[Taxation] Proposed amendments and supplements to Decree 132/2020/ND-CP on tax administration for enterprises with related party transactions
In Article 5, Paragraph 2, Point d of Decree 132/2020/ND-CP, related parties are defined as follows:
“One company provides a guarantee or makes a loan to another company (including guaranteeing a loan by a third party with funds held by an associated party or similar financial transactions) and the amount of the loan exceeds the capital of the borrowing company. If it accounts for at least 25% and 50% or more of the medium- to long-term debt of the borrowing company.
Therefore, if a company and a bank conclude a loan agreement and the above conditions are met, the company and bank become related parties. At the same time, Article 16, Paragraph 3 of Decree 132/2020/ND-CP stipulates that interest expenses can only be deducted up to 30% of the total profits from business activities (EBITDA) during the period when calculating taxable income.
The current regulations are inconvenient for Vietnamese companies, as there is a high need for loans from banks in daily production activities, and borrowing is one of the common means of financing. For this reason, the Ministry of Finance has proposed amendments and supplements that would exempt the relationship between a company and a bank from being considered a related party if the bank does not participate in the operation, management, investment, or investment activities of the borrowing company.
At present, the Decree amending and supplementing Decree No. 132/2020/ND-CP on tax administration for enterprises with related party transactions has not yet been officially issued. The plan is for the Vietnamese government to issue an official document in the third quarter of 2024, so if there is any new information in the future, we will share it again in our newsletter.
Reference: Official Letter No. 12094/BTC-TCT dated November 23, 2023
*This article was translated by Yarakuzen.