Introduction of new regulations of the Decree No. 132/2020/ND-CP
Document Name: Official Letter No. 271/TCT-TTKT
Date of Issue: 27 January 2021
Issue Organisation: General Tax Department
On 5 November 2020, the Government announced the Decree No. 132/2020/ND-CP regarding the tax administration for enterprises performing related-party transactions (as a replacement for the Decree No. 20/2017/ND-CP dated February 24, 2017 and the Decree No. 68/2020/ND-CP, amending and supplementing clause 3 of Article 8 in the Decree No. 20/2017/ND-CP), coming into force as of 20 December 2020 and the taxation period for the corporate income taxes of year 2020.
By introducing new regulations of the Decree No. 132/2020/ND-CP, Vietnam General Tax Department requests local Tax Department to take action immediately to communicate, disseminate and notify them to taxpayers for their information.
Highlighted below are some of the significant changes of the Decree No.132/2020/ND-CP under this official letter:
- Amending and supplementing regulations regarding “Database of the Tax Authority
- “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
- Amending and supplementing regulations regarding the standard arm’s length range
- “Standard arm’s length range” is a set of values ranging from the 35th percentile to the 75th percentile; the median value of this range is the 50th percentile determined according to the probability function.
- Amending and supplementing regulations regarding related parties:
- 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 sibling.
- 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 paragraph g of this clause.
- Amending and supplementing regulations regarding submission of international or country-by-country reports:
Taxpayers’ obligations related to Country-by-Country reports:
a) If a taxpayer is an ultimate parent company in Vietnam that generates at least eighteen thousand billion of Vietnam dong in their global consolidated revenue, then they shall take responsibility for preparing a Country-by-Country report included in the transfer pricing file. The duration of submission of these reports to tax authorities shall be 12 months starting from the ending date of the ultimate parent company’s financial year.
b) Taxpayers in Vietnam having overseas ultimate parent companies responsible for submitting a Country-by-Country reports under the host country’s legislation must submit such reports to tax authorities in the following cases:
a) Countries, territories where ultimate parent companies are residents enter into international taxation agreements with Vietnam, but do not have any agreement with competent regulatory authorities by the deadline for submission of reports under the provisions of paragraph a of this clause.
b) Overseas countries, territories where ultimate parent companies are residents have agreements between competent regulatory authorities with Vietnam but have terminated the automatic communication mechanism or fail to automatically provide Vietnam with Country-by-Country reports of enterprise groups that are residents in these countries or territories.
c) In case where a multinational group having more than one taxpayer in Vietnam and an ultimate parent company in an overseas country issues a written notification to designate one of the taxpayers in Vietnam to submit a Country-by-Country report, the designated taxpayer shall be obliged to submit such report to a tax authority. Taxpayer shall be obliged to submit the written notification of designation issued by the ultimate parent company to the tax authority by or on the ending date of the financial year of the taxpayer’s ultimate parent company.
c) Regulations laid down in paragraph b of this clause shall not apply to the cases where ultimate parent companies of taxpayers in Vietnam designate other entities to act on their behalf to submit Country-by-Country reports to tax authorities of host countries by or on the date prescribed in paragraph a of this clause, and meet the following requirements:
a) Countries, territories where entities entrusted with submission of reports are residents adopt regulations requiring the submission of Country-by-Country reports.
b) Countries, territories where entities entrusted to submit reports are residents have agreements between competent regulatory authorities with Vietnam as signatories at the date due for submission of these reports as per paragraph a of this clause.
c) Countries, territories where entities entrusted with submission of reports are residents have agreements between competent regulatory authorities with Vietnam but have not terminated the automatic communication mechanism and provide Vietnam with Country-by-Country reports of enterprise groups that are residents in these countries or territories.
d) Entities entrusted with submission of reports shall be obliged to show their written notifications stating that they are designated to submit Country-by-Country reports to tax authorities of host countries by or on the ending date of the financial year of the enterprise group’s ultimate parent company.
e) Written notifications of designation of entities entrusted with submission of reports which are provided by taxpayers in Vietnam to Vietnamese tax authorities under the provisions of paragraph b of this clause.
f) Taxpayers in Vietnam must inform Vietnamese tax authorities in writing of names, tax identification numbers and host countries of ultimate parent companies or entities entrusted with submission of reports by or on the ending date of the enterprise group’s financial year.
d) If taxpayers’ overseas ultimate parent companies are bound to submit Country-by-Country reports under the regulations of host countries, tax authorities must automatically communicate under commitments made under international taxation agreements by Vietnam.
a) If taxpayers’ ultimate parent companies are not bound to submit Country-by-Country reports under the regulations of host countries, tax treaties must be observed.
- Adding regulations on responsibilities and powers of tax authorities in management of prices of related-party transactions
- Manage and use Country-by-Country reports of taxpayers for the risk management and communication tasks under regulations and commitments of Vietnam under international taxation agreements, not for tax imposition purposes.