party?

The answer is Are not. Because dependent accounting branches are not independent corporate income tax payers and do not file and settle their own taxes, the branch's business results are consolidated into the head office's report. Therefore, transactions between the head office and dependent accounting branches are essentially internal transactions within the same taxpayer and are not subject to the regulations on related-party transactions. The table below summarizes the key differences between the two types of branches when considering related-party relationships:

When does a transaction between an independent branch and a business become a related-party transaction?

Identifying the new related-party relationship is only a necessary condition. Businesses only incur declaration obligations when there are actual related-party transactions between the related parties, meaning transactions falling within the scope of Decree 132/2020/ND-CP, including:

• Buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, assigning goods, and providing services between related parties.
• Borrowing, lending, financial services, financial guarantees, and other financial instruments arising between related parties.
• Buying, selling, exchanging, leasing, renting, borrowing, lending, transferring, assigning tangible and intangible assets, and agreements for the purchase and shared use of resources such as assets, capital, labor, and cost sharing between affiliated parties.

One important point should be noted: Transactions involving collection and disbursement of funds between related parties are not considered related-party transactions. Furthermore, according to Clause 2, Article 1 of Decree No. 132/2020/ND-CP, only when a branch of an enterprise and the enterprise engage in transactions falling within the aforementioned scope will the relationship between the two parties be subject to the Decree on tax management for related-party transactions, consequently requiring declaration and documentation for corresponding price determination. 

A practical example illustrating the relationship between a business and its independent branch.

Example 1: Company B controls company A; branch X is a subsidiary of company A and operates independently. In this case, company B and branch X are considered related parties, even though B does not directly manage branch X but only controls it through company A.

Example 2: A company has an independently accounting branch in another province. During the tax period, the company conducts internal sales transactions with the branch to regulate profits among units within the same system. Because the branch is independently accounting and declares and pays corporate income tax separately, this is a transaction between related parties, and the company must declare and determine the transaction price according to market price principles. 

Example 3: The head office transfers goods internally to its dependent branch to support its business operations. Since the dependent branch does not declare and pay corporate income tax separately but consolidates its business results with the head office, this is merely an internal transfer transaction within the same taxpayer, not a related-party transaction, and therefore does not fall within the scope of Decree 132/2020/ND-CP. 

The three examples above clearly show that the answer to the question of whether an independent branch is an affiliated party is always linked to the branch's accounting method and corporate income tax declaration obligations, and does not depend on whether the branch has the same owner, brand, or management system as the parent company. 

Conclude

Whether an independent branch is considered an associate entity depends on its accounting method: 

• According to point k, clause 2, Article 5 of Decree 132/2020/ND-CP (amended by Decree 20/2025/ND-CP), a branch with independent accounting (self-declaring and paying corporate income tax separately) is considered an enterprise and can therefore be an affiliated party if it is under the actual management and control of the other enterprise.
• A dependent branch is different, because transactions with the head office are purely internal transactions.

Having an affiliated relationship is not enough to require declaration; only when actual transactions occur (buying, selling, borrowing, services, etc.) should a price determination document be created. Businesses should review the correct accounting and transaction types of each branch to avoid the risk of being assessed for tax or having taxes collected retrospectively. 

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Addressing the question of whether independent branches are considered affiliates.