FDI enterprises comply affiliate transactions is becoming a vital factor in the context of Vietnam's tax authorities tightening control over transfer prices. FDI enterprises' compliance with related-party transactions not only avoids the risk of collection and penalties, but also brings advantages in transparent management, optimizes legal profits and strengthens reputation with global partners. This article will provide detailed step-by-step instructions to help FDI enterprises comply with related-party transactions effectively, practically and in accordance with regulations.
Why do FDI enterprises need to proactively comply with related party transactions?
In an increasingly transparent and strict tax environment, the question is no longer “whether to comply or not”, but why FDI enterprises need to proactively comply with related party transactions from today. Below are the key reasons explaining why compliance is not only a legal obligation, but also a smart management strategy to help businesses develop sustainably:
- Major financial risks: Incorrect determination of transfer pricing leads to tax arrears, penalties and late payment interest.
- Operational and legal risks: Inspectors may require multiple layers of disclosure, from contracts, invoices to market comparison evidence.
- Business reputation: Tax violations affect relationships with partners, banks and regulators.
- Reverse benefits: Good compliance helps optimize legal tax costs, make internal transactions transparent, and increase management capacity.
To comply properly and avoid risks during the inspection process, it is most important for FDI enterprises to clearly understand the legal basis and applicable principles. This is the foundation that helps enterprises correctly determine the scope of obligations, prepare appropriate documents and ensure that all activities are transparent according to regulations.
Legal basis and applicable principles
FDI enterprises complying with related party transactions must first rely on a clear legal framework and international principles. Mastering this part helps enterprises correctly identify their obligations, avoid missing documents and have convincing arguments when explaining to tax authorities.
Important legal documents
Below are the regulations and standards that FDI enterprises complying with related-party transactions need to grasp and apply correctly:
- Decree 132/2020/ND-CP on related-party transactions is the main legal foundation together with Decree 20/2025/ND-CP amending and supplementing Decree 132/2020/ND-CP expanding the scope of regulation and detailed instructions of the General Department of Taxation and related Circulars to clarify the responsibility for declaration, record preparation and archiving obligations.
- OECD Principles and BEPS Transfer pricing is the reference standard when choosing a valuation method and performing market comparisons (benchmarking).
After having a clear understanding of the important legal documents that form the basis for determining tax obligations, the next step that FDI enterprises that comply with related party transactions need to take is to fully prepare the required documents as prescribed. This is the basis for proving the transparency and reasonableness of related party transactions when the tax authority conducts inspections and audits.
Required documents
To fully meet the requirements of tax authorities and demonstrate compliance in each transaction, enterprises need to clearly understand the three types of records that must be prepared and kept according to regulations. Each type of record below plays a separate role, but all are important evidence to help FDI enterprises comply with related-party transactions effectively and transparently.
- Master File: Provides a comprehensive picture of the group's structure, operating strategy, internal pricing policies and major related party transactions. The Master File helps tax authorities understand the group's cross-border relationships and business strategy.
- Local File: Details for each entity in Vietnam, to describe specific related party transactions, contracts, functional – risk – asset analysis, related financial statements and benchmarking. This is an essential file during inspection.
- Country Profit Margin Report (CbCR): Taxpayers that are the ultimate parent company in Vietnam with global consolidated revenue in the tax period of 18,000 billion or more are responsible for preparing CbCR in the Transfer Pricing Determination File.
For these documents to be truly valuable and accepted by tax authorities, FDI enterprises complying with related-party transactions need to correctly apply the arm's length principle, the core foundation to help determine the appropriate price, profit margin and pricing method for each related-party transaction.
Arm's Length Principle
Below are the core points that FDI enterprises complying with related-party transactions need to pay attention to when analyzing and determining prices according to the comparison principle (Arm's Length Principle):
- The basic principle is to compare internal transactions with comparable transactions between independent parties. This requires relevant market comparable data in terms of industry, size, geographic scope and time period.
- When a perfectly parallel transaction cannot be found, the business must clearly state the method of selection, the adjustments made and the limitations of the comparative data all need to be supported by evidence and reasonable arguments.
After understanding the legal basis, the documents to be prepared and the principles of market price comparison, the next step is to implement the compliance process in a systematic and practical manner. This is an important stage to help FDI enterprises comply with related party transactions, not only meeting legal requirements but also proactively controlling risks, standardizing data and being ready to explain when the tax authority conducts an inspection.
Related party transaction compliance process for FDI enterprises
To help businesses easily visualize and properly implement the process, below is a summary table of the steps to comply with related party transactions. This table fully summarizes everything from determining the related party relationship to archiving and explaining, helping FDI businesses comply with related party transactions systematically, effectively and in accordance with current regulations.:
Board: Related party transaction compliance process for FDI enterprises.
| Step | Content | Act | Note |
| Identify the relationship | Identify the parties having related relationships as prescribed | List of related parties with description of the nature of the transaction | Ensure full identification of all relationships, including indirect ones, to avoid omissions when filing. |
| Classify transactions and choose a valuation method | Classify transactions and determine appropriate pricing methods | Classification: Purchase and sale, service provision, internal loan,… Determine the pricing method | Explain the reasons for choosing the method and data source for comparison |
| Data collection and profiling | Prepare documents to prove the validity of the transaction | Record contracts, invoices, internal reports Functional, risk, asset analysis Prepare Local File and Master File as prescribed. | Ensure that market price comparison data is clearly sourced, up-to-date and transparent. |
| Declaration and submit the application | Complete the declaration and payment obligations on time | Declare according to the prescribed form and submit the application on time. With CbCR, coordinate with the applicable parent corporation Keep electronic and hard copies. | Late or incomplete filing may result in administrative penalties or tax assessments. |
| Archive, review and be prepared for accountability | Establish a process for managing and responding to inspections. | Review records periodically (at least annually or when the structure changes). Prepare a list of documents | Proactive preparation reduces collection risks and increases reliability. |
Thus, the above process not only helps FDI enterprises control tax risks well but also demonstrates transparency and professionalism in internal financial management. Compliance with regulations on related-party transactions is not only an obligation, but also an important foundation for building trust with tax authorities and partners, while optimizing long-term operational efficiency.
Common mistakes that cause FDI enterprises to be penalized
To help businesses easily visualize and proactively control risks in the process of declaring, preparing and storing records, below is a summary table of common errors when FDI enterprises comply with related-party transactions, along with actual consequences and specific penalties according to current regulations. This table helps businesses quickly identify weaknesses in the compliance process and have timely solutions before being subject to tax inspection.
Board: Common mistakes when FDI enterprises comply with related party transactions
| Common mistakes | Practical consequences | Penalty level |
| Failure to establish or delay in establishing related-party transaction records | Tax authorities determine prices, profit margins or taxable income Risk of corporate income tax collection, loss of reputation and increased risks during inspection | Fine from 15 to 25 million VND if not preparing or preparing incomplete documents Additional penalty of 20% on the amount of tax collected if false declaration reduces tax Late payment penalty 0.03%/day. |
| Using inappropriate market price comparison data | Tax authorities reject pricing methods and re-determine profit margins. Vulnerable to additional collection and fines due to incorrect determination of market price The assessment profile lacks objectivity, reducing reliability. | Fine from 8 to 15 million VND for false declaration of information Penalty 20% on tax arrears |
| No updates to internal structure, supply chain or pricing policy changes. | The records do not reflect reality, and the transfer price is easily re-determined. | Fine of 10 - 20 million VND if the application lacks information or is not updated correctly. May be subject to 20 – 25% corporate income tax on the difference in income. |
| Lack of evidence to demonstrate the reasonableness of the transfer price | Tax authorities may exclude internal costs without proven value added, adjusting taxable income upwards. Directly affects after-tax profit and the ability to enjoy tax incentives. Difficult to explain. | Fine of 15 - 25 million VND if not providing documents during inspection. The tax authority may re-determine the price and adjust the taxable income upwards. |
In general, the above errors are the main reasons why many FDI enterprises do not comply effectively with related-party transactions and face the risk of being collected or fined. Proactively reviewing, updating records and standardizing processes from the beginning not only helps to reduce compliance costs, but also demonstrates transparency and professionalism in tax administration.
For example: SMBC Bank (Japan) was charged over 70.7 billion VND during an inspection in Vietnam, including over 22.6 billion VND in VAT and over 48.05 billion VND in corporate income tax; and was fined 20% for false declaration (equivalent to 14.1 billion VND) and late payment (equivalent to 28.4 billion VND). The total amount of arrears, fines and late payment exceeded 113.28 billion VND.
FDI enterprises comply with related party transactions through professional consulting services
In reality, most FDI enterprises do not have a deep understanding of the legal system and tax regulations in Vietnam, especially specific regulations on related-party transactions, declaration documents and principles of determining market prices.
Therefore, cooperating with a specialized consulting unit not only helps businesses reduce internal pressure, but also ensures accuracy, updates and comprehensive compliance with regulations. Decree 132/2020/ND-CP along with related legal documents. This is also a solution to help businesses proactively prevent tax inspection risks, while improving transparency and reputation in financial management.
Special, MAN – Master Accountant Network As a reliable choice with a team of experienced experts in the field of tax and related-party transactions, MAN – Master Accountant Network confidently supports businesses:
- Review and assess compliance risks in Vietnam as well as meet OECD standards.
- Establish and update transaction records in a timely and accurate manner, ensuring data consistency.
- Transfer pricing strategy consulting, helping to optimize taxes and limit the risk of having taxable income determined
- Business representatives work with tax authorities, ensuring legitimate rights and transparency in all stages of explanation.
This is not only a time- and cost-saving solution, but also a strategic step to help businesses improve transparency standards and strengthen trust with tax authorities.
Conclude
FDI enterprises related party transaction compliance Not only is it a mandatory requirement, but it is also a vital factor for FDI enterprises operating in Vietnam. Understanding the regulations, preparing complete documents and implementing the correct procedures helps enterprises avoid the risk of being taxed and administratively sanctioned, while demonstrating a commitment to transparency and sustainability in business operations.
However, due to the complex legal nature and the need for in-depth understanding, many FDI enterprises have difficulty in self-implementation.
Contact MAN – Master Accountant Network now for advice and support.
Contact information MAN – Master Accountant Network
- Address: 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City.
- Mobile/ Zalo: +84 (0) 903 428 622 (Ms. Ngan)
- Email: nguyenthikimngan@man.net.vn
Editorial Board: MAN – Master Accountant Network