HOW TO MAKE AN AFFILIATE TRANSACTION REPORT

1.      Subjects must make affiliate transaction reports.

Organizations that produce and trade goods and services (hereinafter referred to as taxpayers) are subject to corporate income tax according to the declaration method and have transactions with affiliated parties. according to the following regulations Make affiliate transaction reports.

1.1 Parties with affiliated relationships (hereinafter referred to as "affiliated parties") are parties with relationships in one of the following cases:

a) One party directly or indirectly participates in the management, control, capital contribution or investment in the other party;

b) The parties are directly or indirectly under the management, control, capital contribution or investment of another party.

1.2. The affiliated parties in Clause 1.1 of this Article are specifically stipulated as follows:

a) One enterprise directly or indirectly holds at least 25% of capital contributed by the owner of the other enterprise;

b) Both enterprises have at least 25% of owner's contributed capital held directly or indirectly by a third party;

c) One enterprise is the largest shareholder in terms of capital contribution of the owner of the other enterprise, holding directly or indirectly at least 10% of the total shares of the other enterprise;

d) An enterprise guarantees or lends capital to another enterprise in any form (including loans from third parties guaranteed from the financial resources of affiliated parties and financial transactions involving similar nature) with the condition that the loan capital is at least equal to 25% of capital contributed by the owner of the borrowing enterprise and accounts for over 50% of the total value of medium and long-term debts of the borrowing enterprise;

d) An enterprise appoints members of the executive management board or takes control of another enterprise, provided that the number of members appointed by the first enterprise accounts for more than 50% of the total number of executive management board members. operate or take control of a second enterprise; or a member appointed by the first enterprise has the right to decide on the financial policies or business operations of the second enterprise;

e) Two enterprises have more than 50% members of the board of directors or have a member of the board of directors with the right to decide on financial policies or business operations appointed by a third party;

g) Two businesses are operated or controlled in terms of personnel, finance and business operations by individuals belonging to one of the relationships of husband, wife, biological father, adoptive father, biological mother, adoptive mother , biological child, adopted child, biological brother, biological sister, biological brother, brother-in-law, brother-in-law, sister-in-law, sister-in-law, grandfather, grandmother, grandchild, maternal grandfather, grandmother, grandchild, aunt, uncle, aunts, uncles, nieces and nephews;

h) Two business establishments that have a head office and permanent establishment relationship or are both permanent establishments of foreign organizations and individuals;

i) One or more enterprises are controlled by an individual through this individual's capital contribution to that enterprise or direct participation in operating the enterprise;

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k) Other cases in which an enterprise is subject to actual management and decision-making control over the production and business activities of the other enterprise.

 2. Cases where taxpayers are exempt from declaration and preparation of dossiers for determining associated transaction prices

2.1. Taxpayers are exempted from declaring and determining the price of affiliated transactions in cases where transactions only arise with affiliated parties that are corporate income tax payers in Vietnam, applying the same corporate income tax rate. business with taxpayers and neither party is entitled to corporate income tax incentives during the tax period.

2. Taxpayers are responsible for declaring and determining associated transaction prices but are exempt from preparing Documents for determining associated transaction prices in the following cases:

a) The taxpayer has a related transaction but the total revenue generated in the tax period is less than 50 billion VND and the total value of all related transactions arising in the tax period is less than 30 billion VND;

b) Taxpayers who have signed a Prior Agreement on the price determination method shall submit an Annual Report in accordance with the law on Advance Agreement on the Price Determination Method. For related party transactions that are not within the scope of application of the Prior Agreement on price determination method, taxpayers are responsible for declaring and determining the price of related party transactions according to the provisions of Article 10 of this Decree;

c) Taxpayers conducting business with simple functions, not generating revenue or costs from the exploitation and use of intangible assets, with revenue under 200 billion VND, applying the profit margin net before interest and corporate income tax on revenue, including the following areas:

– Distribution: From 5% or more;

– Production: From 10% or more;

– Processing: From 15% or more.

In case the taxpayer does not apply the net profit margin specified in this point, he/she must prepare a dossier to determine the associated transaction price according to regulations.

3. Methods of determining market prices

• Independent transaction price comparison method;

• Resale price method;

• Cost plus interest method;

• Profit comparison method;

• Profit separation method.

Currently, most companies choose methods 4 and 1 the most. Distribution businesses often choose method 2.

The way a business proves to the tax authority that it does not transfer pricing is to prove that its price is approximately the same as that of similar companies in the market (PP1) or that its profit margin is approximately the same. profit margins of similar companies in the market (the remaining methods, the most obvious of which is method number 4).

Similar companies are companies with the same operating functions (operating in the same industry, trading in the same product, performing the same group of functions such as production, sales, marketing), with risks to bear. similar assets (market risk, inventory risk, etc.) and assets used (eg: no intangible assets).

4. Components of the Market Price Transaction Explanation Report

Includes 6 basic parts:

• Overview of the Group and company under consideration;

• Overview of LINKED TRANSACTIONS;

• Industry analysis (if that industry is in crisis during the year, this is an important basis to explain why the enterprise reasonably suffered losses during the year);

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• Functional analysis;

• Choose an appropriate market price determination method;

• Economic Analysis, also known as Comparative Analysis (the most important part in the Report)

5. Difficulties in implementing the Explanation Report

The biggest difficulty is that it is difficult or impossible for businesses to access the database on prices or financial information of companies working in the same industry or field as them. Not to mention the requirement that there must be at least 05 or more similar companies for comparative analysis purposes.

Therefore, companies often hire auditing or consulting companies to prepare reports. These companies can do this because they buy and have access to financial information from companies selling professional financial data such as BVD, Reuters,... or build their own data systems for internal use. they have customers in their industry

In addition, these companies also write reports "artistically". Price-sensitive information may not be shown, positive or negative information about the industry may be hidden or emphasized to explain the financial position of the Company under consideration, etc.

6. What do businesses need to do to report on related party transactions?

a. Assess the risk of transfer pricing inspection by tax authorities

Enterprises with the following characteristics are considered to have high transfer pricing risks:

Enterprises have annual revenue growth but continuous losses over the years, profits suddenly decrease;

Other companies in the industry are doing well, but our company is making a loss;

The enterprise has an AFFILIATE TRANSACTION but does not submit the AFFILIATE TRANSACTION declaration;

Enterprises whose LINKED TRANSACTIONS account for a large proportion of revenue or costs;

Affiliates operate in countries with lower corporate income tax rates than Vietnam

There are sensitive LINKED TRANSACTIONS (paying copyright fees, paying management fees, franchising fees, paying high-interest loan interest);

If the risk is high, businesses should consider implementing an Explanation Report. Consider the amount of damage if tax is imposed against the fee payable to the consultant. If the enterprise has been inspected by the tax authority for any year, the enterprise only needs to make reports from the years that have not been inspected or later.

b. How to make affiliate transaction reports

If your company is a small and medium-sized enterprise and does not have enough budget to hire a private service to prepare a transfer pricing report, please make a transfer pricing report in the following way and of course the proof will not be enough. As solid as auditing companies consulting on transfer pricing reports, having something to provide to the tax authorities is better than having nothing and then having to listen to whatever the tax says).

The sections that are not part of the Comparative Analysis section can be prepared by businesses themselves, such as Industry Analysis (talking about the industry during the year: expanding or shrinking, how it is growing), introducing the corporation. , Companies and associated transactions, functional analysis (what functions are businesses performing: purchasing, production, marketing, R&D,...).

As for the Method Selection and Comparative Analysis sections, small and medium-sized enterprises can use the following methods:

• Choose PP to compare independent transaction prices;

• Compare your product prices with prices of similar companies in the market. Specifically: Enterprises research the market and find at least 05 enterprises that sell similar products to their own enterprise (these enterprises should be as reputable enterprises in the industry as possible; tax authorities may also have Information about the prices of this company's products is easy).

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• At the beginning of the month, I played the role of a customer and asked for quotes for products as similar as possible to my own products from the above 05 businesses and recorded them. Doing this continuously for 12 months, we will have 12-month price data of these 5 businesses and calculate the average price of a product of 1 company for the whole year. The final result will be a series of average prices of these 5 businesses during the year.

• From there, calculate the interquartile range of this average price range. Compare the average price of your business's products during the year with the above quartile range: if your price is in the quartile range, your business is considered to comply with the market price principle.

c. Prevent transfer pricing risks

• Businesses must regularly update the market situation, industry, competitors in terms of growth, finance, etc.

• Monitor competitors' prices;

• Join associations in your company's field to ask for information, buy/request industry reports;

• Any new LINKED TRANSACTION must estimate its impact on profits during the year. If profits are significantly reduced due to that LINKED TRANSACTION, the risk will increase significantly;

• Do not attempt to change prices. A company that does not intend to transfer pricing and operates for profit always has lower risk than a company that intends to transfer pricing.

d. Laws and decrees related to how to report related party transactions

Decree 20/2017/ND-CP regulates tax management for enterprises with associated transactions and Circular 41/2017 guides Decree 20/2017/ND-CP.

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7.  Quote for service of making affiliate transaction reports

If your business has difficulty making a related transaction report, or has never done it before, our company will advise and make a related transaction report for your company.

For this service, we will advise and assist clients in preparing documents related to the market price of transactions between related parties and declaration forms related to transactions. between related parties according to the provisions of current tax law. This service includes the following main steps:

Receive information and data

Industry analysis

Function and risk analysis

Financial analysis

Analyze transactions between related parties

Choose the appropriate transfer pricing method

Select reconciliation transactions

Conclusion Discuss the results with the client and make recommendations

Release report

Support answering questions from tax authorities (when requested)

With a team of experienced senior consultants and leading domestic accounting firms, AACS can provide high quality transfer pricing services to customers at very competitive fees.

If your business needs our advice on transfer pricing services and provision of transfer pricing consulting services, please contact us using the information below.

See more: ——>>> Link transaction reporting service

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