Direction to amend Decree 20 on anti- transfer pricing

	Dealing with difficulties of regulation on controlling the interest rate in Decree No 20 on related-party transactions
	Anti-transfer pricing: Need to be consistent with the provisions of Decree 20 and Tax Administration Law (amended)
	There will be specific guidelines on tax management for the enterprises having associated transactions

11.9 thousand enterprises declared associated transactions in 2018

Typically, Nhat Vuong Joint Stock Company and Truong Giang Mechanical Joint Stock Company mentioned anti- transfer pricing and inspection and examination for associated transactions of tax authorities.

Deputy Minister of Finance Tran Xuan Ha said Decree 20/2017/ND-CP is the first legal document of the Government regulating associated transactions, including content on anti-transfer pricing.

This decree was issued on the basis that Vietnam participated in the OECD's forum on tax erosion and profit transfer. When participatingin this group, the promulgation of Decree 20 aims to create a legal framework for tax administration in associated transactions. It is also Vietnam's commitment to participate in this forum.

“After two years of implementation, thetax sector has achieved important initial results. Specifically, 11.1 thousand enterprises declared associated transactions in 2017. In 2018, this figure increased to more than11.9 thousand enterprises, of which, the proportion of foreign-invested enterprises accounted for about 64 percentand the remaining figure were domestic enterprises,” Ha said.

Notably, through Decree 20, from 2017 to the present, the tax authority has dealt with revenue VND 11, 089 billion. On that basis, it has considered arrears collection, reduced tax deduction and losses in the production and business activities of some enterprises. However, Ha said there are many different opinions about the contents of Decree 20.

“Through summary and evaluation, it shown that specific problems such as the regulation of controlling 20 percent​​on interest expenses for associated transactions have affected the production and business activities of enterprises. However, the OECD also recommends that this limit is 10-30 percent, so when developing Decree 20, experts from international organizations such as the World Bank and national experts also proposed at 20 percent. However, in the long term, this rate must be re-evaluated to be consistent with the actual situation of Vietnamese enterprises,” Ha said.

Also, Ha said some think it should only apply to the associated interest expense for cases having activities on mutual lending and not apply to all subjects having associated transactions. According to the OECD, the decree must be amended widely to all associated transactions. This content must be reevaluated.

Regarding specific sectors, such as business from deposit interest and loan interest for financial and banking services; or activities of capital transfer businesses; ODA loans for re-lending, margin trading in corporations and groups related to associated transactions, theymust be carefully assessed.

On the direction of amending Decree 20, Ha said that based on the new Tax Administration Law, the Ministry of Finance will report to the Government to amend and supplement Decree 20, including specifying the scope of adjustment, subjects of application and the application of the rate of controlling net interest rate after deducting turnover, deposits and loans. The Ministry of Finance will study the reasonable interest rate control ratio, considering 25-30 percent to be more suitable for Vietnam.