Guide to compliance with related party transactions Decree 132: Optimal solution for businesses 2025

Related-party transactions under Decree 132 are one of the most complex tax areas, directly impacting corporate income tax obligations and transfer pricing risks for businesses. From identifying related parties and conducting functional, asset, and risk (FAR) analysis to selecting market pricing methods, every step requires absolute precision and full compliance with the Decree. Decree 132/2020/ND-CP. This article summarizes all key regulations, implementation guidelines, declaration obligations, documentation requirements, and practical experiences to help businesses minimize audit risks, optimize taxes, and ensure legal compliance.

What is affiliate trading? Understanding its nature

Decree 132 related party transactions are not ordinary sales transactions. They are transactions that arise between two or more parties that have a relationship of ownership, control or management of each other. The nature of Decree 132 related party transactions is that because the parties do not act independently, prices and transaction conditions can be “distorted” to achieve the group’s overall economic goals, often shifting profits to areas with lower tax rates (also known as transfer pricing).

The difference between related-party transactions under Decree 132 and normal transactions is that if a business purchases goods from an independent partner, the price will be determined by market supply and demand. However, if the business purchases from the parent company, the price may be set higher (to reduce the profit of the subsidiary in Vietnam) or lower (for other purposes). This difference is what makes related-party transactions under Decree 132 subject to strict regulation.

Why do businesses with related-party transactions need to pay special attention to Decree 132/2020/ND-CP?

In fact, Decree 132 sets out two core responsibilities that every business with related-party transactions cannot ignore, namely:

• Declaration and Documentation Obligations: Businesses with related-party transactions are required to declare these transactions and, in many cases, must prepare a Transfer Pricing Documentation (TP Documentation).
• Risk of Audits and Tax Collection: If the tax authorities discover that the transfer pricing does not comply with the arm's length principle, the business will have its taxable income adjusted upwards, leading to the collection of corporate income tax and administrative penalties.

So, how can businesses manage and minimize the risks of corporate income tax and avoid the adjustments to taxable income mentioned above? The first and fundamental step, which determines the entire process of compliance with Decree 132 related party transactions, is to correctly and fully determine who is the "Related Party" and which transactions are considered "Related Party Transactions" according to the provisions of Clause 2, Article 5 of Decree 132/2020/ND-CP.

Identifying Related Parties and Related Transactions 

To comply with the regulations on related-party transactions under Decree 132, the first and most important step is to accurately identify who is the "related party" and which transactions constitute "related-party transactions".

Portrait of the Affiliate as prescribed in Decree 132

The determination of Affiliated Parties is regulated in detail and fully in Clause 2, Article 5 of Decree 132. The Decree lists the following 11 specific cases:

• An enterprise directly or indirectly holds at least 25% of the equity of the owner of the other enterprise.
• Both enterprises have at least 25% of owner's equity held directly or indirectly by a third party.
• Businesses are managed and controlled in terms of business or financial decisions by an individual or organization, or this individual/organization has the right to appoint a majority of the members of the Board of Directors of both businesses.
• Two companies have more than 50% members of the Board of Directors (Board of Members, etc.) appointed by the same third party, or have family relationships (spouse, parents, children, siblings) between key members.
• Two businesses must have at least one person holding a key management position (e.g., Director, General Director, Deputy Director, etc.) or having a significant influence on business or financial decision-making.
• One business lends capital to another business in any form (including guarantees), provided that the loan represents at least 25% of the owner's equity and exceeds 50% of the total value of the borrower's operating assets.
• One business provides goods or services exclusively to another business, or together they control the consumer market or supply source through an agreement.
• One party uses, sells, or transfers the technology, trademarks, or intellectual property rights of the other party; or both parties are subject to control of the technology/trademark by a third party.
• One party has the right to appoint members of the Board of Directors, the Management Board, or other management positions that have the authority to determine the other party's business policies.
• Two enterprises have a relationship that decides or jointly decides the terms of the transaction arising between the parties.
• One party engages in purchase, sale, or exchange transactions with the other party that account for 50% of the total value of goods and services generated by each party during the tax period (applicable in cases where the transaction does not comply with the principle of independence).

Important Note: Decree 132 uses the criterion “25% capital contribution” as a hard threshold to determine affiliated relationships in many cases. Reviewing the capital ownership structure (ie the form of affiliated transactions) at the end of the tax period is mandatory. The case of borrowing capital is one of the most complicated criteria and most likely to lead to transfer pricing risks.

Classification of common types of related party transactions

Any transactions arising between related parties are related-party transactions and are subject to the regulations of Decree 132/2020/ND-CP. Common types of related-party transactions include:

Related transactions in enterprises are not only diverse in form but also clearly different in complexity and tax risks. In particular, Financial related transactions are often subject to the strictest supervision due to their direct impact on interest expenses according to Article 16 of Decree 132/2020/ND-CP. In addition, commercial, intangible and internal service transactions all require enterprises to have a complete valuation dossier, proving the nature and value of the transaction in accordance with the independence principle to minimize tax risks and comply with the law.

Methods of determining transfer pricing

The core objective of Decree 132 on related-party transactions is to ensure that the prices of these transactions are determined based on the principle of independent market prices. To achieve this, businesses must select and apply appropriate pricing methods.

Principles for Determining the Independent Market Price (Arm's Length)

To demonstrate that related-party transactions are conducted as independent transactions, a business must find equivalent transactions (comparative transactions) between unrelated parties and compare their economic and financial conditions.

The criteria for selecting comparison objects are as follows:

• Compare internal independent transactions: That is, similar transactions that the same enterprise conducts with an independent third party. (Most preferred).
• Compare independent external transactions: Similar transactions between two other independent third parties.

Comparisons must ensure similarity in terms of Function, Assets, Risk (FAR Analysis), contractual conditions, economic conditions, and business strategies.

Applying 05 methods for determining transfer pricing.

Decree 132 stipulates 05 basic methods, classified into traditional methods and profit methods:

Choosing which method to use to determine the transfer pricing under Decree 132 is a complex process. Businesses need to conduct Functional Analysis (FAR) to determine their role (purely manufacturing, distributing low risk, or holding high risk).

Obligation to Declare and Prepare Documents for Price Determination

Compliance with the regulations on related party transactions of Decree 132 is demonstrated through two main obligations: Declaration and Documentation.

Annual Related-Party Transaction Declaration (Corporate Income Tax Return)

All businesses that have related-party transactions during the tax period are required to declare information about these transactions in their Corporate Income Tax return, even if they are exempt from preparing a Price Determination File.

• Required form: Enterprises use Form 01 (GDLK Appendix attached to the Corporate Income Tax Finalization Declaration).
• Important details: Form 01 requires the declaration of the total value of related-party transactions, the relationship between the two parties, the pricing method, and especially interest expense (to control the limit according to Article 16). Declaring Form 01 is the first step for the Tax Authority to assess the transfer pricing risk of the enterprise.

See details: Declare related party transactions on the accounting system according to Decree 132/2020/ND-CP

Components of the Transfer Pricing Documentation

The transfer pricing documentation is legal evidence proving that the related transactions of an enterprise are carried out according to the independent market principle. This documentation includes 03 levels.

The three levels of related party transaction records above show the increasing level of transparency that enterprises must meet when participating in multinational corporations. In particular, Local File is a mandatory obligation for most enterprises with related party transactions, while Master File and CbCR only apply when the Group's consolidated revenue reaches the threshold according to Decree 132. The full and timely preparation of these Records not only helps enterprises comply with the law but also reduces the risk of tax collection, tax assessment and increases transparency in operations.

Cases exempted from preparing price determination dossiers

Decree 132 provides specific conditions for enterprises to be exempted from preparing Price Determination Documents (TP Documents), helping to reduce the compliance burden for small enterprises or enterprises with low transfer pricing risks.

Enterprises are exempted from preparing a TP Profile if they meet one of the following conditions:

Conditions on Transaction Size and Value:

• Total revenue generated during the tax period is less than 50 billion VND;
• Total value of all related transactions arising in the tax period is under 30 billion VND.

Conditions for the Effectiveness of the Advance Pricing Agreement (APA):

• The enterprise has signed an Advance Pricing Agreement (APA) and continues to implement this Agreement.

Low Transfer Pricing Risk Conditions (Simple Transfer Pricing):

• Firstly, enterprises only have transactions with related parties that are subject to corporate income tax in Vietnam;
• Second, apply the same corporate income tax rate as the related party (i.e. there is no difference in tax rates);
• Third, both parties involved are not entitled to corporate income tax incentives during the tax period (except for administrative procedure incentives);
• Fourth, total revenue generated during the tax period is less than 200 billion VND;
• Fifth, apply the net profit margin before interest and corporate income tax on net revenue, after deducting interest expenses and non-deductible expenses as prescribed for distribution from 5% or more, for production from 10% or more and for processing from 15% or more.

Even if exempted from preparing a Profile, the enterprise must still:

• Fully declare information about GDLK in Form 01 (GDLK Appendix attached to Corporate Income Tax Finalization).
• Compliance with the arm's length principle is required (prices must be within market price range).
• Pay special attention to the interest expense limit.

Interest expense and EBITDA limit 

This is one of the most prominent and controversial points of the regulations on related-party transactions in Decree 132/2020/ND-CP:

• Limiting principle: The total interest expense deductible when determining corporate income tax (after deducting interest on deposits and loans) must not exceed 30% of the total net profit from business operations (EBITDA) generated during the period.

Important new points:

• Allows the non-deductible portion of interest expense (the portion exceeding 30% EBITDA) to be carried forward to subsequent tax periods, up to a maximum of 5 years.
• The portion of interest expense exceeding the 30% EBITDA limit that is not deductible will be reduced if the business has related-party transactions that are exempt from preparing valuation reports, or only involves related-party borrowing or lending transactions.

Real case study: A manufacturing company (A) borrows capital from its parent company abroad. In 2024, A's total net interest expense is VND 40 billion. A's EBITDA is only VND 100 billion.

• The deductible interest limit (30% EBITDA) is 30 billion VND
• Non-deductible interest expense 10 billion VND

This VND 10 billion will be adjusted upwards in corporate income tax liability for the period. However, according to Decree 132, this VND 10 billion can be carried forward for deduction in the next 5 years if company A has sufficiently large profits.

Conclusion and recommendations

Compliance with the regulations on related-party transactions under Decree 132 is a big challenge but also an opportunity for businesses to make their financial activities transparent, strengthen their reputation and minimize legal risks.

To maintain compliance and sustainable risk control, businesses need to implement additional:

• Periodic Review: Establish a quarterly review process for the ownership structure and management to accurately identify Affiliates and eliminate omission risks.
• Prepare a Proactive Valuation File: Don’t wait until the last day of filing your Corporate Income Tax Return. Local Files need to be prepared, updated, and benchmarked throughout the fiscal year to promptly adjust for related-party transactions that fall outside the independent valuation range.
• Separating Interest Expense: Track net interest expense and monthly EBITDA separately to manage the 30% limit and proactively balance funding.

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

Editor MAN – Master Accountant Network