With increasingly stringent transfer pricing audits and a strong automation of tax risk management systems in 2026, penalties for failing to declare related-party transactions have become a major concern for many businesses, especially FDI companies and those with close relationships, crony management, or complex internal transactions. Even a small error in identifying related-party transactions, late submission of declaration appendices, or missing documentation for determining transfer pricing can lead to tax arrears, administrative penalties, late payment interest, and even tax assessments, posing significant financial risks. This article will help businesses understand the details of penalties for failing to declare related-party transactions, common violations, underlying risks, and a safe approach to proactively prevent problems before tax audits.
Understanding the obligation to declare related-party transactions correctly.
Before delving into the penalties for failing to declare related-party transactions, businesses need to clearly define their position. According to regulations... Decree 132/2020/ND-CP and Decree 20/2025/ND-CP As amended and supplemented from Decree 132, the obligation to declare taxes is not only for large multinational corporations but applies to all businesses with related-party relationships.
What are related party transactions and why are they so easily overlooked?
Related-party transactions are transactions that occur between related parties in the production and business process. This category includes buying, selling, exchanging, leasing, renting, borrowing, lending, transferring, assigning goods, providing services; borrowing, lending, financial services, financial guarantees and other financial instruments…
A key mistake many businesses make, leading to penalties for failing to declare related-party transactions, is not identifying implicit related-party relationships. Typical examples include:
- Liability relationship: Businesses with loans/borrowings account for at least 25% of owner's equity and over 50% of the total value of medium and long-term debt at the time the transaction occurs during the tax period. If accountants do not carefully review this indicator on the balance sheet, the risk of being penalized for not declaring related-party transactions is extremely high when tax inspectors investigate.
- Close management relationships: Two businesses are jointly managed or controlled by members of the same family (spouse, parents, children, etc.). This loophole has led to many private businesses being subject to back taxes and heavy penalties for failing to declare related-party transactions, due to the misconception that "borrowing money from family doesn't require declaration.".
See details: Forms of related-party transactions.
List of required documents to avoid penalties for failing to declare related-party transactions.
Annually, along with the corporate income tax return, businesses subject to adjustment must complete the following documents:
- Appendices I, II, III, IV: Declaration of information on related-party relationships, related-party transactions, and comparative information. This is an electronic declaration accompanying the tax settlement; failure to declare this declaration means accepting the penalty for not declaring related-party transactions.
- Documentation for determining transfer pricing: This includes the Local File and the Master File. Although not required to be submitted with the tax return, businesses must store and present these documents within 15 working days upon request. Failure to provide them will result in a violation of documentation regulations and a corresponding penalty for failing to declare related-party transactions.
- Country-Based Profitability Report (CbCR): For corporations with consolidated global revenue exceeding VND 18 trillion (or an equivalent threshold).
To ensure absolute accuracy and avoid the risk of data rejection, many businesses have proactively sought out reputable consulting firms. The use of these firms... related party transaction documentation service Professionalism is considered the optimal solution to help businesses optimize compliance costs and completely eliminate future risks.
What should businesses do immediately if they have missed the application deadline?
The deadline for submitting corporate income tax returns and related-party transaction appendices for the 2025 tax year has passed. If businesses have not yet declared, submitted, or submitted incomplete important appendices, the level of violation is alarming.
Each additional day of delay not only increases late payment penalties but also directly puts the business under the scrutiny of regulatory authorities for early inspection. Once the deadline is exceeded, the tax authorities will conduct cross-checking of data from banks and related parties of the business. If any irregularities are detected before the business proactively declares them, the highest penalty for failing to declare related-party transactions will be applied, along with the right to impose an uncompromising tax assessment.
Urgent actions to take:
- Review all existing relationships immediately.
- Add appendices I, II, III, and IV to the HTKK system.
- Accepting the administrative penalty for late payment in order to benefit from the mitigating circumstance of "voluntarily rectifying the consequences".
- Prepare explanations for overdue transactions to avoid penalties for failing to declare related-party transactions due to intentional concealment.
Or the quickest and most optimal way is to proactively seek advice from related party transaction advisory services It is advisable to seek support from units with in-depth expertise, reputation, and experience.
Details of violations and penalties for failing to declare related-party transactions.
The legal basis for current penalties is primarily based on Decree 125/2020/ND-CP on administrative penalties for tax violations. However, in 2026, the automated tax management system (AI Tax) will help authorities detect violations more quickly, making it impossible to evade penalties for failing to declare related-party transactions.
Administrative penalties for late submission or failure to submit documents.
The penalty for failing to declare related-party transactions and for late submission of the appendix is calculated based on the length of the delay compared to the deadline for submitting the corporate income tax return.
| Late submission period | Administrative penalty levels | Consequences |
| From 1 to 30 days | Fines range from 2,000,000 to 5,000,000 VND. | System warning |
| From 31 to 60 days | Fines range from 5,000,000 to 8,000,000 VND. | On-site document review |
| From 61 to 90 days | Fines range from 8,000,000 to 12,000,000 VND. | Add to checklist |
| After 90 days or no submission | Fines range from 15,000,000 to 25,000,000 VND. | Widespread inspection |
Important Note: Once a business has been penalized with the highest level of non-declaration of related-party transactions, it is automatically classified as high-risk in the tax authority's risk management system.
Penalties for making false declarations resulting in an underpayment of taxes.
If a business files tax returns but makes false declarations or omits significant transactions in order to reduce its corporate income tax liability, the tax authorities will apply the following penalties:
- Penalty: 20%, the amount of underdeclared tax or the amount of tax exempted, reduced, or refunded in excess of regulations. This is an additional penalty after the administrative fine for failing to declare related-party transactions has been paid.
- Late payment penalty: Calculated at a rate of 0.031 TP3T/day on the amount of tax owed. Assuming a business is required to pay 1 billion VND in back taxes after 3 years, the late payment penalty could amount to over 300 million VND. This is a much more painful figure than the initial fine.
Penalties for tax evasion related to transfer pricing.
If the tax authorities can prove that a business intentionally set transaction prices that do not follow market principles (Arm's Length Principle) to shift profits, the penalty for failing to declare related-party transactions will be changed to a penalty for tax evasion ranging from 1 to 3 times the amount of tax evaded.
Hidden risks of not declaring related-party transactions.
While the figure of a few tens of millions of dong might seem insignificant compared to large FDI enterprises and multinational corporations, the ripple effect of penalties for failing to declare related-party transactions is what truly haunts a company's cash flow.
The power to determine taxes: Every business's nightmare.
When a business violates regulations and is penalized for failing to declare related-party transactions, the tax authorities have the right to reject the figures in the business's accounting books. They will apply an assessment method based on internal data about similar businesses.
Typically, tax authorities will choose a profit margin that is at or above the median of the industry. This leads to a situation where, even though a business is actually losing money due to high investment costs, it is still assessed as profitable and required to pay corporate income tax. This is a direct consequence of disregarding warnings about penalties for not declaring related-party transactions.
Eliminate interest expense exceeding 30% EBITDA
According to Article 15 of Decree 132/2020/ND-CP, if a business has related-party transactions but fails to declare them correctly, the tax authorities will review and apply a limit on interest expense deductions not exceeding 30% of EBITDA. The entire amount of interest expense exceeding this limit will not be deductible when calculating corporate income tax.
For example: The company borrowed capital from its parent company at market interest rates, but failed to declare the related-party transaction in the appendix, resulting in a penalty for non-declaration. During the audit, the tax authorities disallowed all interest expenses exceeding the 30% EBITDA threshold. Additionally, the company will have to pay an extra 20% corporate income tax plus a late payment penalty.
See details: How to calculate interest expense according to Decree 132.
Loss of credibility and being singled out on the risk management system.
From 2026, the national tax database will be linked with the banking and customs systems. Once a business has a history of violations related to penalties for failing to declare related-party transactions, its tax credit score will drop significantly. This makes it difficult for businesses to apply for tax incentives, VAT refunds, or participate in projects funded by the state budget.
Why should you proactively file supplementary returns to avoid penalties for failing to declare related-party transactions?
Faced with rigorous inspections, the best solution is for businesses to review and correct any errors themselves before the authorities issue an inspection decision. Voluntarily submitting additional documents not only helps reduce penalties for failing to declare related-party transactions but also protects the business's right to provide explanations.
Benefits of submitting supplementary documents
Proactively reviewing and correcting declaration errors before the tax authorities announce an audit decision is not only a measure to comply with the law but also brings strategic benefits to the financial stability of the business, specifically:
- Minimizing penalties: Businesses may be exempted from administrative penalties if they pay the additional fines before the inspection decision is announced.
- Data control: You proactively explain your pricing methods, instead of letting the tax authorities determine them after imposing penalties for non-declaration of related-party transactions.
- Stable operations: Businesses don't have to worry about huge outstanding tax amounts in their financial statements.
Procedure for eliminating penalties for non-declaration of related-party transactions.
To ensure compliance and maximize the protection of the company's cash flow before audits, management and the accounting department need to work together to implement a rigorous review process following these steps:
- Review the criteria for establishing related-party relationships: Carefully examine the relationships regarding capital (25%), management, control, and family relationships of the Board of Directors. Pay particular attention to bank loans that account for a large proportion, a common error leading to penalties for not declaring related-party transactions.
- Verify compliance with Appendix I: Ensure all purchase, sale, and loan transactions with related parties are fully listed, without omitting any related-party tax identification numbers. Transparency at this stage is key to avoiding penalties for failing to declare related-party transactions.
- Prepare the Price Determination Documents (Local File and Master File): These are extremely important technical documents. The documents must demonstrate that the transaction prices between related parties are consistent with market prices. Without these documents, penalties for failing to declare related-party transactions are only the first step in a large-scale tax recovery process.
- Submitting supplementary payments via the Electronic Tax System: Make adjustments to your tax return and appendices as soon as you discover errors. Remember, with each passing day, the amount of late payment penalties due to failure to declare related-party transactions will accumulate.
Conclude
With tax authorities increasingly intensifying transfer pricing audits and managing interconnected data across the entire system, penalties for failing to declare related-party transactions are no longer just a warning risk but have become a real problem that many businesses are facing. From initial administrative penalties, businesses can face a series of serious consequences such as tax arrears, late payment penalties, disallowance of interest expense deductions, tax assessments, and a long-term decline in tax creditworthiness.
The most important thing is not how to handle inspections, but rather proactively reviewing and completing documentation from the outset. Accurately identifying related-party relationships, fully declaring related-party transactions in the appendix, and preparing pricing documentation in accordance with regulations will help businesses minimize the risk of penalties while protecting transparency and financial stability in their operations.
If your business is still unsure whether you are required to declare related-party transactions, or needs to review your records to avoid penalties for non-declaration, early consultation with MAN – Master Accountant Network's team of related-party transaction experts is always the safest and most optimal choice. With over 30 years of experience in tax and related-party transactions and having assisted numerous FDI businesses, MAN – Master Accountant Network is confident in providing the best possible solution.
Contact MAN – Master Accountant Network for free support and advice!
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
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder and CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, and financial consulting.
Frequently Asked Questions about Penalties for Failing to Declare Related-Party Transactions
According to point d, clause 2, Article 5 of Decree 132, if your bank loan accounts for more than 25% of equity and more than 50% of the total value of medium and long-term debts, that bank is automatically considered an affiliated party. Therefore, it is necessary to declare and submit an appendix; failure to do so will result in penalties for the enterprise.
The tax authorities have the right to reject a loss report if you cannot demonstrate the market pricing principle through your pricing documentation. In that case, they will apply tax assessments based on the profit data of profitable businesses in the same industry. To avoid this scenario, businesses must prepare extremely thorough Local Files to explain the specific factors causing the loss.
Yes, and this risk is extremely high. The relationship between the Director (the executive) and the Company is an affiliated relationship. Lending at zero interest is considered a non-market-rate transaction. The tax authorities will assess financial revenue (corresponding to the prevailing lending interest rate) for the lender or disallow related expenses. Failure to declare is a violation and will result in penalties.
Submitting the supplementary documents will certainly cause the tax system to register the change, and the business will receive a reduction in penalties. If the business proactively submits the documents before an inspection is announced, it will only pay administrative late payment penalties and the accrued tax. Conversely, if the tax authorities discover the discrepancies during an inspection, the business will lose the right to explain and face penalties for failing to declare related-party transactions plus tax evasion charges (penalties of 1-3 times the tax amount).Why are businesses that have bank loans and sufficient collateral still being subject to scrutiny and penalties for failing to declare related-party transactions?
Businesses are currently operating at a loss due to market fluctuations. If the tax authorities determine the industry average profit margin, where will the businesses get the money to pay it?
If the CEO lends the company money interest-free to maintain production, does this act of support pose a risk of penalties for failing to declare related-party transactions?
If a business has already filed its tax returns for two years without including the supplementary declaration, will it be subject to inspection if it submits the supplementary declaration now?