SMEs complying with related party transactions is no longer a choice, but a mandatory obligation. Many small and medium enterprises unintentionally violate the regulations due to a lack of understanding of the provisions of Decree 132/2020/ND-CP and related documents, leading to the risk of tax arrears and administrative penalties. The following article will share information to help SMEs identify related party transactions, prepare standard documents and optimize taxes.
Do SMEs have related party transactions?
According to Decree 132/2020/ND-CP, affiliate transactions are transactions arising between related parties in the production and business process (buying and selling goods, providing services, borrowing, guaranteeing, transferring assets, sharing costs, etc.). Decree 132/2020/ND-CP (and amendments and supplements to Decree 20/2025/ND-CP) clearly stipulates the scope, obligations to declare, prepare records and responsibilities to provide documents when requested by tax authorities.
Therefore, if an SME has a transaction with a party that has an affiliated relationship according to the Decree, the SME complying with the affiliated transaction must determine if it falls under the transaction conditions according to Decree 132/2020/ND-CP and then make a declaration according to the regulations.
5 practical criteria to identify businesses with related-party transactions
Below are the criteria that SMEs should review. If they meet one or more criteria, there is a high possibility of related party transactions:
- Common owner or manager: Company A and B have the same individual or organization holding at least 25% controlling shares or the same board of directors.
- Dominance of personnel or decision-making: One party appoints members of the executive management or holds control of another enterprise provided that the number of members appointed by the first enterprise accounts for more than 50% of the total number of members of the executive board or holds control of the second enterprise; or a member appointed by the first enterprise has the right to decide on the financial policies or business operations of the second enterprise
- Notable financial transactions: Borrowing – lending, guarantees, cost sharing,… with non-market terms.
- Contract or order: Providing services, transferring goods, renting machinery between companies in the same system.
- Unusual trading conditions: Prices significantly lower or higher than market, unusual payment terms, or undisclosed agreements.
To understand why the above signs are considered the basis for determining which category a business belongs to.
See also: Affiliated relationships according to Decree 132/2020/ND-CP
For example: An SME borrows 5 billion from its parent company with an interest rate of 31 TP3T/year while the equivalent market interest rate is 81 TP3T/year. This loan shows signs of not following market conditions. Once it is determined to be an affiliated transaction, the SME that complies with the affiliated transaction must make a declaration according to the Appendix form and keep relevant documents.
Compliance obligations of SMEs
Understanding the obligations correctly helps businesses avoid violations, but to meet the standards, SMEs must comply with related-party transactions step by step to ensure accuracy and compliance with regulations.
Declare related transaction information
Any enterprise that has transactions with related parties must declare information on related relationships and related transactions according to Appendix I Form 01 attached to the Corporate Income Tax Finalization Declaration. Complete declaration helps tax authorities quickly assess the scope of related transactions of the enterprise.
See details: Declare related party transactions on the accounting system according to Decree 132/2020/ND-CP
Establish and maintain transfer pricing records
When an associated transaction occurs within the scope of regulation, the enterprise must prepare a dossier to determine the price of the associated transaction (National dossier) including: Transaction description, price determination method, market comparison data, contract, evidence of cost allocation, related financial reports. This dossier must be kept at the company's headquarters and ready to be presented when requested by the tax authority.
See details: Time to prepare and submit the affiliated transaction dossier
Provide documents when requested by tax authorities
Taxpayers are responsible for maintaining and providing complete records, documents, figures and vouchers related to related-party transactions when requested by the Tax Authority to prove the conditions, methods and conclusions of price determination. Failure to have records or records with insufficient basis will increase the risk of being subject to collection, income adjustment and administrative sanctions.
Exemption thresholds and notes for SMEs
In fact, if an SME falls into one of the cases exempted from preparing a Transfer Pricing Document according to Decree 132/2020/ND-CP on related transactions, the enterprise is exempted from preparing it, but must still declare it in Appendix I according to regulations and keep relevant documents if necessary for explanation.
Note: Decree 20/2025/ND-CP on related party transactions officially takes effect on March 27, 2025 and applies from the 2024 tax period, so SME enterprises need to review the corresponding tax period before determining exemption conditions.
Common mistakes in practice
Pursuant to Decree 125/2020/ND-CP and guidance of the General Department of Taxation, violations of the obligation to declare and prepare related-party transaction records may be subject to specific penalties as follows:
- Late submission of declaration of related party transactions: Enterprises with related-party transactions that do not submit the appendices as prescribed on tax management for enterprises with related-party transactions with corporate income tax settlement dossiers shall be fined from VND 8,000,000 to VND 15,000,000. Fines from VND 15,000,000 to VND 25,000,000 shall be imposed for the act of submitting tax declaration dossiers more than 90 days after the deadline for submitting tax declaration dossiers (See details: Time of preparation and submission of related party transaction dossiers to understand the timeframe for preparation and submission)
- Fine 20% on the amount of under-declared tax for the act of false declaration leading to under-declaration of tax payable or increase in the amount of tax exempted, reduced or refunded for related party transactions but the taxpayer has prepared a dossier to determine market price or has prepared and sent to the tax authority the appendices according to regulations on tax management for enterprises with related party transactions.
Thus, for SMEs to effectively comply with related party transactions, the first thing is not only to declare on time, but also to prepare documents to prove market prices in a systematic manner, with an independent database and to be consulted by a unit with in-depth expertise and practical experience.
4 steps to help SMEs comply with related party transactions
To help SMEs comply with transfer pricing in a practical and immediately deployable way, here is a summary of the core 4-step process. Each step includes specific objectives and actions, helping businesses control the entire compliance process, from data collection to periodic reviews.
Board: 4-step process for SMEs to comply with related-party transactions
| Step | Target | Specific content and actions |
| Collect internal transaction data | Fully identify related parties and related transactions. | Make a list of transactions: partner name, relationship, transaction type, value, conditions. Collect contracts, invoices, minutes, quotes, negotiation emails. Mark transactions with “unusual” conditions (lower than market price, unreasonable offer). |
| Determine the method of comparing market prices | Demonstrate that the transaction price is in line with market principles (arm's length) | Select the appropriate comparison method: CUP, RPM, TNMM… Find independent comparative data (quotes, industry reports, trade data). Make reasonable adjustments for differences. |
| Analyze and prepare documents according to regulations | Prepare complete and well-founded transaction price determination documents. | Prepare documents including: business description, transaction description, valuation method, comparative data, conclusion. Declare Appendix I Form 01, submit with corporate income tax finalization declaration. Check for consistency with accounting records and financial statements. |
| Periodic review and policy update | Maintain continuous compliance, avoid errors when changes occur | Periodically review (at least annually) transaction lists, comparison data, and records. Update new regulations |
Correctly implementing the above 4 steps helps SMEs comply with related party transactions systematically – from data collection, market price comparison, standard documentation preparation to periodic review. This not only reduces the risk of tax arrears and administrative fines, but also enhances the reputation and financial transparency of the enterprise.
Solutions to support SMEs in complying with related party transactions
In reality, despite having a clear understanding of the process and obligations, not all businesses have enough resources to fully implement them. Especially for SMEs that comply with related-party transactions, the difficulty often lies in the lack of in-depth expertise in tax, especially related-party transactions, limitations in comparative analysis of market prices and the lack of a standardized record-keeping system. These factors make businesses vulnerable to risks when being inspected, collected or fined for late payment.
Therefore, SME enterprises cooperate with professional consulting units to optimize time, costs and ensure compliance with legal regulations. MAN – Master Accountant Network is confident to be the leading prestigious unit in the field of tax – auditing, especially specializing in the field of related-party transactions.
With a team of experts knowledgeable in both domestic regulations and international practices, MAN – Master Accountant Network Not only does it support businesses in reviewing, establishing and storing standard records, but it also helps build appropriate internal processes for SMEs to proactively and effectively comply with related-party transactions.
Conclude
SMEs’ compliance with related party transactions is not only a mandatory obligation but also an important factor to ensure transparency and sustainable development. An effective compliance process needs to be implemented systematically, from identifying related party relationships, collecting data, comparing market prices, to creating and maintaining legally compliant records.
A sound compliance strategy today will lay the foundation for transparent, sustainable business development and build trust with regulators in the future.
Contact information MAN – Master Accountant Network
- Address: 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City.
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- Email: nguyenthikimngan@man.net.vn
Editorial Board: MAN – Master Accountant Network