What is an affiliate transaction? Things to note

Article overview

Affiliate transactions are business transactions arising between related parties. This connection contributes to effective business operations. To understand in more detail the regulations and notes on affiliate transactions, please refer to the following article.

What is an affiliate transaction?
What is an affiliate transaction?

What is an affiliate transaction?

Affiliate transactions are business activities that take place between parties that have an affiliate relationship.

According to the provisions of Clause 1, Article 5 of Decree 132/2020/ND-CP, the parties in an affiliate relationship are relationships belonging to one of the following coincidences:

  • One party directly or indirectly participates in the management, control, capital contribution or investment in the other party;
  • The parties are directly or indirectly under the management, control, capital contribution or investment of another party.

Cases are considered linked

Affiliate relationships occur when there is mutual influence between the parties participating in a transaction. Clause 2, Article 5 of Decree 132/2020/ND-CP stipulates that the following cases are considered to be related:

  • One enterprise directly or indirectly holds at least 25% of the capital contributed by the owner of the other enterprise;
  • Both businesses have at least 25% of the owner’s capital contribution held directly or indirectly by a third party;
  • One enterprise is the largest shareholder in terms of owner’s capital contribution and holds directly or indirectly at least 10% of the total shares of the other enterprise;
  • An enterprise guarantees or lends capital to another enterprise in any form, provided that the loan amount is at least equal to 25% of the capital contribution of the owner of the borrowing enterprise and accounts for more than 50% of the total value of the medium- and long-term debts of the borrowing enterprise;
  • 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 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;
  • Two enterprises both have more than 50% of the members of the board of directors or the same member of the board of directors has the right to decide on financial policies or business operations appointed by a third party;
  • Two businesses are operated or controlled in terms of personnel, finance and business operations by individuals belonging to one of the husband and wife relationships; biological parents, adoptive parents, stepfather, stepmother, parents-in-law, parents-in-law; biological children, adopted children, stepchildren of spouses, daughters-in-law, sons-in-law; brother, sister, half-brother, half-brother, half-brother, half-brother, half-brother, half-brother, brother-in-law, sister-in-law, sister-in-law of a person of the same parents or half-father, same mother, different father; paternal and maternal grandparents; grandchildren and great-grandchildren; aunts, uncles, uncles, nieces and nephews;
  • Two business establishments have a head office and permanent establishment relationship or are both permanent establishments of foreign organizations and individuals;
  • Enterprises are controlled by an individual through this individual’s capital contribution to that enterprise or direct participation in operating the enterprise;
  • Other cases in which an enterprise is subject to actual management, control, and decisions regarding the production and business activities of the other enterprise;
  • Enterprises have transactions to transfer or receive transfers of at least 25% of the capital contribution of the enterprise’s owner during the tax period; borrow or lend at least 10% of the owner’s capital contribution at the time of the transaction during the tax period with individuals operating or controlling the enterprise or with individuals in one of the relationships specified in Point g of this Clause.
Cases are considered linked
Cases are considered linked

What transactions do affiliate transactions include?

According to the provisions of Clause 2, Article 1 of Decree 132/2020/ND-CP, affiliated transactions include the following transactions:

  • Commodity transactions: Includes buying, selling, exchanging, leasing, borrowing, and transferring tangible and intangible assets between related parties.
  • Service transaction: Providing services, sharing resources such as human resources or costs between affiliated parties.
  • Financial transactions: Includes loans, loans, financial guarantees and other financial instruments between related parties.
  • Cooperation agreements: Agreements to use common assets, capital resources, share benefits, or cooperate in business activities.

Notes on affiliate transactions

Expenses are not deductible when calculating corporate income tax

Pursuant to Clause 1, Article 16 of Decree 132/2020/ND-CP, the following costs are not included in deductible costs when determining income subject to corporate income tax in the period, including:

  • Expenses paid to affiliated parties that do not carry out any production or business activities related to the taxpayer’s industry, production or business activities; has no related rights or responsibilities for assets, goods or services provided to taxpayers;
  • Payment expenses to related parties that have production and business activities but the scale of assets, number of employees and production and business functions are not commensurate with the transaction value that the related party receives from the taxpayer;
  • Payment expenses to related parties who are residents of a country or territory that does not collect corporate income tax and do not contribute to generating revenue or added value for the taxpayer’s production and business activities.

Declare associated transactions

According to the provisions of Clause 3, Article 18 of Decree 132/2020/ND-CP, taxpayers with related party transactions within the scope of this Decree are responsible for declaring information on related party relationships and related party transactions according to Appendix I, Appendix II, Appendix III issued with this Decree and submitting them together with the Corporate Income Tax Finalization Declaration.

However, the following cases will be exempt from tax declaration if the following conditions are met:

  • Taxpayers are exempt from declaring and determining associated transaction prices in Section III and Section IV, Appendix I issued with this Decree;
  • Only arise transactions with affiliated parties who are corporate income tax payers in Vietnam;
  • The same corporate income tax rate applies to the taxpayer and neither party is entitled to corporate income tax incentives during the tax period.
Notes on affiliate transactions
Notes on affiliate transactions

Consulting on effective affiliate transactions for businesses

Due to the complexity of related party transactions, many businesses have difficulty complying with regulations. Long Phan provides in-depth consulting services to help businesses understand and meet related transaction requirements, including:

  • Consulting to clarify the nature of associated transactions;
  • Analyze the advantages and disadvantages of affiliate transactions as a basis for selection;
  • Consulting on cases considered to have a related relationship;
  • Consulting on all types of affiliate transactions;
  • Consulting on cases where personal income tax is not deductible;
  • Consulting on taxes related to affiliate transactions;
  • Guidance on tax declaration documents and procedures related to affiliated transactions;
  • Consulting and support on other related issues.

Using consulting services helps businesses avoid mistakes in declaring affiliated transactions, while optimizing costs and enhancing compliance with regulations. If you need consulting support, please contact Long Phan via the hotline 0906735386. We are ready to help you complete your documents, optimize costs and comply with regulations in affiliate transactions effectively.