RELATED TRANSACTIONS WHEN SETTLEMENT OF CIT TAX

What are the current new features in businesses that have related party transactions when finalizing corporate income tax? How do those businesses need to prepare documents, documents or declare related transaction obligations? Below, AACS Audit would like to share some important points to note when finalizing corporate income tax.

See more : What is affiliate transaction? 

New points: Related transactions when finalizing corporate income tax.

1. “Associated transactions” basically in Decree 20/2017/ND-CP (Decree 20) and Circular 66/2010/TT-BTC (Circular 66) basically define affiliated parties are all based on one of the following relationships:

– Regarding Capital both vertically and horizontally (understood: One party's equity in the other party or both parties have equity in another party);

– Regarding Management (members of one party's leadership board are appointed by the other party, both parties have the same leadership board members, both parties are run by individuals who have personal relationships with each other);

– Regarding Loans (one party guarantees or lends to the other party);

– Regarding fixed operating establishments (business locations, both parties have a relationship with the same headquarters or the same permanent establishment of another foreign party).

To clearly understand who the parties involved in the relationship include? Please see details: The parties have an affiliated relationship

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In Decree 20, the floor level for capital-linked relationships was raised from 20% to 25%, or in loan relationships, it was also raised from 20% (According to Circular 66) now to 25% (According to Decree 20).

On the other hand, in Circular 66 there is a contractual relationship in cases of business cooperation or above 50% where the product cost or revenue or input costs of one party are controlled by transactions with the other party. But in Decree 20, it is not so detailed, and is broadly regulated as: "actual administration, control, and decision-making", and in Decree 20, see "Substance over form". . This is a point to keep in mind when implementing.

Related transactions when finalizing personal income tax

2. Regarding non-deductible expenses when determining Corporate Income Tax (CIT)

The tax authority will eliminate non-deductible expenses if the costs of related transactions are incurred if the tax costs of the related transaction are not consistent with the nature of an independent transaction.

– Costs arising from related party transactions will still NOT be deducted from tax costs in the period if the production and business activities of the parties are not related to each other;

– The scale of the payment recipient's operations is not commensurate with the transaction value;

– Receive payment without responsibility related to goods and assets in transactions with tax-paying businesses;

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– The recipient of payment is a resident of a country that does not collect corporate income tax.

– For loan interest expenses, this amount is only deductible if it does not exceed 20% of net profit before deducting loan interest expenses and depreciation expenses. Enterprises should note that Decree 20 does not clearly state that the above interest costs only apply to linked loan transactions, so they will be calculated based on the interest costs of all loans.

Therefore, businesses can only deduct loan interest costs paid to lending affiliates that are not credit institutions or economic organizations if they do not exceed 150% the basic interest rate announced by the State Bank at the time. The borrowing point and the borrowing enterprise must fully contribute charter capital.

3. Regarding declaration and preparation of documents to determine the price of associated transactions

With the legal framework as in Circular 66 or now Decree 20, businesses must declare associated transactions and submit it along with the annual CIT finalization declaration. But according to Decree 20, there will be some cases that are exempt from declaring and determining the price of associated transactions, or must declare but are exempt from preparing documents to determine the price of associated transactions.

4. Time to declare and submit documents to determine the price of related party transactions when finalizing corporate income tax

– Documents to determine the price of related-party transactions must be prepared before the time of annual CIT finalization declaration and must be kept and provided to tax authorities upon request.

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– A set of records must include country records, global group information records and cross-country profit reports of the ultimate parent company.

This new regulation increases the responsibility of businesses to provide information, both in terms of information volume and document preparation time, while also creating conditions for tax authorities to have more data to evaluate and compare transactions. transactions of multinational corporations before considering the price of associated transactions.

– Enterprises need to understand and be fully prepared for changes in the law. In the case of Decree 20, the work of businesses with associated transactions will increase and become more complicated when businesses must prove the nature of the transaction, prepare multi-level documents including explanations for the documents. Documents for determining associated transaction prices, collecting relevant information to explain tax authorities' doubts. In case an enterprise does not prepare documents to determine the price of related-party transactions to explain to tax authorities, it may be subject to tax assessment according to the provisions of the Law on Tax Administration.

See more : Affiliate transaction reports

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