Identifying related relationships becomes an important step to help businesses correctly identify economic relationships, comply with regulations on related transactions and prevent transfer pricing. Identifying related relationships accurately not only protects businesses from legal risks but also contributes to building a transparent and sustainable financial strategy in the long term.
General introduction
What is the concept of defining a relationship?
Identifying related relationships plays a fundamental role for businesses to comply with tax laws, especially in managing related transactions and anti-transfer pricing. In the context of businesses increasingly having transactions with companies in the same group or with partners with mutual ownership and control relationships.
Determining an affiliated relationship is not simply a matter of examining the capital ownership ratio, but also includes a comprehensive assessment of the relationships of control, guarantee, management, borrowing or even the right to decide on business policies. For example, if a company A only holds 25% of capital in company B but directly appoints the CFO and has the right to approve major contracts, it can still be considered as “affiliated” under tax law.
The newly issued Decree 20/2025/ND-CP continues to inherit and amend a number of points of Decree 132/2020/ND-CP, aiming to clarify the criteria and methods for determining linkages. This helps create a tight legal framework, ensuring that businesses properly fulfill their tax obligations, while limiting transfer pricing practices that cause budget losses.
The importance of identifying affiliate relationships for businesses
The importance of identifying linkages is demonstrated in that:
- If a business misidentifies or omits related relationships, it will lead to errors in reporting related transactions. The consequences may include being fined by the tax authority, having to pay back taxes, or being assessed as non-transparent.
- On the contrary, if done correctly and promptly, businesses not only avoid legal risks but also optimize compliance costs and enhance their reputation in the market.
In the following sections, the article will delve into: legal basis, principles of determination, implementation process, illustrative examples, common mistakes and solutions for businesses. Thereby, helping you understand how to apply in practice and comply with new regulations effectively.
Identifying related-party relationships becomes a crucial issue for every business. If done correctly, businesses will control related-party transactions well, prevent transfer pricing, optimize tax obligations and create competitive advantages.
Legal basis related to determining affiliated relationships
To properly implement the process of determining affiliated relationships, businesses need to rely on the current legal system. This is an important foundation to help businesses have a basis when preparing documents, declaring affiliated transactions and demonstrating transparency in business activities.
Decree 132/2020/ND-CP
Decree 132/2020/ND-CP is considered the first milestone that lays a clear foundation for tax management for enterprises with related-party transactions in Vietnam. This document provides detailed regulations on:
- Criteria for determining linkage relationships.
- Obligation to declare information on related transactions.
- Transfer pricing documents (Local file, Master file, Country-by-Country report).
In particular, Decree 132/2020 has clarified many situations where linkages arise, for example: enterprises borrowing capital from related parties, enterprises being controlled by dominant individuals or organizations, or having management participation and appointment of senior personnel.
See details at: Decree 132/2020/ND-CP
Decree 20/2025/ND-CP
To update the practice and overcome some shortcomings of Decree 132, the Government issued Decree 20/2025/ND-CP. This document not only inherits but also adds many new points, helping to determine the relationship of association to become clearer and more consistent with international standards. Some notable contents include:
- Adjust the criteria for ownership ratio and control rights.
- More specific regulations on financial transactions (loans, guarantees).
- Additional guidance on documentation to prove affiliation.
Thanks to that, businesses have a solid legal basis to apply, avoiding misinterpretation leading to legal risks.
See details at: Decree 20/2025/ND-CP
Understanding the legal basis for determining related relationships is not only a mandatory requirement according to regulations but also brings many practical benefits to businesses. First of all, businesses have a full legal basis to prepare reports and demonstrate compliance when working with tax authorities. At the same time, this understanding also helps to significantly reduce the risk of being taxed due to incorrect declaration or lack of important information. Furthermore, the correct application of regulations on determining related relationships also contributes to improving transparency in business strategies, thereby strengthening trust with partners, investors and management agencies, creating favorable conditions for sustainable development.
Principles for determining linkage relationships
To help businesses easily visualize, current law has provided many important principles in determining the relationship of association. These principles are not only based on the capital contribution ratio, but also extend to management control, financial relations and the combination of many other factors. The table below will briefly summarize the main criteria, along with specific illustrative examples for businesses to refer to and apply.
Board: Summary of criteria for determining linkage relationships
| Principle | Detailed description |
| Capital ownership ratio | The first and most important criterion. If a business holds a certain amount of capital or has financial and operational control, the two parties are considered to have an affiliated relationship. |
| Control and management rights | Even if the capital ownership is not large enough, if an enterprise has the right to decide on strategy, approve financial policies or appoint senior personnel of another enterprise, it is still considered an association. |
| Financial relations | Loans, guarantees or financial support from related parties can lead to influence in investment decisions, capital allocation and risk management. |
| Combination of many factors | In reality, capital, management and financial factors may coexist, creating a more complex connection. Enterprises need to evaluate comprehensively and based on clear legal evidence. |
In short, the principle of determining affiliation is not only limited to financial figures or capital ratios, but also includes many aspects of control, management, borrowing relationships and actual impact on production and business activities. Enterprises that want to comply with the law need to approach the issue comprehensively, carefully analyzing each case to avoid missing or misjudging the determination of affiliation.
Procedure for determining the relationship
Determining a related relationship cannot be done emotionally, but requires a clear process to ensure accuracy and compliance with the law. Normally, this process starts with collecting basic information about the business and the parties involved in the transaction. The business must carefully review legal documents, economic contracts, financial reports and related documents to determine the factors that can form a related relationship.
Once the data is available, the next step is to classify the potential affiliated entities. For example, parent companies, subsidiaries, within the same group, or individuals holding significant management rights in the enterprise are all considered. At this point, the enterprise needs to compare the legal criteria, including the capital ownership ratio, controlling rights, loan relationships, guarantees, or participation in management and operations.
Next, the enterprise must analyze and compare the collected information to determine the relationship in accordance with the provisions of Decree 20/2025/ND-CP.
Example: If Company A holds 30% of Company B's capital and has the right to approve large-value contracts, then it is clear that A and B have an affiliated relationship. Or in the case where Company C borrows all of its working capital from Company D and is financially guaranteed by D, then an affiliated relationship is also established even if there is no direct capital contribution.
Once the related parties have been identified, the enterprise needs to prepare a dossier and report the related party transactions according to the prescribed form. This is an important step to demonstrate transparency and avoid risks when the tax authority conducts an inspection. This dossier not only records the related party transactions but also analyzes the basis for identification, valuation methods and supporting documents.
Finally, businesses should conduct periodic reviews, as the relationship may change over time due to capital adjustments, changes in management personnel or new financial transactions. Regular updates will help businesses promptly adjust reports, minimizing the risk of being assessed as non-compliant.
The process of determining the relationship is a continuous process, from information collection, criteria analysis, legal comparison to reporting and periodic updating. If businesses implement it seriously and systematically, they will not only avoid unfortunate mistakes but also build a solid tax management foundation.
Common mistakes when determining relationships
In the process of determining related-party relationships, many businesses often make mistakes that cause inaccurate reporting of related-party transactions and lead to legal risks. Specifically:
- Misunderstanding the capital ownership ratio, many businesses believe that only when the parent company holds more than 501 TP3T of the subsidiary's capital can it be considered an association, while current law stipulates that only 251 TP3T or even 101 TP3T in some special cases is enough to form an association. This misunderstanding leads to the omission of many entities that must be declared.
- Another mistake is to ignore financial relationships, especially loans and guarantees. In practice, many businesses tend to focus only on the capital contribution factor, but do not pay attention to the fact that a loan from a parent company, a sister company or an executive is also a basis for determining the relationship. Even interest-free loans or loan guarantees are enough to establish a relationship and need to be transparently reported.
- The next common mistake is in updating legal regulations. Many businesses still rely on old documents, not fully understanding the changes from Decree 20/2025/ND-CP compared to Decree 132/2020/ND-CP, leading to incorrect application of criteria. This not only reduces the accuracy of determining the linkage but also puts businesses at risk of being assessed additional tax obligations by tax authorities.
Mistakes in the process of determining affiliated relationships often stem from misunderstanding regulations, missing financial relationship elements, slow updating of new documents or incomplete records. To avoid risks, businesses need to build strict control processes, regularly review transactions and consult experts to ensure compliance.
Solutions for businesses when determining affiliate relationships
For the process of determining the relationship to take place accurately and in accordance with regulations, enterprises need to have a systematic management strategy, combining legal factors and internal management. Building a system to periodically review all financial, management and economic contract relationships helps enterprises promptly identify new relationships that have the potential to form links, thereby limiting the risk of missing the subjects that must be declared in the report. affiliate transactions.
At the same time, the work of preparing documents for related-party transactions needs to be seriously invested. The documents do not stop at declaring according to the form, but must also prove the legal basis, method of determining transaction price and accompanying documents. A complete, logical and transparent set of documents will become an important legal "shield", helping businesses stand firm when tax authorities conduct inspections.
However, in reality, not all businesses have enough resources and experience to effectively implement this entire process. This is the reason why MAN – Master Accountant Network provides professional solutions in identifying related-party relationships, preparing related-party transaction records and consulting on compliance with Decree 20/2025/ND-CP. With a team of experts knowledgeable in the law and tax management practices, MAN – Master Accountant Network supports businesses from the stage of reviewing and identifying related parties, to building an internal control system, preparing transparent records and applying modern management technology.
By combining legal updates, strict internal management and the support of MAN – Master Accountant Network, businesses not only ensure compliance and limit legal risks but also build a sustainable foundation for long-term business operations.
Conclude
Determining the correct affiliation is vital for every business. This is not only a legal obligation but also the key to helping businesses minimize risks, enhance reputation and optimize transparent and sustainable business strategies.
For specific advice, businesses Please contact MAN – Master Accountant Network.
Contact information MAN – Master Accountant Network
- Address: 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City.
- Mobile/ Zalo: +84 (0) 903 963 163 or +84 (0) 903 428 622
- Email: man@man.net.vn
Editorial Board: MAN – Master Accountant Network