ENTERPRISE HAVING RELATED-PARTY RELATIONSHIPS AND ITS OBLIGATIONS IN VIETNAM

1. What is the “Related-party transaction”?

“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.

2. Related parties:

Related parties are parties having relationships where:

• A party participates directly or indirectly in the management, control or equity of the other, or puts investment in the other;
• Parties participate directly or indirectly in the common management, control, or the capital of or put investment in, other parties.

Related parties shall be subject to the following specific provisions:

Group 1: The parties having related-party relationships under ownership percentage

• An enterprise participates directly or indirectly in at least 25% of equity of the other enterprise;
• Both enterprises own at least 25% of equity in which a third party participates directly or indirectly;
• An enterprise is the shareholder who has the greatest ownership of equity of the other enterprise, or participates directly or indirectly in at least 10% of total share capital of the other enterprise;

Group 2: The parties having related-party relationships under transactions

• 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;

Group 3: The parties having related-party relationships under control (the right to decide)

• 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;
• Both 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;
• 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;
• Both business entities have transactions, either between their head offices and permanent establishments or between permanent establishments of overseas entities or individuals.
• One or more enterprises is/are put under control of one individual through either his/her capital participation into that enterprise or his direct involvement in administration of that enterprise;
• In other cases where an enterprise is in reality under management of, or control of decision on, business activities of the other enterprise.

3. Obligations for declaring information about related-party relationships and transactions:

In case of having related-party relationships, the enterprise shall be responsible for declaring information about related-party relationships and transactions by using the Form No. 01 given in the Decree No.20/2017/ND-CP and submitting it together with the corporate income tax finalization return, simultaneously, retaining and providing the transfer pricing documentation package (clause 3, clause 4 Article 10), including:

• Local file prepared by using the Form No.02 given in the Appendix to this Decree;
• Master file containing information relevant for global corporations, prepared by using the Form No.03 given in the Appendix to this Decree;

Country-by-Country report of an ultimate parent company prepared by using the Form No.04 given in the Appendix to this Decree.

Best regards,