Affiliate transaction means “transactions arising between related parties in the process of production and business, including: Buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transfer of machinery, equipment, goods, provision of services; loans, loans, financial services, financial guarantees and other financial instruments; buy, sell, exchange, rent, lease, borrow, lend, transfer, transfer tangible assets, intangible assets and agree to share resources such as synergies, cooperation in exploitation and use of human resources force; cost sharing between the  affiliate parties.” (Clause 3, Article 4 of Decree 20/2017/ND-CP on tax administration for enterprises with associated transactions).

Enterprises with an associated relationship are one party participating directly or indirectly in the management, control, capital contribution or investment in the other party; The parties are directly or indirectly jointly controlled, controlled, contributed capital or invested by another party. Specifically:

– One enterprise holds directly or indirectly at least 25% of the contributed capital of the owner of the other enterprise;

– Both enterprises have at least 25% of the owner’s contributed capital held directly or indirectly by a third party;

– One enterprise is the largest shareholder in terms of capital contributed by the owner of the other enterprise, holding 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 (including loans from third parties secured from the related party’s financial resources and other authorized financial transactions). similar substance) provided that the loan amount is at least 25% of the contributed capital of the owner of the borrowing enterprise and accounts for more than 50% of the total value of medium and long-term debts of the borrowing enterprise;

– An enterprise appoints a member of the management board to operate or take 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 members of the executive management board. operate or take control of a second enterprise; or a member appointed by the first enterprise has the power to decide the financial policies or business activities of the second enterprise;

– Two enterprises with more than 50% members of the management board or the same member of the management board with the right to decide on financial policies or business activities are appointed by a third party;

– Two enterprises are operated or controlled in terms of personnel, finance and business activities by individuals belonging to one of the relationships of spouses, biological fathers, adoptive fathers, natural mothers, adoptive mothers, natural child, adopted child, biological brother, biological sister, younger brother, brother-in-law, brother-in-law, sister-in-law, sister-in-law, grandfather, grandmother, grandson, grandfather, grandmother, grandchild, aunt, uncle, uncle , uncle, aunt and nephew;

– Two business establishments having a relationship between head office and permanent establishment or both are permanent establishments of foreign organizations and individuals;

– One or more enterprises are controlled by an individual through this individual’s capital contribution to that enterprise or directly participating in the management of the enterprise;

– Other cases in which the enterprise is subject to the actual operation and decision control over the production and business activities of the other enterprise.

Enterprises having associated transactions must declare associated transactions; excluding the factors that reduce the tax liability governed by the affiliate relationship, affecting to determine the tax liability for related-party transactions which are equivalent to independent transactions with the same conditions. According to the provisions of Article 8 of Decree 20/2017/ND-CP on determining costs for tax calculation in some specific cases as follows:

Subtracting expenses that are not deductible when determining taxable income, taxpayers may deduct service costs from taxable expenses in the period if the following conditions are met: commercial, financial and economic value and directly serving the taxpayer’s production and business activities; services from affiliated parties are only determined to have been provided under similar circumstances to which the independent parties paid for these services; Service fees are paid on the basis of the principle of independent transactions, and the method of calculating the price of the associated transaction or allocating the service fee between the related parties must be applied uniformly throughout the group for this type of transaction. similar services and taxpayers must provide contracts, documents, invoices, and information on the group’s calculation methods, allocation factors, and pricing policy for the service rendered. In the case of centers that perform the functions of specialization and synergies to create value added by the corporation, the taxpayer must determine the total value generated from these functions, determine the allocation level benefits. profit in accordance with the value of contributions of the related parties after deducting (-) the corresponding service fee for the related party performing the function of coordinating and providing services of an independent transaction of similar nature. copper. Non-deductible service costs when determining taxable income include: Expenses arising from services provided solely for the purpose of serving benefits or creating value for other affiliated parties; services serving the interests of the associated party’s shareholders; Duplicate charging services provided by many affiliated parties for the same service, the added value for taxpayers cannot be determined; services are essentially the benefits the taxpayer receives as a result of being a member of a consortium and the costs that the affiliated party adds to the service provided by a third party through an intermediaries the affiliated party does not pay. add value to the service.

On June 24, 2020, the Government issued Decree 68/2020/ND-CP  (effective from June 24, 2020 and applicable to the 2019 CIT period) amending and supplementing Clause 3 Article 8 Decree 20/2017/ND-CP on tax administration for enterprises having associated transactions. Accordingly, the total deductible interest expense when determining the taxable income for enterprises having associated transactions:

• Total interest expense (after deducting deposit interest and loan interest) incurred during the period is deductible when determining CIT taxable income not exceeding 30% of the total net profit from business activities during the payment period. interest expense (after deducting deposit interest and loan interest) incurred in the period plus amortization expense incurred during the period. (Previously, the total interest expense incurred in the period of the taxpayer was deductible when determining CIT taxable income not exceeding 20% of the total net profit from business activities plus interest and expenses. depreciation expense in the period of the taxpayer).
• The part of interest expense that is not deductible according to the provisions of Point a, Clause 3, Article 8 of Decree 20/2017/ND-CP (amended in Article 1 of Decree 68/2020/ND-CP) shall be carried forward to the tax period. next when determining the total deductible interest expense in case the total deductible interest expense of the next tax period is lower than the level specified at Point a, Clause 3, Article 8 of Decree No. 20/2017/ND- CP (amended in Article 1 of Decree 68/2020/ND-CP). The period of transferring interest expense is calculated continuously for no more than 5 years from the year following the year in which the interest expense is not deductible.
• The provisions at point a, clause 3, Article 8 of Decree 20/2017/ND-CP (amended in Article 1 of Decree 68/2020/ND-CP) do not apply to loans of taxpayers being credit institutions. used in accordance with the  Law on Credit Institutions; organize the insurance business according to the Law on Insurance Business; official development assistance (ODA) loans, preferential loans from the Government made by the method of the Government borrowing foreign loans for enterprises to re-loan; loans for the implementation of the national target program, the new rural program and sustainable poverty reduction); loans to invest in programs and projects implementing the State’s social welfare policies (resettlement housing, worker and student housing and other public welfare projects).
• Taxpayers declare the interest expense ratio in the tax period according to Form No. 01 in the Appendix issued with Decree 68/2020/ND-CP.

The above is the advice of Khoa Tin regarding the increase in the ceiling of deductible interest expenses when determining taxable income of corporate income with associated transactions.

In case customers have unclear issues or need to discuss further, please call us immediately at 0983.533.005 for a free consultation.

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