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Affiliate transactions (transfer pricing) – Part 4: guidance on declarations and records

Updated at 18/06/2022 - 02:32 pm

Pursuant to Decree 132/2020/CP-ND dated November 05, 11 on tax administration for enterprises with related-party transactions, according to which, cases are exempted from declaration and exemption. make declarations, dossiers, transfer price reports.

Cases where taxpayers are exempt from declaration, declaration, and transfer pricing documentation #

a. Make only sections I and II of Appendix I

Taxpayers are exempted from declaration and determination of related-party transaction prices in Sections III and IV of Appendix I promulgated together with the Decree. Taxpayers are exempt from making transfer pricing dossiers but must declare the grounds for exemption at: Sections I and II in Appendix I promulgated together with this Decree in the following cases:

  • transactions only with related parties who are taxpayers of corporate income tax in Vietnam, and
  • apply the same corporate income tax rate as the taxpayer, and
  • Neither party is entitled to corporate income tax incentives in the tax period.
b. Only make Appendix I for all indicators from I to IV

Taxpayers are responsible for declaring and determining transfer pricing prices according to Appendix I issued with this Decree, but are exempted from making transfer pricing dossiers in the following cases:

  • Taxpayers have associated transactions but the total revenue generated in the tax period is less than VND 50 billion and the total value of all related transactions arising in the tax period is less than VND 30 billion;
  • Taxpayers who have signed a pre-agreement on the method of determining the taxable price shall submit the annual report in accordance with the law on the pre-agreement on the method of determining the taxable price. The associated transactions are not within the scope of application of the prior agreement on the method of determining the taxable price, the taxpayer is responsible for declaring and determining the price of the related party transaction according to the provisions of Article 18 of this Decree;
  • Taxpayers conduct business with simple functions, do not generate revenue or expenses from the exploitation and use of intangible assets, have a turnover of less than VND 200 billion, apply a net profit margin of less than VND XNUMX billion. minus interest expense and corporate income tax (excluding the difference between revenue and expenses of financial activities) from net revenue, including the following areas:

            Distribution: From 5% or more;

              Production: From 10% or more;

              - Processing: From 15% or more.

Time of submission of transfer pricing documents #

The Affiliate Transaction declaration is submitted together with the annual CIT Finalization declaration. Thus, the time to submit the declaration of related-party transactions is submitted no later than the last day of the 3rd month from the end of the calendar year.

Dossier of determination of transfer pricing is made before the time of annual corporate income tax declaration and finalization and must be kept and presented at the request of the tax authority for information provision. When the tax authority conducts an inspection and examination of the taxpayer, the time limit for providing the transfer pricing determination dossier shall comply with the provisions of the Law on Inspection from the date of receipt of the request for information provision.

Taxpayers are responsible for providing fully and accurately and responsible before law for the information and documents at the Document for determining the associated transaction price when requested by the tax authority during the process of taking before conducting inspections and inspections according to the provisions of Article 20 of this Decree. The time limit for providing dossiers for determining affiliated transaction prices shall not exceed 30 working days after receiving written requests of tax authorities. If taxpayers have plausible reasons, the time limit for providing dossiers for determining affiliated transaction prices shall be extended by 01 times not exceeding 15 working days, from the expiry date.

Penalties for not submitting transfer pricing documents #

According to the provisions of the Tax Administration Law, fines include: 10% to 20% fine for arrears of tax arrears depending on the tax period, plus late payment interest (0,05%/day to 0,07). 0,03%/day for arrears tax amount (01%/day for the period from July 07, 2016) or tax evasion penalty (from one to three times the arrears tax amount), depending on depending on the nature and circumstances of the offence.

However, the biggest risk for businesses that do not make a related transaction record or make a related transaction record that does not comply with the regulations is that the tax arrears will be based on the level set by the tax authorities. as set forth below, essentially in a way that is not favorable to the taxpayer. Along with fines, businesses may also suffer from reputational damage in the market and be included in the Tax Authority's list of high-risk businesses for transfer pricing, leading to inspections/examinations. more periodic taxes.

How to make declarations and transfer pricing documents #

It is detailed in the Annexes according to current regulations (from the tax period of 2020 it is according to Decree 132/2020/CP-ND dated November 05, 11).

What to do when notified that the tax authority will conduct an inspection of related transactions #

  • Review all relevant tax returns, quickly add missing declarations. The lack of declarations or false declarations compared to documents will be the basis for tax authorities to set taxes.
  • Review all accounting books and vouchers to ensure they are fully, accurately prepared and stored in accordance with accounting regulations. If the accounting books have many material errors, they are also the basis for tax assessment by tax authorities.
  • Collect all documents, documents and records as required in Decree 20/2017/ND-CP and Decree 132/2020/ND-CP (from the 2020 corporate income tax period) to help interpret the data and provide it to the tax authorities upon request.
  • Businesses should prepare accountability strategies for important and complex content. Should talk to the parent company (if any) to get the maximum support. In addition, it is advisable to find out similar businesses that have been inspected before for more information.
  • If businesses feel that they are not completely confident about the above contents, they should hire a professional consulting company to perform independent testing for useful recommendations. In addition, for business difficulties when preparing relevant documents, professional consulting firms may have the right knowledge, experience, and resources available to help the company handle it properly. appropriate and timely before the tax authorities enter. Enterprises can ask the consulting company to assist in explaining the questions and arguments of the tax authority during the tax agency's inspection/inspection at the enterprise.

The best preparation before the tax authorities come in for inspection will help businesses minimize unnecessary losses due to fundamental shortcomings related to compliance, and help businesses focus on the real problems. important and complex to achieve the highest efficiency when explaining and persuading tax authorities.

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