What is an affiliate transaction? How are deductible loan interest expenses calculated for businesses with associated transactions? Join LawFirm.Vn to find out details through this article.
1. What is an affiliate transaction?
In particular, parties with associated relationships are parties that directly or indirectly participate in operating, controlling, and contributing capital to the enterprise;
The parties are both directly or indirectly operated and controlled by an organization or individual; The parties have an organization or individual contributing capital;
Businesses are run and controlled by individuals with close relationships within the same family.
In Clause 13, Article 17 of the Law on Tax Administration 2019, taxpayers who have associated transactions are obliged to prepare, store, declare, and provide information records about the taxpayer and the taxpayer’s affiliated parties. Tax includes information about affiliated parties residing in countries and territories outside of Vietnam according to Government regulations.
Principles for declaring and determining taxable prices for related party transactions are prescribed as follows:
– Declare and determine the price of associated transactions according to the principle of analysis and comparison with independent transactions and the principle of the nature of operations and transactions to determine tax obligations to determine the tax liability as in transaction conditions between independent parties;
– The price of associated transactions is adjusted according to independent transactions to declare and determine the amount of tax payable on the principle of not reducing taxable income;
– Taxpayers with small scale and low tax risk are exempted from implementing the provisions at Points a and b of this Clause and are entitled to apply a simplified mechanism in declaring and determining associated transaction prices.
2. Loan interest expenses for businesses with associated transactions
According to Decree 132/2020/ND-CP, the total deductible interest expenses when determining income subject to corporate income tax for enterprises with associated transactions is prescribed as follows:
(1) Total loan interest expenses after deducting deposit interest and loan interest arising during the taxpayer’s period are deductible when determining income subject to corporate income tax:
Do not exceed 30% of the total net profit from business activities in the period plus loan interest expenses after deducting deposit interest and loan interest arising in the period plus depreciation expenses arising in the period of the taxpayer.
(2) The portion of loan interest expenses that is not deductible according to the provisions of point (1) is carried over to the next tax period when determining the total deductible loan interest expense in case the total incurred loan interest expense is deductible. The next tax period is lower than the level specified in point (1).
The period of transfer of loan interest expenses shall be calculated continuously for no more than 05 years from the year following the year in which non-deductible loan interest expenses arise.
Note : The provisions in point (1) do not apply to:
– Loans from taxpayers who are credit institutions according to the Law on Credit Institutions; organize insurance business according to the Law on Insurance Business;
– Official development assistance (ODA) loans and preferential loans from the Government are implemented in the form of the Government borrowing from foreign countries and on-lending to businesses;
– Loans to implement national target programs (new rural programs and sustainable poverty reduction);
– Loans for investment in programs and projects implementing the State’s social welfare policies (resettlement housing, worker and student housing, social housing and other public welfare projects) .
Taxpayers declare the interest expense ratio in the tax period according to Appendix I issued with Decree 132/2020/ND-CP.
