In the context of businesses increasingly expanding investments, cross-border cooperation, and engaging in numerous transactions with parent companies, subsidiaries, or related parties, tax audits of related-party transactions are becoming a key focus of tax authorities. This is a high-risk area because it directly involves determining transfer pricing, interest expenses, internal service fees, and corporate income tax obligations.
Simply under-declaring, incompletely documenting, or misidentifying the nature of a transaction can lead to businesses being subject to tax recovery, expense disallowance, or significant administrative penalties. Therefore, understanding the latest legal regulations on tax audits of related-party transactions is not only crucial for businesses to comply with regulations but also a vital solution to mitigate long-term legal and financial risks.
The latest changes to tax audits for related-party transactions.
Starting from the corporate income tax period of 2024, businesses need to pay special attention to the following: Decree 20/2025/ND-CP Effective from March 27, 2025. This document amends and supplements many important provisions of Decree 132/2020/ND-CP and directly impacts tax audits of related-party transactions.
One of the most notable changes is the regulation concerning loans from credit institutions. Accordingly, if a business borrows capital from a bank or credit institution and the loan is not under the control or management of the borrower, the transaction will no longer be considered a related-party transaction.
This new regulation helps many businesses reduce the pressure of filing tax returns, while also limiting the limitations on deductible interest expenses during corporate income tax settlements, as was the case previously. This is also a frequently reviewed aspect during tax audits of related-party transactions.
Furthermore, Decree 20/2025/ND-CP also clearly stipulates the responsibility of the State Bank of Vietnam to coordinate in providing information on interest rates, loans, repayment schedules, and related data to tax authorities when necessary. This demonstrates increasingly stricter and more transparent control over financial information.
In addition, Appendix I on related party information and related party transactions has been replaced with a new form. Businesses need to review their entire declaration system to ensure compliance with current regulations and avoid risks when tax audited regarding related party transactions.
Obligations businesses must comply with during tax audits regarding related-party transactions.
According to the 2019 Tax Administration Law, businesses with related-party transactions are required to prepare, store, and provide documentation on the determination of related-party transaction prices as prescribed.
This set of documents includes:
- National Profile of Related-Party Transactions (Local File)
- Master File
- Country-by-Country Reporting (CbCR)
These documents must clearly demonstrate the nature of the transaction, the pricing principles, the independent comparison method, the analytical data, and any related adjustments. This is the most important basis in the tax audit process for related-party transactions.
However, some businesses are exempt from filing related-party transaction records, including:
- Transactions only occur with domestic related parties, subject to the same tax rate and without tax incentives.
- Revenue below VND 50 billion and total value of related-party transactions below VND 30 billion in the year.
- Businesses with simple functions, not exploiting intangible assets, with revenue under 200 billion VND, and achieving the minimum profit margin as stipulated by regulations.
See details: No related-party transaction documentation is required.
In addition, related-party transaction records must be completed before the deadline for filing the annual corporate income tax return and must be available within 30 days of the tax authority's request. If reasonable, the enterprise may be granted an additional 15-day extension.
Delays in preparing documentation are a common reason why businesses face disadvantages during tax audits regarding related-party transactions.
Risks and penalties for violations in tax audits regarding related-party transactions.
If a business fails to submit the related-party transaction appendices with its tax return on time, the administrative penalty can range from 8 to 15 million VND depending on the severity of the violation.
In cases where incorrect declarations result in an underpayment of taxes, businesses will be penalized under Article 20% on the amount of tax owed, even if market price determination documents are available.
In particular, during tax audits of related-party transactions, if the tax authorities discover signs of transfer pricing or tax evasion through price manipulation, the penalties will be much more severe.
Businesses may be affected by:
- Collect all outstanding taxes.
- Calculate late payment penalties.
- Tax assessed
- Apply a benchmark profit margin from the parent company or confidential data from the tax authorities.
This is the biggest risk that makes many FDI businesses and foreign-invested enterprises particularly concerned about preparing documentation for tax audits regarding related-party transactions.
What is the process for tax audits of related-party transactions?
Understanding the inspection process will help businesses be more proactive in preparing for and coordinating with tax authorities.
Step 1: Verify document compliance
The tax authorities will review whether the business has declaration of related party transactions Have all relevant forms been completed, including Form 01, Form 02, Form 03, Form 04, and other required appendices?.
At the same time, the tax authorities also check the consistency between the forms and the completeness of the documentation for determining transfer pricing.
This is the first step in the tax audit process for related-party transactions.
Step 2: Analyze business performance
The tax authorities will assess revenue, profit, and return on investment and compare them to a suitable market price range.
If a business has unusually low profit margins or margins that are inconsistent with its actual operating function, the tax authorities may adjust its taxable income upwards.
Step 3: Review key related-party transactions
Transactions of high value or complex nature will be subject to closer scrutiny, including:
- Copyright fees
- Internal corporate service fees
- Interest expense
- Allocation of administrative costs
- Transactions involving the transfer of intangible assets.
Businesses must provide complete contracts, payment documents, and evidence demonstrating the actual economic benefit of these expenditures.
This is the most important aspect of tax audits regarding related-party transactions.
Step 4: Prepare the inspection report and conclusions.
After compiling the data, the tax authorities will prepare an inspection report and issue an official conclusion.
Businesses have the right to clearly state their reservations if they disagree with the conclusions reached. This is an important basis for providing further explanations or filing appeals later if necessary.
What steps can businesses take to reduce the risk of tax audits on related-party transactions?
To mitigate risks, businesses need to proactively prepare from the outset instead of waiting until they receive an inspection notice. First, it is necessary to review all related-party transaction records, checking the reasonableness of expenses, especially interest expenses, internal service fees, and cross-border transaction fees.
Businesses should also regularly update themselves on tax audit trends for related-party transactions, monitor tax authority audit topics and audit results from previous years to make timely adjustments. During the inspection process, timely submission of documents, clear explanations, and consistency of data are crucial factors in minimizing disputes.
After the inspection, if the business agrees with the conclusions, it can use the results as a reference for subsequent years. If it disagrees, it should reserve its position and prepare a complete and reasonable complaint file.
To proactively reduce risks when an inspection is decided upon, businesses should consult with specialized agencies. Transfer pricing consultancy Reputable and experienced to provide the safest and most optimal solution.
Frequently Asked Questions about Tax Audits for Related-Party Transactions
Businesses are often subject to tax audits regarding related-party transactions when they have large transactions with related parties, show signs of unusually low profits, high interest expenses, consistently report losses, or fail to fully disclose related-party transaction appendices. These are risk criteria that tax authorities prioritize for inspection.
Businesses must complete the documentation for related-party transactions before submitting their annual corporate income tax return. When requested by the tax authorities during a tax audit of related-party transactions, the documentation must be provided within 30 days, with a possible extension of 15 days for a valid reason.
Items that are often subject to close scrutiny include interest expenses, internal corporate service fees, royalties, allocated management expenses, and intangible asset transfer transactions. These are areas with high transfer pricing risk and are often the focus of in-depth audits.
Businesses should review records periodically, standardize documents, clearly identify the nature of transactions, and establish market price determination records from the outset. Early preparation facilitates easier explanations and reduces the risk of tax arrears or tax assessments during audits.When are businesses subject to tax audits regarding related-party transactions?
When should the related-party transaction documentation be prepared?
What items do tax authorities typically audit?
How can we reduce the risks associated with related-party transactions during tax audits?
Conclude
In the modern business environment, related-party transactions are common, especially among FDI enterprises, multinational corporations, and conglomerates. However, this is also an area with significant tax risks if not properly controlled.
Understanding the latest regulations on tax audits for related-party transactions, especially the changes from Decree 20/2025/ND-CP and Decree 132/2020/ND-CP, will help businesses be more proactive in tax declaration, documentation, and protecting themselves against tax authority inspections.
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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.