Follow affiliate transactions Not only is it a legal requirement, but it is also a measure of a business's management capacity and transparency in the integration period. When regulations such as Decree 132/2020/ND-CP and Decree 20/2025/ND-CP are strictly applied, compliance with the correct procedures helps businesses minimize the risk of being overcharged, while strengthening their reputation with tax authorities and international partners.
What is related party transaction compliance?
Related party transaction compliance is a set of obligations, processes and evidence that businesses must implement to prove that transactions between related parties (parties that have ownership, management, control or supervision of each other) are carried out at arm's length principle and in accordance with tax laws.
After understanding the concept of related party transaction compliance and its role in modern tax administration, the next step for businesses to determine is whether they are required to comply with related party transactions. Because not only multinational corporations are subject to this regulation, but even domestic businesses, if they have ownership, control or financial dependence on another party, are also considered "related parties" under Vietnamese tax law. Correctly identifying the subject and scope of related party transaction compliance is an important foundation to help businesses proactively prepare documents, manage risks and avoid errors in the process of declaring related party transactions.
Which businesses are required to comply with related party transactions?
To determine the obligation to comply with related party transactions, it is necessary to first clearly understand which entities are within the scope of the regulations on related party transactions. Under current tax law, this scope is broader than before, not only limited to multinational corporations but also includes domestic enterprises with related relationships in terms of ownership, management or finance. In other words, even if the business activities are entirely within the territory of Vietnam, the enterprise may still be subject to related party transaction compliance if it has transactions with parties with special relationships.
Any business that has transactions with an affiliated party
If an enterprise has transactions to buy, sell, lend, transfer assets or intellectual property rights, provide services... with parties having ownership, management, control or other special relationships (as defined by law), then that enterprise is subject to management, declaration and is responsible for proving that the transaction price is consistent with the relationship between independent parties. This does not distinguish between scales, as long as there is an associated transaction, it triggers the management obligation according to the Decree.
Group of businesses or corporations with international records (Master File, Local File, CbCR)
Enterprises that are part of a multinational corporation (MNE) have additional requirements: Master File, Local File, and if large, Country-by-Country Report (CbCR). OECD CbCR reporting criteria apply to MNEs with large consolidated revenues (standard threshold: 750 million Euros), and Vietnam has demonstrated a roadmap or implemented regulations related to CbCR reporting. If your enterprise is part of an MNE that falls under this threshold, the branch in Vietnam will be required to provide information as required.
Enterprises in cases specifically prescribed by law
Decree 20/2025/ND-CP (effective from March 27, 2025, applicable from the 2024 corporate income tax period) amends and supplements a number of articles of Decree 132/2020/ND-CP, clarifying the scope of related parties, declaration obligations and management measures (for example, the impact on the deduction of interest expenses when related to related-party transactions). Therefore, enterprises with related-party relationships under Decree 20/2025/ND-CP need to review the scope of application.
Special cases, domestic transactions but still subject to
Transactions between companies within the same domestic group, or between a parent company and a domestic branch, if there is an element of “linkage” (ownership, management, control), must still comply with related party transactions. It is not only cross-border transactions that are regulated.
Objectives when complying with related party transactions
Understanding the objectives of transfer pricing compliance helps businesses not only meet legal requirements, but also proactively build a more transparent and effective tax management platform. Specifically, the core objectives that this regulation aims for include:
- Ensure that businesses do not use related-party transactions to shift profits inappropriately, avoid taxes or conceal real interest rates.
- Reduce the risk of investigation, tax collection, administrative fines and reputational damage.
- Increase transparency with regulators and partners.
The goal of compliance with related party transactions is not only to control taxes or prevent transfer pricing, but also to build a transparent, fair and sustainable business environment. Understanding the goal of compliance with related party transactions will help businesses see this as not only a legal obligation, but also part of a long-term risk management and development strategy.
Compliance with related party transactions does not stop at understanding the regulations, but must be demonstrated through a system of records, processes and clear evidence in practice. To properly and fully meet the requirements of tax authorities, enterprises need to grasp the following main obligations in compliance with related party transactions:
Obligation to comply with related party transactions
To ensure that compliance with related party transactions is fully and transparently implemented, enterprises need to synchronously implement the following obligations:
- Identify related parties: list ownership, control, and management relationships that may influence price.
- Function-Risk-Asset Analysis (FAR Analysis): Describes what functions the business performs, what risks it takes, and what assets it uses.
- Select and apply a method for determining market value (e.g., market comparison method, cost-plus method, profit-sharing method, etc.).
- Establish and maintain supporting documentation (usually including Local File, Master File, and national profit margin report CbCR).
- Declare and submit documents within the prescribed time limit when requested or when preparing tax declarations. (See details: Declare related party transactions on the accounting system according to Decree 132/2020/ND-CP and Time of preparation and submission of application)
Identifying and properly implementing compliance obligations is only truly effective when businesses rely on a clear and updated legal basis. In the context of the system of regulations on related-party transactions in Vietnam being continuously adjusted to comply with international standards, mastering current legal documents is the foundation to help businesses be proactive in risk management and prepare documents in accordance with regulations. Below are the legal regulations that are regulating related-party transaction compliance activities that businesses need to pay attention to.
Legal basis and updated regulations
Decree No. 132/2020/ND-CP is a framework document regulating tax management for enterprises with related-party transactions in Vietnam, stipulating principles, methods, and procedures for determining factors forming related-party transaction prices, along with the rights and obligations of taxpayers. This Decree takes effect from December 2020 and is the main legal basis for all transfer pricing declaration and documentation activities.
Recently, the Government issued Decree 20/2025/ND-CP amending and supplementing a number of articles of Decree 132/2020/ND-CP, which officially took effect from March 27, 2025 and is applied to the corporate income tax period of 2024 and later. The issuance of the amended decree shows that the legislator has responded to practical problems and updated a number of regulations accordingly.
Important revisions
Below are changes that have a major impact on businesses' transfer pricing compliance and tax enforcement obligations:
- Effective date and scope: Decree 20/2025/ND-CP is recorded to take effect on March 27, 2025 but applies to the 2024 corporate income tax period, so businesses need to review records and reports of the 2024 period to make adjustments if necessary.
- Regulations related to interest expenses: One of the clearly revised points is how to handle interest expenses when there is an affiliated relationship. Decree 20/2025/ND-CP clarifies situations related to controlling non-deductible interest expenses and the allocation mechanism for special cases. This directly affects the taxable expenses of enterprises with loan transactions between related parties.
- Adjusting the scope of “related parties” in some cases: Some provisions on determining related parties related to credit institutions or banks are amended to better suit the practice and other documents; as a result, some cases that previously considered banks as related parties are now clarified or excluded in some specific situations. This changes the scope of subjects subject to compliance control in some financial transactions.
See details: Decree 20/2025/ND-CP on related-party transactions
Once the legal basis for compliance with related party transactions has been mastered, the next thing that businesses need to pay attention to is the process of implementing compliance with related party transactions in a correct and effective manner. A well-established process of compliance with related party transactions not only helps businesses minimize risks in tax inspections, but also optimizes information management and demonstrates transparency in internal transactions.
Related Transaction Compliance Procedures
In order for related party transaction compliance to be implemented effectively and consistently, businesses need to follow a standard process including specific steps from identification to record keeping. The following related party transaction compliance process table is intended to help businesses clearly define the implementation roadmap, minimize errors and fully meet legal requirements.
Board: Affiliate Transaction Compliance Procedures.
| Step | Implementation content | Target |
| Identify the affiliate | Enterprises review ownership, management, financial or transaction relationships to identify related parties as prescribed in Decree 132/2020/ND-CP. | Fully identify the subjects of compliance obligations, avoiding omissions or misidentification. |
| Functional – Risk – Asset Analysis | Assess the role, function, assets used and risks of responsibility of each related party in the transaction. | As a basis for determining the nature of the transaction and appropriate valuation method. |
| Independent comparison and determination of market price | Compare with similar independent transactions to determine appropriate prices and profit margins according to the Arm's Length Principle. | Ensure transaction prices are consistent with market prices to avoid tax adjustments. |
| Declare and prepare Transfer Pricing Determination Document. | Prepare and maintain complete records: Local File, Master File, and Country-by-Country Reporting (CbCR). If exempted from preparing the dossier, still declare and submit Appendix I attached to the corporate income tax settlement. | Provide transparent evidence to meet tax inspection and examination requirements. |
Completing all steps in the related party transaction compliance process not only helps businesses meet the requirements of tax authorities, but also improves internal management capacity and controls transfer pricing risks. However, during the implementation process, businesses may still face many challenges and common errors, especially when regulations are constantly updated and the requirements for evidence are increasingly strict.
Common Challenges in Transfer Pricing Compliance
Complying with complex transfer pricing regulations requires businesses to face significant barriers. These challenges are not only legal but also related to resources and financial risks. Below are the main groups of challenges that businesses often face:
The Challenge of Records and Documentation
This is one of the biggest barriers, requiring businesses to prepare carefully, specifically:
- Complex and detailed documentation requirements: Enterprises must prepare a complete set of documents, including the Local File, Master File and Country-by-Country Report (CbCR) as prescribed by law. These documents require a high level of accuracy and completeness, including the analysis of functions, assets and risks (FAR) of each related party.
- Cost of purchasing comparable data: To demonstrate that the price of a related party transaction is reasonable under the arm’s length principle, a business needs to seek and use data from independent companies that have similar transactions. Purchasing access to and use of specialized databases is often very expensive, especially for small and medium-sized businesses, or when searching for data in specific markets.
- Risk of errors: Any omission or discrepancy in the records, such as failure to declare, as well as late payment with corporate income tax settlement, can lead to administrative penalties or collection of tax and late payment interest when inspected by the tax authority.
Overcoming the barrier of Records and Documents, enterprises face the complexity in analyzing and pricing related transactions according to the market price principle.
Challenges of analysis and valuation
To properly implement the market price principle, enterprises must face the following complex problems:
- Choosing a valuation method: Choosing a transfer pricing method (such as comparable independent transaction prices, resale price, cost plus, or net transaction profit) that is appropriate to the nature of the transaction and business practices is difficult.
- Identifying comparables: Finding transactions or independent companies that are truly equivalent in terms of function, assets, risks, markets and economic conditions is a major challenge. If the wrong comparables are chosen or the arguments are not well-reasoned, the analysis results can easily be rejected by the tax authorities.
- Inconsistent with business reality: A common mistake is that the documented transfer pricing policy does not reflect the actual operations and value created by each unit in the group. Tax authorities always consider the economic substance of the transaction instead of just relying on the legal contract.
Any errors or loose reasoning in this process can have serious consequences. It is these valuation challenges that directly increase the risk of compliance and disputes with tax authorities.
Risks of non-compliance with related party transactions
Businesses will face financial and legal consequences if they do not comply with related party transactions as prescribed. Specifically as follows:
- Tax Adjustment and Penalty Risk: Failure to comply may result in the tax authorities re-determining the transaction price and collecting corporate income tax (CIT) and related penalties.
- Interest Expense Cap (EBITDA) Risk: Regulations related to related-party transactions often include limits on interest expenses that can be deducted when calculating corporate income tax (e.g., controlling interest expenses that exceed 30% EBITDA). This puts great financial pressure, especially on businesses that are in the investment stage or have negative business results.
- Risk of In-depth Inspection: Unclear records and inconsistent profits (e.g., a company continuously reports losses while still expanding investments) will make the business vulnerable to in-depth inspection by tax authorities on related-party transactions, which is time-consuming and costly to explain.
Related party transaction compliance is not only a tax legal obligation but also a strategic risk management issue, requiring businesses to have careful preparation and a tight internal management system.
After analyzing all the challenges of documentation, the complexity of analysis and valuation, and the financial and legal risks involved, it is clear that self-compliance with related party transactions is a huge burden, which can easily lead to costly errors. To move from a passive state of coping to proactively managing risks and ensuring legality, businesses need a professional and strategic solution. That is why it is important to seek support from experts in the field of tax and auditing, especially in related party transactions.
MAN – Master Accountant Network: A reputable choice for affiliate trading
Self-compliance with related party transactions often puts businesses in a passive and error-prone position due to the following factors: high cost of purchasing comparative data, lack of specialized personnel, and risk of having their arguments rejected during inspection.
MAN – Accountant Network will help businesses:
- Prepare Related Transaction Report – Prepare transfer pricing report
- Consulting on preparing Related Transaction Documents – Consulting on preparing Transfer Pricing Documents
- Related Transaction Document Review Service – Transfer Pricing Document Review Service
- Represent and support your business in transfer pricing inspection.
Working with MAN – Master Accountant Network not only helps businesses save time and resources, but also provides in-depth, up-to-date insights according to international standards. More importantly, MAN – Master Accountant Network helps businesses identify potential risks early, establish effective related-party transaction compliance processes, and build a solid profile before any tax audit.
Conclude
Don't let the complexity of affiliate trading hinder your growth. To ensure every transaction complies with market principles, protect your cash flow and business reputation in any inspection.
Contact MAN – Master Accountant Network immediately to receive timely support, ensuring your affiliate trading system is solid and safe from all tax controls.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile / Zalo: 0903 428 622 (Ms. Ngan)
- E-mail: man@man.net.vn
Editorial Board: MAN – Master Accountant Network