Inadequacies in the implementation of the law on tax administration for enterprise’s related-party transactions

Abstract

Related-party transactions are transactions arising between parties having related-party relationship during their production and business processes. Although related-party transactions are legal themselves, they may create conflicts of interest or lead to other illegal situations, so regulatory agencies often scrutinize them carefully. Tax administration for enterprise’s related-party transactions should be stricter than those of enterprises that only have independent transactions, as the implementation of related transactions has the ability to transfer revenues and profits for the purpose of reducing corporation income tax obligation. Within this article, the author focuses on discussing the provisions of law and the inadequacies in practising law enforcement on tax administration for enterprises having related-party transactions based on the analysis of point d, clause 2, Article 5 of Decree No. 132/2020/NĐ-CP (hereinafter referred to as “Decree 132”). Accordingly, the main inadequacies are examined in the identification of the related-party in the loan transaction between the borrowing enterprise and the credit institution, and in the Identification of the related-party when the borrowing enterprise does not”have medium and long-term debts. Corresponding to each inadequacy are the main solutions, including excluding the related-party relationship when the lending enterprise is an independent credit institution from the borrowing enterprise, adjusting the ratio of loan capital to equity ownership and other related solutions.