Chương I Nghị định 132/2020/NĐ-CP: Quy định chung

Chapter I

GENERAL PROVISIONS

Article 1. Scope

1. This Decree stipulates transfer pricing doctrines, methods and processes for determination of transfer pricing factors; taxpayer’s transfer pricing rights and obligations, declaration procedures; responsibilities of state regulatory authorities for the tax administration over taxpayers having related party transactions.

2. Related party transactions covered by this Decree comprise such transaction activities as purchase, sale, bartering, renting, leasing out, borrowing, lending, transfer or disposal of commodities, provision of services; financial borrowing, lending, financial services, financial guarantee and other financial instruments; purchase, sale, bartering, renting, leasing out, borrowing, lending, transfer or disposition of tangible assets, intangible assets and agreement on purchase, sale and sharing of resources such as assets, capital, labor and sharing of costs between related parties, except business transactions in goods and services subject to price adjustments that the State makes under laws on prices.

Article 2. Subjects of application

1. Entities manufacturing and trading goods and services (hereinafter referred to as taxpayers) are payers of the corporate income tax having transactions with their related parties under Article 5 herein.

2. Tax authorities include General Department of Taxation, Departments of Taxation and Sub-departments of Taxation.

3. State regulatory authorities, other entities and persons related to the application of regulations on the tax administration over related-party transactions.

Article 3. Principles of application

1. Taxpayers having related party transactions must eliminate factors causing reduction in tax obligations that are controlled or affected by related party relations in order to declare and define tax liabilities imposed on related-party transactions which are comparable to independent transactions having the same requirements.

2. Tax authorities should manage, check and inspect prices of related-party transactions performed by taxpayers according to the doctrine of an arm’s length and substance-over-form transaction and the transaction determining the tax liability corresponding to the value created from the substance of transactions and business activities of taxpayers; shall not grant their recognition of related-party transactions in breach of the arm’s length doctrine that cause reduction in tax liabilities of enterprises to the state budget and making any relevant adjustment to these prices so as to duly identify tax liabilities as prescribed in this Decree.

Article 4. Interpretation

Apart from the terms defined in the Law on Tax Administration No. 38/2019/QH14 dated June 13, 2016, the terms mentioned below shall be construed as follows:

1. “Tax treaty” is the shortened term indicating the Agreement on avoidance of double taxation and prevention of evasion of taxes on income or assets which is signed between Vietnam and other countries and territories, including Agreements or Protocols providing amendments or supplements to Agreements currently in force in Vietnam.

2. “Agreement of competent regulatory authorities” is the shortened term indicating the Agreement in effect between competent regulatory authorities of countries or territories that are party to international agreements on taxes, and requiring the automatic exchange of information included in International Financial Reports.

3. “International tax agreement”, “tax treaty” are bilateral and multilateral taxation agreements or treaties.

4. “Party tax authority” is tax authorities of countries or territories which are signatories to tax treaties with Vietnam.

5. “Independent comparable” is any arm's length transaction between independent parties or enterprises performing arm’s length transactions that is selected on the basis of the comparability analysis or the determination of comparables acting in the same or similar conditions to determine the level of price, profit margin, profit allocation rate in order to determine a taxpayer’s tax obligations paid to the state budget and ensure their compliance with provisions set forth in the Law on Tax Administration and the Law on Corporate Income Tax.

6. “Material difference" is any difference in pricing factors that cause significant or substantial effects on the level of price, profit margin and profit allocation rate of parties involved in a transaction.

7. “Database of a Tax Authority” is any information and/or datum that is acquired, developed from various sources by a Tax Authority and put under their control in accordance with the Law on Tax Administration No. 38/2019/QH14 dated June 13, 2019, even including databases and information exchanged with overseas tax authorities and competent regulatory authorities.

8. “Arm’s length range” is a set of values for levels of prices, profit margins, or profit split ratios, of independent comparables that are selected by tax authorities and taxpayers based on the databases referred to in Article 17 herein. Values in this range have the same or similar level of reliability comparability. Where necessary, the probability method would be used to calculate the standard arm’s length range and the range of median values having the typical, general and common natures in order to increase the reliability of a set of arm's length comparables.

9. “Standard arm’s length range” is a set of values ranging from the 35^th percentile to the 75^th percentile; the median value of this range is the 50^th percentile determined according to the probability function.

10. “Authorized reporting entity” is the term used for indicating an entity authorized to act on behalf of the ultimate parent company of a corporation to submit their international financial reports to tax authorities.

Article 5. Related parties

1. Related parties are parties having relationships where:

a) A party is directly or indirectly involved in the management, control of, contribution of capital to, or investment in, the other party;

b) Parties are directly or indirectly affected by the management, control of, contribution of capital, or investment, from the other party.

2. Related parties referred to in Clause 1 of this Article shall be subject to the following specific provisions:

a) An enterprise participates directly or indirectly in at least 25% of the other enterprise’s equity;

b) Each of the two enterprises has at least 25% of its equity held, whether directly or indirectly, by a third party;

c) An enterprise is the shareholder having the greatest ownership interest in the other enterprise, or participates directly or indirectly in at least 10% of total share capital of the other enterprise;

d) An enterprise guarantees or offers another enterprise a loan under any form (even including third-party loans guaranteed by financing sources of related parties and financial transactions of same or similar nature) to the extent that the loan amount equals at least 25% of equity of the borrowing enterprise and makes up for more than 50% of total medium and long term debts of the borrowing enterprise;

dd) An enterprise appoints a member of the executive board responsible for the leadership or control of another enterprise provided the number of members appointed by the former accounts for more than 50% of total number of members of the executive board responsible for the leadership or control of the latter; or a member appointed by the former has the right to decide financial policies or business activities of the latter;

e) Both related enterprises appoint more than 50% of membership of the executive board or have one member of the executive board authorized to decide financial policies or business activities who is appointed by a third party;

g) Both enterprises are managed or controlled in terms of their personnel, financial and business activities by individuals, each of whom is in one of the following relationships with the others such as a wife, husband, natural/foster father, natural/foster child, natural/foster older/younger sibling, brother/sister-in-law, maternal/paternal grandfather/grandmother, maternal/paternal grandchild, and maternal/paternal aunt, uncle and nibling;

h) Both business entities have transactions, either between their head offices and permanent establishments or between permanent establishments of overseas entities or individuals;

i) Enterprises are put under control of one individual through either his/her capital participation into that enterprise or his direct involvement in the administration of that enterprise;

k) In other cases where an enterprise has their business activities managed, controlled or decided de facto by the other enterprise;

l) A related enterprise performs the disposition or acquisition transaction in at least 25% of their equity within a tax period; the borrowing or lending transaction in at least 10% of their equity performed at the transaction time falling within a tax period with a person holding the executive office or the controlling interest in the enterprise, or with a person in one of the relationships prescribed in point g of this clause.