Chương I Nghị định 20/2017/NĐ-CP: Quy định chung

Chapter I

GENERAL PROVISIONS

Article 1. Scope

1. This Decree deals with principles, methods, processes and procedures for determining prices of related-party transactions; obligations of a taxpayer in declaration and determination of the price of a related-party transaction, and tax declaration and payment; responsibilities of regulatory authorities for tax compliance management, check and audit for a taxpayer engaged in the transfer pricing.

2. Related-party transactions covered by this Decree are those arising from business activities of taxpayers engaged in the transfer pricing stipulated by Article 5 hereof, except trades in commodities or services subject to the Government’s price adjustment that must comply with the legislation on price.

Article 2. Subjects of application

1. Commodity or service production and business entities (hereinafter referred to as taxpayers) that are entities paying corporate income tax according to the declaration method and performing transactions with related parties under the provisions of Article 5 hereof.

2. Tax authorities including General Department of Taxation, Department of Taxation and Subdepartment of Taxation.

3. Other state regulatory authorities, entities or individuals involved in application of regulations on management of the prices of related-party transactions, including tax authorities of the countries or territories that are parties to tax treaties with Vietnam still in force.

Article 3. Principles of application

1. Taxpayers engaged in transfer pricing must make declaration of their related-party transactions; eliminate factors causing reduction in tax obligations that are controlled or affected by related-party relationships in order to define tax obligations 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 arm’s-length and substance-over-form principles in order to refuse to recognize related-party transactions reducing tax obligations of enterprises to the state budget and make adjustment to the prices of related-party transactions so as to correctly define tax obligations as prescribed by this Decree.

3. The arm’s-length principle should be applied in the same manner as the principles applied to transactions between independent parties which do not have any related-party relationship in tax treaties in force in Vietnam.

Article 4. Definition

1. “Tax treaty” is the shortened term of the agreement on avoidance of double taxation and prevention of tax evasion with respect to income taxes which is signed between Vietnam and other states, and the agreement on revision of the agreements currently in force in Vietnam.

2. “Party tax authority” is tax authorities of states which are parties to tax treaties with Vietnam.

3. “Related-party transaction” is transactions arising between parties having related-party relationships during their production and business process, including purchase, sale, exchange, hire and rent with(out) rental fee for, transfer, and assignment, of machinery, equipment and commodities, and providing services; borrowing, lending, financial service, financial guarantee and other financial instruments; purchase, sale, exchange, hire and rent with(out) rental fee for, transfer and assignment of tangible assets, intangible assets and agreement on joint use of resources such as synergies and cooperations in utilization of human resources; sharing of costs between related parties.

4. "Independent transaction” is a transaction between unrelated parties.

5. “Independent comparable” is independent transactions or enterprises performing independent transactions that are selected on the basis of comparability analysis or determination of comparables acting in the same or similar conditions to determine levels of prices, profit margins, profit allocation rates in order to assess taxpayers’ tax amounts payable to the state budget and ensure compliance with provisions set forth in the Law on Tax Administration and the Law on Corporate Income Tax.

6. “Material difference" is differences in information or data that cause significant or substantial effects on levels of prices, profit margins and profit allocation rates of parties involved in transactions.

7. “Database of the Tax Authority” is information and/or data that are established and/or managed by the Tax Authority in accordance with the Law on Tax Administration, relate to determination of tax obligations of taxpayers, and are collected, analyzed, stored, updated, and managed by tax authorities, from various sources, even inclusive of the databases and information exchanged with tax authorities and regulatory authorities of overseas countries.

8. “Substance-over-form principle” is the principle used to analyze business activities of taxpayers in order to indicate the nature of related-party transactions as the basis for comparison with independent transactions performed in the same or similar conditions, ensure that related-party transactions duly representing the commercial, economic and financial nature are performed between unrelated parties, or if performed between parties having related-party relationships, that these related-party relationships would not adversely influence tax obligations to the state budget incurred by taxpayers. This principle is based on data about and practical reality of transactions between related parties to compare with independent transactions in the same or similar conditions, and without reliance on forms of transactions expressed in contracts or arrangements between related parties. Identification of the nature of economic, financial or commercial relationship existing in related-party transactions is based on comparison with independent transactions in the same or similar conditions.

9. “Arm’s length range” is a range of values regarding levels of prices, profit margins, or profit allocation rates, of independent comparables that are selected by tax authorities and taxpayers with reference to the databases referred to in Article 9 hereof. Values in this range have the same or similar level of reliability comparability. Where necessary, the probability method would be used to identify the standard arm’s length range and the range of values between transactions having the typical, general and common natures in order to increase the reliability of independent comparables.

10. “Ultimate parent company” is a term used to refer to a legal entity that holds both direct and indirect ownership interests in another legal entity of a multinational corporation and is not owned by any other legal entity. A consolidated account of an ultimate parent company of a corporation is not consolidated into any financial account of any other legal entity around the globe.