Declare related party transactions according to Decree 132/2020/ND-CP is one of the important regulations on corporate income tax. Declaration of compliant related party transactions not only helps businesses to be transparent in their business activities but also protects them from legal and financial risks. When businesses do not declare related party transactions or declare related party transactions incorrectly according to regulations, they may face tax arrears and administrative fines for tax violations, seriously affecting their financial situation and reputation.
What is related party transaction declaration?
Declaration affiliate transactions is the process by which a business provides complete information to the tax authority about transactions arising with related parties. The content of the declaration of related party transactions includes:
- Information about affiliate relationships.
- Details of transactions (purchase and sale of goods, provision of services, loans, transfer of assets, etc.).
The purpose of declaring related-party transactions is to help tax authorities determine and control tax prices for these transactions, ensuring transparency, fairness and preventing transfer pricing.
According to the regulations, parties are considered to have an affiliated relationship when one party directly or indirectly participates in the management, control, capital contribution or investment in the other party, or when both parties are under the management, control or capital contribution of a third party.
Declare related party transactions on HTKK
Declare related party transactions on HTKK is the process by which enterprises use the Tax Declaration Support Software (HTKK) of the General Department of Taxation to prepare and submit information on transactions arising with related parties, along with the corporate income tax finalization declaration. During this process, enterprises log into HTKK, select the corporate income tax finalization declaration form 03/TNDN, select the item "There are related party transactions" and fill in all information in the appendix as required. This form of declaration helps data to be sent directly to the tax authority quickly, accurately and in compliance with legal regulations. Declaration on HTKK helps synchronize data and minimize errors compared to manual filling.
How to fill out the affiliate transaction appendix
To complete the affiliated transaction appendix in the HTKK in accordance with the provisions of Decree 132/2020/ND-CP, enterprises need to fully prepare information and enter data into the software.
Regarding preparation, first of all, the enterprise must make a list of all related parties according to the criteria specified in Article 5 of Decree 132, clearly stating the business name, tax code, country or territory where the affiliate is registered to operate.
Next, it is necessary to summarize the value of each transaction arising during the tax period, including the purchase and sale of goods, provision of services, borrowing or lending capital, transferring or permitting the use of tangible and intangible assets (such as copyrights, patents, trademarks). At the same time, enterprises must determine the method of transaction valuation according to the principle of independent transactions prescribed in Article 7 of Decree 132, which can be the method of comparing independent transaction prices (CUP), the resale price method (RPM), the cost plus profit method (CPM), the net profit comparison method (TNMM) or the profit allocation method (PSM).
Procedure for filling out the appendix to declare related transactions
About the declaration process affiliate transactions To perform on HTKK, the enterprise opens the latest version of HTKK software, selects corporate income tax settlement declaration form 03/TNDN and ticks the box "There are related transactions" to activate the appendix.
Then, select the correct appendix form to fill in (Form No. 01 - Information on related parties; Form No. 02 - Information on related transactions; or Form No. 03 - Information on exemption from filing related party transaction declarations) according to the provisions of the Appendix issued with Decree 132. In each appendix, enter complete information of each related party, identify the type of transaction, describe the content, clearly state the transaction value and the applicable valuation method.
Once the data entry is complete, the enterprise needs to save the data and use the software's checking function to check for errors, ensuring that the data matches the financial report and the related transaction declaration file. Finally, export the XML file and submit it via the General Department of Taxation's Electronic Information Portal. within the time limit specified in Article 18 of Decree 132.
Appendix on related party transactions on HTKK, Appendix 1
Section I – Information of related parties
The section in the affiliated transaction appendix is used to fully declare data identifying parties having affiliated relationships with the enterprise, according to the criteria specified in Article 5 of Decree 132/2020/ND-CP.
In this section, the taxpayer must clearly state the name of each related party, tax identification number, country or territory where that party is registered to operate, along with basic contact information, if any. In addition, the form of related party relationship must be identified and expressed according to the prescribed symbols (A, B, C, D, Đ, E, G, H, I, K), each symbol corresponding to a specific type of relationship such as equity ownership, control rights, loan guarantees or economic dependence.
Accurate and complete declaration of related party transactions in Section I helps tax authorities accurately identify the network of related parties of the enterprise, thereby serving as a basis for comparison and checking the reasonableness of transaction prices, while ensuring that the enterprise complies with the principles of transparency and regulations of Decree 132. In particular, the implementer needs to consider the following notes:
- If the affiliate in Vietnam is an organization, fill in information based on the business registration certificate; if it is an individual, fill in information based on the passport or citizen identification card.
- If the affiliated party is an organization or individual not located in Vietnam, the information will be based on the document identifying the affiliated relationship. This can be a transaction agreement, contract, business registration certificate, etc.
- If you are an organization or individual operating in Vietnam, you need to fill in the full Tax Code (MST).
- If the organization or individual is not located in Vietnam: Fill in the full tax code and taxpayer identification code; if not available, state the reason.
Section II: Cases exempted from declaration obligation and exempted from preparing transfer pricing documents
Cases exempted from the obligation to declare related-party transactions or exempted from preparing documents to determine the price of related-party transactions are prescribed as follows:
Case 1: Case description
Taxpayers will be exempted from declaring related-party transactions in Sections III and IV of the related-party transaction appendix, and will be exempted from preparing related-party transaction declaration dossiers if, during the tax period, there are only transactions with related parties that are corporate income tax payers in Vietnam, both parties apply the same corporate income tax rate and neither party enjoys tax incentives.
Case 2: Exemption from filing related party transaction declaration
Taxpayers are exempted from filing related party transaction declarations in the following cases: (a) There are related party transactions but the total revenue in the tax period is less than VND 50 billion and the total value of all related party transactions arising in the period is less than VND 30 billion; (b) Have signed an advance pricing agreement (APA) and fully performed the obligation to submit annual reports as prescribed by law; (c) Conduct business activities with basic functions, costs arising from exploitation and use of intangible assets are less than VND 200 billion, and at the same time achieve the minimum profit margin before interest and corporate income tax for each field: distribution of 5% or more, production of 10% or more and processing of 15% or more.
Section III: Information on determining transfer pricing
This is a part of the appendix declaring related party transactions used for enterprises to present the method of determining prices for transactions arising with related parties, ensuring compliance with the principle of independent transactions as prescribed in Article 6 and Article 7 of Decree 132/2020/ND-CP.
In this section, taxpayers need to clearly state the pricing method applied for each type of transaction, such as the comparable uncontrolled price method (CUP), resale price method (RPM), cost plus method (CPM), net profit comparable method (TNMM) or profit allocation method (PSM).
Along with that, the enterprise must provide information on the data sources used for comparison, including financial statements, commercial databases, industry information or data from similar independent transactions.
In addition, Section III is also a place for enterprises to record the results of price comparison or profit margin between related transactions and the level of independent transactions, and explain the reasons for any differences (if any). If they are exempted from filing related-party transaction declarations according to Article 19 of Decree 132, taxpayers still need to tick the corresponding box for the tax authority to record.
The complete, clear and accurate declaration of related party transactions in Section III not only helps tax authorities assess the reasonableness of related party transaction prices but also serves as evidence that enterprises comply with regulations, avoiding the risk of being taxed or administratively sanctioned.
Belonging to the category of exemption from filing related party transaction declaration dossiers
These are cases where taxpayers do not have to prepare a declaration of related-party transactions for the tax period because they have met the exemption conditions prescribed by law. Even though they are exempted from preparing a declaration of related-party transactions, enterprises still have to declare the related-party transaction appendix on the HTKK (except in cases where some information items are exempted, as stated below).
Stipulated in Decree 132/2020/ND-CP, applicable to a number of special cases where taxpayers meet the conditions set by law. Enterprises will be exempted from filing related party transaction declarations if during the tax period, there are only transactions with related parties that are CIT payers in Vietnam, both parties apply the same tax rate and neither party enjoys tax incentives.
In addition, enterprises are also exempted from filing related-party transaction declarations when they are small in scale, specifically, total revenue in the period is under VND 50 billion and total value of related-party transactions is under VND 30 billion, when the transactions have been covered by an advance pricing agreement (APA) and the enterprise fully performs the obligation to declare related-party transactions, annual reports, or when the enterprise operates with basic business functions, costs from exploitation and use of intangible assets in the period are under VND 200 billion and achieve a minimum profit margin before interest and corporate income tax for each field, including distribution of 5% or more, production of 10% or more and processing of 15% or more. Although exempted from filing related-party transaction declarations, enterprises must still declare information on the HTKK and keep full documents proving exemption conditions to present when requested by tax authorities.
Section IV: Production and business results after determining transfer pricing declaration
This is the presentation of the business's profit picture after applying the valuation method according to the principle of independent transactions (declared in Section III) and making the necessary transfer pricing adjustments. This is the "final" figure used to compare with the corporate income tax finalization declaration, so it must be consistent with the financial statements and the entire working documents.
When preparing Section IV, the enterprise starts from the original accounting data of the period (net revenue, cost of goods sold, selling and administrative expenses, financial expenses, income, other expenses) and then separates the declaration of related-party transactions and independent transactions to determine the scope of adjustment. Based on the selected method (CUP, RPM, CPM, TNMM, PSM) and the independent comparison range, the enterprise calculates the price adjustment or profit margin for each group of transactions: it can adjust to increase related-party revenue, reduce cost of goods sold/internal service costs, adjust royalties or internal loan interest... to bring the results to the price and profit margin. After adjustment, the enterprise re-establishes the profit and loss report for the tax period, clearly showing adjusted revenue, adjusted cost of goods sold, gross profit, deductible selling and administrative expenses, financial expenses (note to control loan interest according to current regulations), other income, EBIT, EBITDA and taxable income after transfer pricing adjustment.
If there is a difference between the initial accounting figures and the adjusted figures, the increase or decrease should be recorded in the appropriate index, with a brief explanation of the comparative data base, the reason for the difference and the tax impact.
In case the enterprise is exempted from declaring related-party transactions in Section III and IV because it only has domestic transactions with the same tax rate and no tax incentives, Section IV may not have to be presented; but if it is only exempted from preparing price determination documents (revenue, transactions, APA, or reaching the minimum profit threshold), the enterprise must still show the adjusted production and business results in Section IV so that the tax authority can record the basis for tax calculation. Fully presenting related-party transaction declarations, with clear explanations and the ability to compare with working files will help the enterprise reduce the risk of being taxed, collected and fined during inspections.
See details at: Instructions for preparing a declaration of related party transactions
The forms are seen as having a relational relationship.
Pursuant to Clause 2, Article 5 of Decree 132/2020/ND-CP, when falling into one of the following cases, it is considered to have an affiliated relationship:
- Equity relationship: One party directly or indirectly holds 25% or more of the other party's equity, or both parties have at least 25% of equity owned by the same third party. In addition, one party is the largest shareholder holding at least 10% of the total voting shares of the other party, which is also considered an affiliate. This applies to both the charter capital of a limited liability company and the share capital of a joint stock company.
- Financial dominance relationship: One party guarantees or lends to the other party with a loan value of more than 25% of the borrower's contributed capital and at the same time accounts for more than 50% of the borrower's total medium and long-term debt. In this case, the borrower's ability to repay the debt and financial performance are significantly influenced by the lender.
- Dominant relationship in management or personnel: One party has the right to appoint more than half of the members of the Board of Directors, Board of Management or key management positions of the other party. Or both parties are directly managed and controlled by an individual or a group of individuals.
- Economic dependence relationship: One party has revenue or expenses from transactions with the other party that account for more than 50% of total revenue or total expenses during the period. For example, if company A sells most of its products to company B and revenue from B accounts for the majority of A's revenue, then the two parties are considered to have an affiliated relationship.
- Contractual or cooperative relationship: Two parties jointly contribute capital to a project, joint venture, business cooperation contract, or jointly share costs and profits.
- Other forms as prescribed by law: Including relationships that do not belong to the above groups but still show significant influence, control or influence on finance, management and business according to the guidance of the Ministry of Finance or tax authorities.
MAN – Master Accountant Network: Trusted partner in affiliate transaction management
MAN – Master Accountant Network (abbreviated as MAN) is proud to be a professional transfer pricing compliance consulting and support service provider, fully meeting the regulations of Decree 132/2020/ND-CP and international standards. With a team of experienced experts, MAN not only helps businesses accurately identify related parties and declare related party transactions, but also builds solutions to determine prices according to the principle of independent transactions, prepare standard transfer pricing documents and optimize tax strategies.
We are committed to providing transparent, legally safe and business effective services, helping businesses feel secure in sustainable development in an integrated environment.
Please contact MAN for more detailed advice and answers on solutions for managing and declaring related transactions suitable for your business.
Contact information: MAN – Master Accountant Network
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