The role of Decree 132/2020/ND-CP is becoming a focal point in the tax governance strategy of businesses with related-party transactions in Vietnam. In the context of increasingly in-depth transfer pricing audits and cross-border tax data sharing, understanding and fully complying with the regulations not only helps businesses mitigate the risks of tax arrears and penalties but also enhances financial transparency and credibility with investors. This article comprehensively analyzes the legal framework, the latest updates up to 2026, and the practical impacts of Decree 132/2020/ND-CP on managing related-party transactions, from thin capitalization control and three-tiered documentation to international BEPS standards.
A turning point in tax administration in Vietnam.
The shift in global supply chains has placed Vietnam at the heart of new-generation free trade agreements. Multinational corporations investing in Vietnam often generate complex intra-regional transactions. To ensure tax collection rights and prevent profit-taking abroad, Decree 132/2020/ND-CP was issued, replacing Decree 20/2017/ND-CP.
By 2025, despite supplementary regulations, Decree 132/2020/ND-CP will still be considered the legal "backbone," helping tax authorities closely control thin capitalization practices and increase transparency in financial reporting of enterprises with related-party transactions.
Overview of the legal framework of Decree 132/2020/ND-CP
Decree 132/2020/ND-CP regulates tax management for enterprises with related-party transactions. This is the highest legal document guiding the Law on Tax Administration No. 38/2019/QH14 on the field of related-party transactions (Transfer Pricing).
Scope of regulation and subjects of application
This Decree applies to organizations producing and trading goods and services that conduct transactions with related parties and generate costs and revenues. Specific entities include:
- The taxpayer is a business entity that has related-party transactions subject to the Corporate Income Tax Law.
- Tax authorities at all levels (General Department of Taxation, Tax Department, Tax Branch).
- Other government agencies are involved in the management, inspection, and auditing of taxes on related-party transactions.
Inheritance and new updates
Decree 132/2020/ND-CP inherits from Decree 20/2017/ND-CP but tightens regulations on interest expense and declaration documents. Notably, at the beginning of 2025, the Government issued Decree 20/2025/ND-CP to amend and supplement several articles of Decree 132/2020/ND-CP. One of the newest points is the method of determining affiliated parties through guarantees or loans with a minimum threshold of 25% equity capital, creating greater consistency with the actual operations of large private corporations in Vietnam.
The role of Decree 132/2020/ND-CP in managing related-party transactions.
To understand why this document is so important, let's join MAN – Master Accountant Network in an in-depth analysis of the strategic roles it plays for the economy and the tax administration system.
完善 legal framework to combat transfer pricing
Transfer pricing is the practice of implementing pricing policies for goods and services transferred between members of the same group at prices other than market prices in order to minimize the total amount of taxes payable.
The role of Decree 132/2020/ND-CP is to firmly establish two golden principles:
- Arm's length principle: Transaction prices between related parties must be equivalent to transaction prices between independent parties under comparable conditions.
- The principle of substance over form: Tax authorities have the right to analyze the actual nature of a transaction rather than relying solely on the written contract to determine the correct tax liability.
Therefore, Decree 132/2020/ND-CP has created an effective "shield" to prevent the transfer of profits from Vietnam to "tax havens" or countries with more favorable tax rates.
Controlling "thin capitalization" through interest expense ceilings (EBITDA 30%)
This regulation best demonstrates the role of Decree 132/2020/ND-CP. According to Clause 3, Article 16, the total deductible interest expense (after deducting interest on deposits and loans) shall not exceed the enterprise's EBITDA.
The strategic significance of this regulation:
- Combating tax base erosion: Preventing multinational corporations from injecting capital in the form of debt to drive up interest costs, thereby reducing profits in Vietnam.
- Protecting financial security: Encouraging businesses to be financially independent, reducing excessive reliance on debt, thereby improving the financial health of the entire economy.
- Transition mechanism: The decree allows the portion of non-deductible interest expense to be carried forward to the next tax period within 5 years, helping businesses reduce pressure during initial investment phases with high borrowing costs.
Domestication of international standards (OECD's BEPS Programme)
Vietnam is a member of the Forum for Cooperation on Implementing BEPS (Combating Base Erosion and Profit Shifting). The role of Decree 132/2020/ND-CP is to concretize these international commitments.
The Country-by-Country Report (CbCR) regulations require multinational corporations with consolidated revenue of VND 18 trillion or more to disclose detailed profits and taxes paid in each country. This helps Vietnamese tax authorities gain a comprehensive overview of the corporation's global financial picture, thereby enabling them to more clearly identify tax risks.
Establishing fair rights and obligations for taxpayers.
Decree 132/2020/ND-CP creates transparency by classifying taxpayers to reduce the administrative burden on small-scale businesses. The exemption from preparing transfer pricing documentation is detailed in Article 19 as follows:
- Taxpayers who have related-party transactions but whose total revenue for the tax period is less than VND 50 billion and whose total value of related-party transactions is less than VND 30 billion.
- Taxpayers who have signed an Advance Pricing Agreement (APA) and submitted the required Annual Report must still file reports for transactions not covered by the APA.
- Businesses with simple business functions, no intangible assets, revenue under VND 200 billion, and achieving a net profit margin (before interest and taxes) in each sector: Distribution (from 5% onwards), Manufacturing (from 10% onwards), and Processing (from 15% onwards).
- The taxpayer only conducts transactions with related parties that are subject to corporate income tax in Vietnam, applying the same tax rate, and neither party is entitled to corporate income tax incentives during the tax period.
Clearly defining these exemption thresholds helps businesses assess risks themselves and save on operating costs, while creating a flexible and fair tax management environment.
A powerful tool for the Tax Authority in inspection and auditing.
Decree 132/2020/ND-CP provides specific authority and tools for tax agencies:
- Comparative databases: Tax authorities have the right to use global trade databases and industry data to compare business profit margins.
- Right to determine tax: If a business fails to provide complete documentation or cannot demonstrate the correctness of its pricing method, the tax authority has the right to determine the tax rate based on independent comparative data.
Key points businesses need to pay attention to in 2026
To effectively comply with Decree 132/2020/ND-CP, businesses need to have a thorough understanding of its practical implementation rules.
Accurately identify "Affiliated Parties" according to the new amendments.
By 2026, the identification of affiliated parties will be expanded to include actual control relationships. According to Decree 20/2025/ND-CP:
- Note that the loan/guarantee threshold must account for at least 25% of the owner's equity and over 50% of the total value of the borrower's medium and long-term debt.
- Direct family relationships (spouses, parents, children) that manage different legal entities remain subject to strict control to prevent revenue fragmentation.
The 3-Tier File System – A Business Passport
Businesses that are required to prepare the necessary documents must ensure they are complete:
- Local File: Details of related-party transactions in Vietnam.
- Global corporate profile (Master File): General information about the global business model.
- Country-by-Country Profit Reporting (CbCR): For large corporations.
Standard Independent Range (Interquartile Range)
Decree 132/2020/ND-CP tightens the standard independent value range from the 35th to the 75th percentile. Raising this minimum threshold forces businesses to maintain higher and more realistic profit margins closer to market levels to avoid tax adjustments.
Risks and Penalties for Violating Regulations Regarding Related-Party Transactions
Failure to comply with regulations on related-party transactions not only results in tax assessment but also incurs very heavy administrative penalties according to Decree 125/2020/ND-CP. Below are the violations and their corresponding penalties:
Penalties for late submission or failure to submit declaration documents.
Late filing of the related party transaction declaration (Appendix):
- Delays of 1 to 30 days: Fines ranging from 2,000,000 to 5,000,000 VND.
- Delays of 31 to 60 days: Fines ranging from 5,000,000 to 8,000,000 VND.
- Late payment by 61 to 90 days, or over 90 days but without any tax payable: A fine of VND 8,000,000 to VND 15,000,000 will be imposed.
- Failure to file a tax return or filing it more than 90 days after the tax liability arises: A fine of VND 15,000,000 to VND 25,000,000 will be imposed.
Note: Failure to prepare a Transfer Pricing Documentation is a serious violation. In addition to being fined for not submitting the documentation, the business will also have its taxes assessed.
Penalties for false declarations resulting in an underpayment of taxes.
If the tax authorities conduct an audit and discover that a business has declared transfer pricing inaccurately, resulting in a shortfall in tax payable:
- Penalty: A penalty of 20% will be imposed for the amount of tax underdeclared or the amount of tax exempted, reduced, or refunded in excess of the regulations.
- Late payment penalty: Calculated at 0.031 TP3T/day on the amount of tax overdue.
Penalties for tax evasion related to related-party transactions.
In cases where a business intentionally creates fraudulent records or fails to declare related-party transactions in order to evade taxes:
- The penalty ranges from 1 to 3 times the amount of tax evaded (depending on aggravating or mitigating circumstances).
Legal consequences of violation
In addition to being penalized according to regulations, businesses also face serious legal consequences:
- Tax assessment: The tax authorities have the right to reject all of a business's expenses and transaction values, instead using their own data to determine revenue and profit. This often results in extremely large tax arrears, far exceeding the business's expectations.
- Public disclosure of violations: Information on violating businesses may be publicly disclosed on the Tax Department's portal, directly impacting their bidding reputation and relationships with strategic partners.
Optimal compliance strategy for businesses
Financial experts recommend that businesses take a proactive approach to tax management:
- Regular Tax Health Checks: Review transactions as soon as they occur to detect errors early.
- Construct a FAR (Functions, Assets, Risks) analysis: Demonstrate the reasonableness of profitability based on the actual functions, assets, and risks borne by the entity in Vietnam.
- Seek out a specialized agency for related-party transactions: Self-preparation of documentation often carries the risk of errors due to a lack of comparative data. Businesses should prioritize using services from specialized agencies like MAN – Master Accountant Network. At MAN, businesses will be guided through a professional service process, from risk assessment to the preparation of a three-tiered documentation system. In particular, MAN possesses a diverse benchmarking data system tailored to specific business types and sizes, ensuring that declared profit margins remain within safe limits as required by regulations.
- Optimizing compliance costs through expertise: Support from MAN goes beyond just filing documents; it also includes representing businesses in legal proceedings before tax authorities. With experience handling hundreds of transfer pricing audits, MAN's experts help businesses optimize interest expenses and minimize the risk of tax assessments.
- Leveraging APA agreements: This is the safest solution for businesses and tax authorities to agree on pricing methods in advance, completely eliminating the risk of future tax arrears with guidance from professional firms.
See also: Comprehensive transfer pricing service
Conclude
The role of Decree 132/2020/ND-CP in managing related-party transactions in Vietnam is undeniable. It is a tool for protecting budget revenue and a measure of corporate transparency in the digital economy era.
By 2026, with the support of Big Data management systems, tax authorities will be able to easily identify anomalies in related-party transactions. Therefore, a thorough understanding of penalty regulations and strict enforcement of tax policies, combined with support from reputable professional units, is the only way for businesses to achieve sustainable development and establish their reputation in the international market.
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 is moderated by: Mr. Le Hoang Tuyen – Founder & CEO of Man, CPA Vietnam Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
References:
- Government Decree 132/2020/ND-CP dated November 5, 2020.
- Decree 20/2025/ND-CP dated February 27, 2025 amends and supplements Decree 132.
- Decree 125/2020/ND-CP stipulates administrative penalties for violations related to taxes and invoices.
- Law on Tax Administration No. 38/2019/QH14.