International related party transactions are increasingly becoming a central issue in tax management and business strategies of multinational corporations. Not only related to the purchase and sale of goods, services or intangible assets, international related party transactions also require strict compliance with international standards to prevent transfer pricing, ensure transparency and fairness between countries. The trend in 2025 shows that businesses that want to develop sustainably must clearly understand and flexibly adapt to the global system of regulations on international related party transactions.
Overview
What is international related transaction?
International related party transactions are economic transactions arising between parties having international related party transaction relationships, in which at least one party is an organization or individual in a foreign country, and has an influence on determining the price of that transaction. These international related party transactions are often related to buying, selling, exchanging, renting, leasing, borrowing, lending, transferring assets, providing services, and other financial transactions.
For example, a foreign parent company lending capital to a subsidiary in Vietnam at an interest rate lower than the market interest rate, or a subsidiary in Vietnam purchasing raw materials from a foreign parent company at a price higher than the market price, are both considered international related party transactions.
See details at: Overviewaffiliate trading
The importance of global tax governance
Affiliate transactions International trade is not only a normal business activity between multinational corporations but also a key factor that directly affects global tax administration. Through transactions of goods and services, loans, and transfers of tangible and intangible assets between related parties in many different countries, corporate profits can be allocated to places with low tax rates, leading to the risk of eroding the tax base in the host countries.
Example: Apple has been ordered by the EU to pay an additional 13 billion EUR (~15 billion USD) in taxes for shifting profits to Ireland, where it was only subject to an effective tax rate of 0.005% in 2014.
References: EU forces Apple to pay back taxes to Ireland
Therefore, international related party transactions are considered a hot spot in the management strategy of tax authorities worldwide. The establishment of international regulations and standards such as OECD BEPS, CbC reporting or the arm's length principle to control international related party transactions has helped to improve transparency, limit transfer pricing behavior and ensure fairness in tax obligations between countries. For businesses, compliance with these regulations not only reduces the risk of being inspected and sanctioned but also contributes to building a sustainable tax management system, creating prestige in the global business environment.
The role of international related-party transactions in combating transfer pricing and protecting budget revenue
International related transactions often involve the purchase and sale of goods, services, intangible assets or loans between companies in the same group but located in different countries. Due to the nature of control or dependence, these transactions are easily exploited to adjust prices not according to the principles of independent markets, in order to transfer profits to countries with low tax rates. This is the phenomenon of transfer pricing abuse, causing significant losses to the state budget in the country where the actual production and business activities take place.
Therefore, controlling international related-party transactions is crucial in the strategy against transfer pricing. Through international regulations such as the OECD's BEPS, Country-by-Country Reporting (CbC) requirements or the arm's length principle, tax authorities of countries can closely monitor how businesses determine prices, allocate costs and profits. Thanks to that, budget revenues are protected, fairness in tax obligations between countries is ensured, and the risk of unfair tax competition is minimized.
For businesses, compliance with regulations on international related-party transactions not only helps avoid the risk of being charged and fined during tax inspections, but also builds reputation, financial transparency and a foundation for sustainable development in the global business environment.
Example: Starbucks – a multinational coffee corporation, operating in more than 60 countries. In the UK, the period 1998 – 2012, the revenue was estimated at about 3 billion pounds, but the report shows that there was almost no taxable profit.
How to conduct international affiliate transactions:
- Royalty fees: Starbucks UK pays approximately £61T in revenue to its Dutch affiliate for use of the brand.
- Purchasing raw materials (coffee beans): Starbucks UK imports coffee beans from an affiliated company in Switzerland, at a higher price than the market, increasing raw material costs.
- Internal service costs: A portion of the management costs are allocated from the US parent company to the UK branch.
Profits in the UK are "eroded" and transferred to low-tax countries (Netherlands, Switzerland).
Despite billions of pounds in revenue, Starbucks UK has paid just £8.6m in corporation tax over 14 years, a small figure for its size.
The case became a typical example of how corporations take advantage of international related-party transactions to transfer prices, and also showed the role of tightening international regulations and transparent profit reporting to protect budget revenue.
International standards from OECD and BEPS
Going back in time, 2012 marked the birth of BEPS 1.0 initiated by OECD. At that time, many multinational corporations took advantage of international related-party transactions and differences in tax policies to transfer profits to countries with low tax rates, causing serious budget losses. BEPS 1.0 appeared as a global solution to prevent this situation and establish fairness in tax administration.
BEPS 2.0: Latest Update
BEPS 2.0 (Base Erosion and Profit Shifting – Phase 2) is an international tax reform framework led by the OECD and G20 to address tax loopholes arising in the context of digitalization and globalization. While BEPS 1.0 focused on closing traditional transfer pricing “loopholes” in international related-party transactions, BEPS 2.0 expands to two pillars to reallocate taxing rights and apply a global minimum tax, ensuring the profits of multinational corporations (MNEs).
BEPS 2.0 was created with the aim of reaching consensus among countries, ensuring that multinational companies will pay taxes fairly in the markets where they are operating. BEPS 2.0 consists of 2 pillars, specifically as follows:
- Pillar 1: Applies to multinational companies with a turnover of 10 billion euros.
- Pillar 2: Applies to companies with global turnover exceeding €750 million. Accordingly, these companies will be subject to a minimum tax rate of 15% on income calculated according to the pillar 2 principle in each territory in which the company operates.
To better understand the evolution of international transfer pricing, it is necessary to look back at the differences between the two phases BEPS 1.0 and BEPS 2.0. While BEPS 1.0 laid the first foundation for combating profit shifting, BEPS 2.0 expanded the scope, reflecting new challenges from the digital economy and global minimum tax trends. The table below will compare these two phases in detail, helping businesses have an overview and better prepare for the global tax landscape by 2025.
Comparison of BEPS 1.0 and BEPS 2.0 in international linked transaction management
| Criteria | BEPS 1.0 | BEPS 2.0 |
| Background | Many multinational corporations take advantage of cross-border transactions to shift profits to places with low tax rates. | New challenges from the digital economy, data and cross-border e-commerce require a more comprehensive legal framework. |
| Main objective | Preventing tax base erosion | Ensuring tax fairness in the digital economy and applying a global minimum tax. |
| Core principles | Arm's Length Principle in international related party transactions. | Two pillars: (1) Reallocation of taxing rights, (2) Global minimum tax 15%. |
| Scope of application | Focus mainly on transfer pricing models through buying and selling, borrowing, and licensing brands in international related transactions. | Applicable to both digital economic models, digital services, multinational corporations with consolidated revenue ≥ 750 million EUR. |
| Meaning | The first platform to build an international mechanism against transfer pricing. | The move is a “new global rule of the game”, protecting budget revenues and ensuring fair competition. |
From the comparison table, it can be seen that BEPS 2.0 not only inherits the foundation of BEPS 1.0 but also opens up a new “rule of the game” for international transaction management. The birth of the global minimum tax mechanism and the reallocation of taxing rights help to minimize profit shifting and increase transparency in the operations of multinational corporations.
Impact on Vietnam
Pillar 2 of BEPS 2.0 is expected to have far-reaching impacts on the global investment environment, including Vietnam. This provision may cause serious concern for many countries, especially economies competing to attract FDI inflows. Previously, income-based tax incentives were always considered an effective tool to attract investors, especially multinational corporations with many international related transactions. However, with the introduction of Pillar 2, the value of these incentives will be significantly reduced.
In Vietnam, in recent times, our country has adjusted the general corporate income tax rate from 32%, down to 28%, 25%, 22% and currently 20%.. Incentives on corporate income tax rates, tax exemptions and reductions in various periods. This is the top factor that multinational companies consider when choosing Vietnam as a destination, instead of shifting capital flows to neighboring countries. Tax incentives not only make Vietnam attractive, but also create a foundation for the formation of many international affiliated trading activities in multinational corporations.
However, when Pillar 2 is applied, if multinational companies have an effective tax rate in Vietnam below the global minimum threshold of 15%, they will have to pay an additional tax (top-up tax) in the country where they are headquartered. This means that the tax incentives in Vietnam will lose their effect, making the tax competitive advantage disappear. Without appropriate adjustments, Vietnam's investment environment is at risk of becoming less attractive than before.
The inevitable consequence is that Vietnam may witness a decline in not only the scale of FDI capital from large corporations but also from satellite enterprises in the international supply chain. This directly impacts Vietnam's international linked transaction flow, reducing the efficiency of global value chain integration. At the macro level, this change may negatively affect the country's industrial development goals, export growth and maintaining stable foreign exchange reserves.
References: WTO Center
Policy solutions to attract investment in the new context
Tax application – additional domestic minimum income tax 15%
Policies to respond to Pillar 2 are being widely discussed by many countries and territories. Hong Kong and Singapore have officially announced that they will apply the Global Minimum Tax (DMT) to businesses affected by this mechanism. Meanwhile, Thailand is also conducting internal consultations to consider appropriate implementation options. This is an inevitable trend to ensure transparent management of cross-border activities, especially related to international affiliate transactions of multinational corporations.
For Vietnam, the response policy may pose two main options:
- One is to apply DMT 15% to affected companies and simultaneously eliminate tax incentives.
- Second, allow these companies to choose between continuing to maintain the existing incentives (ie paying additional tax in the country where the parent company is headquartered) or switching to applying the DMT 15% rate right in Vietnam.
According to Article 13 of the current Investment LawIn the event of a change in the law that is unfavorable to investors, the Government must take remedial measures, including the option of deducting actual losses from taxable income. This helps maintain investor confidence in the legal environment in Vietnam.
See more at: Investment newspaper
Challenges in managing international cross-border transactions
Deep integration into the global economy has put Vietnam in front of many major challenges in managing international related-party transactions. First of all, the complexity of cross-border business models and multinational corporate structures makes it difficult for tax authorities to control, especially in determining transfer prices and actual profits arising in each country. Legal gaps or differences in regulations between countries are easily exploited to carry out transfer pricing, causing budget losses..
Another challenge comes from implementing global standards such as BEPS 2.0. When mechanisms such as global minimum tax are applied, the tax incentives that Vietnam has used to attract FDI for decades will lose their competitiveness. This poses a difficult problem for the Government in ensuring revenue while maintaining an attractive investment environment compared to other countries in the region.
International transfer pricing is not only a regular economic activity of multinational corporations but also a focus of global tax governance. New regulations, from BEPS 2.0 to Pillar 2, have been reshaping the way countries design tax policies, as well as business investment strategies. After analyzing the comprehensive picture from the legal framework, OECD trends to each country's response policies, it can be seen that Vietnam is facing both challenges and opportunities.
Conclude
Global standards on international related-party transactions are creating a new playing field where every country and business must adapt. With BEPS 2.0 and the global minimum tax regime, traditional tax incentives will gradually lose their appeal, forcing Vietnam to find new strategies to maintain its competitive advantage in attracting investment.
International related party transactions and global tax governance standards such as BEPS 2.0 pose many challenges for businesses, especially foreign-invested corporations in Vietnam. In that context, accompanying MAN - Master Accounting Network will help businesses not only comply with the law, minimize tax risks but also optimize long-term financial strategies.
MAN – Master Accountant Network: Trusted Partner
Man – Master Accountant Network is a consulting unit specializing in the field of international related party transactions, providing comprehensive solutions from analysis, declaration, preparation of pricing documents to building appropriate tax strategies for businesses with multinational operations.
With extensive experience and a team of experts who are knowledgeable about the domestic legal framework (Decree 132/2020/ND-CP) as well as international standards (OECD BEPS, CbCR, Pillar 2), Man – Master Accountant Network not only helps businesses comply with strict regulations but also optimize tax management efficiency. Our advantage is the ability to combine legal and tax expertise with an understanding of business practices in Vietnam, ensuring solutions that are both compliant and long-term strategic.
For specific advice, businesses please contact MAN – Master Accoutant Network
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