Significant steps made in related-party transactions

Between 2020 and 2025, the tax authorities audited more than 5,000 enterprises engaged in related-party transactions, resulting in additional tax assessments, tax recoveries, and penalties totalling more than $461.5 million.

By Dang The Duc, managing partner, and Nguyen Thi Hong Duong Senior associate and taxation head, Indochine Counsel

Vietnam’s rules on such transactions are set to sharpen the focus on economic substance, transparency, and transfer pricing compliance, while also widening certain documentation exemptions and bringing reporting requirements closer into line with international standards.

The figures recorded during the 2020-2025 period underline the level of attention that related-party transactions continue to receive from the tax authorities. However, the existence of such transactions does not, by itself, mean that an enterprise is engaged in transfer pricing practices or has breached tax regulations.

Instead, related-party transactions are treated as an area carrying heightened tax risks because the nature and pricing of transactions between connected parties may affect the allocation of revenue, costs, and profits.

Certain operating and financial patterns may therefore attract closer scrutiny from tax authorities. One example is where management fees, intra-group interest expenses, or parent-company cost allocations contribute to persistently low profits.

Another area of attention involves changes in profitability around tax incentive periods. An enterprise that reports profits while benefiting from tax incentives but subsequently sees its profits fall, or begins recording losses after the incentive period ends, may face questions over whether its financial results appropriately reflect its business activities and related-party arrangements.

Transactions with related entities located in jurisdictions applying low corporate income tax (CIT) rates or no CIT may similarly receive closer examination. Against this backdrop, the government issued Decree No.255/2026/ND-CP in June, which applies from the 2026 CIT tax period onwards.

One of the notable changes under Decree 255 is the expansion of the scope of related-party relationships. The new framework covers certain borrowing and lending arrangements involving controlling individuals and certain related family members. The change is aimed at ensuring that the determination of related-party relationships more accurately reflects the underlying economic substance of transactions, rather than focusing solely on their legal form.

The decree also expands the circumstances in which enterprises may be exempt from preparing transfer pricing documentation. However, an exemption from preparing such documentation does not necessarily remove the obligation to declare related-party transactions. Enterprises falling within an exemption still need to consider disclosure responsibilities under the new framework.

Another significant development is the formal recognition of a national database as an official source for the declaration, determination, and administration of related-party transaction prices. Decree 255 also establishes a priority order for the use of publicly available databases, commercial databases, and databases held by the tax authorities.

This hierarchy is important for enterprises conducting transfer pricing analyses because the selection and use of comparable data is a key part of assessing whether related-party transaction prices are consistent with the applicable requirements. The new provisions provide a clearer framework for the sources that should be considered when enterprises prepare and support their transfer pricing positions.

Country-by-Country Reporting (CbCR) requirements have also been revised. Under Decree 255, the reporting threshold is aligned with recommendations from the Organisation for Economic Co-operation and Development, with the requirement applying to ultimate parent entities whose consolidated global revenue reached €750 million ($865 million) or more in the preceding fiscal year.

The revised threshold is another indication of Vietnam’s continuing effort to bring its related-party transaction regime closer to international practices. At the same time, it places an additional responsibility on enterprises that are part of large multinational groups to determine whether CbCR obligations are relevant to their structure and reporting position.

More broadly, Decree 255 marks a further step in aligning Vietnam’s related-party transaction regulations with the Law on Tax Administration and internationally recognised practices. The changes seek to improve transparency and tax administration efficiency, while also reducing unnecessary compliance costs for enterprises that meet the conditions for documentation exemptions.

Nevertheless, the emphasis on economic substance means enterprises should pay close attention not only to whether related-party transactions are properly declared, but also to whether the underlying transactions can be commercially justified and supported by adequate evidence.

Decree 255 represents a significant step towards aligning Vietnam’s related-party transaction framework with the Law on Tax Administration and international best practices. Enterprises engaged in related-party transactions should proactively assess their transfer pricing risks, ensure complete and accurate disclosure of relevant information, and maintain robust supporting documentation to demonstrate the commercial substance of transactions.

To comply with the new framework, enterprises should promptly review their transfer pricing policies and documentation processes, apply the prescribed hierarchy of databases when conduct transfer pricing analyses, and assess whether any CbCR obligations may apply.