Decree 20/2025/ND-CP: Amendments to Transfer Pricing Regulations - Impact on Foreign-Invested Companies

Decree 20/2025/ND-CP: Amendments to Transfer Pricing Regulations - Impact on Foreign-Invested Companies

Decree 20/2025/ND-CP, issued on February 10, 2025, and effective from March 27, 2025, amends and supplements several provisions of Decree 132/2020/ND-CP on tax administration for enterprises with related-party transactions (transfer pricing). Below are the detailed amendments and their impact on foreign-invested companies:

Amendments to the Definition of Related Parties

a) Point d, Clause 2, Article 5:

• Previous Regulation: A business was considered to have a related-party relationship if it guaranteed or provided a loan to another business, provided that the loan was at least 25% of the contributed capital of the borrowing enterprise and accounted for more than 50% of the total value of the borrowing enterprise's medium and long-term debts.
• Amendment: An exception is added, whereby this relationship is not considered related if: The guarantor or lender is a credit institution operating under the Law on Credit Institutions, and does not directly or indirectly participate in the management, control, capital contribution, or investment in the borrowing enterprise. The borrowing enterprise and the lender are not under the common management, control, capital contribution, or investment of a third party.
• Impact: This change helps foreign-invested companies that borrow from independent credit institutions avoid being considered as having related-party relationships, thereby reducing their declaration and compliance obligations related to transfer pricing.

b) Point k, Clause 2, Article 5:

• Amendment: It is added that independently accounting branches that declare and pay corporate income tax are also considered to have a related-party relationship if they are subject to the actual management, control, or decision-making regarding the business operations of another enterprise.
• Impact: Foreign-invested companies with independently accounting branches in Vietnam need to review the relationship between the parent company and the branch to determine their transfer pricing declaration obligations.

c) Addition of Point m, Clause 2, Article 5:

• New Content: Credit institutions and their subsidiaries, controlling companies, or affiliated companies, as defined by the Law on Credit Institutions, are considered to have a related-party relationship.
• Impact: Foreign-invested companies operating in the finance and banking sector need to be aware of this relationship to comply with transfer pricing regulations.

Additional Responsibilities of the State Bank of Vietnam

• Amendment to Clause 2, Article 21: The State Bank of Vietnam is responsible for coordinating and providing information on foreign loans and repayments of enterprises with related-party transactions, including data on loan amounts, interest rates, interest and principal payment schedules, actual disbursements and repayments, and other relevant information upon request by the tax authorities.
• Impact: Foreign-invested companies need to ensure that foreign loan and repayment transactions are accurately recorded and reported, as this information may be checked by the tax authorities through the State Bank of Vietnam.

Replacement of Appendix I on Related-Party Information and Transactions

• Replacement of Appendix I: Appendix I issued with Decree 132/2020/ND-CP is replaced by a new Appendix I attached to Decree 20/2025/ND-CP.
• Impact: Foreign-invested companies need to update to the new forms and instructions to declare information on related-party relationships and transactions in accordance with current regulations.

Transitional Provisions on Interest Expenses

• If a business no longer has a related-party relationship under the new regulations: The disallowed interest expenses that have not been carried forward to subsequent tax periods up to the end of 2023 will be allocated evenly to the subsequent tax periods for the remaining period as prescribed.
• If a business still has a related-party relationship: The disallowed interest expenses that have not been carried forward will continue to be handled according to current regulations.
• Impact: Foreign-invested companies need to review their loans and relationships with lenders to determine how to handle disallowed interest expenses, ensuring compliance with the new regulations.

Conclusion

Decree 20/2025/ND-CP brings significant changes to the determination of related-party relationships and the management of related-party transactions. Foreign-invested companies need to proactively review their corporate structure, financial transactions, and update their tax declaration procedures to ensure compliance with the new regulations, while also optimizing tax benefits and minimizing legal risks.

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