Auditing related-party transactions is becoming a focal point in tax inspections and audits in Vietnam, especially for multinational corporations and FDI enterprisesAccording to data from the General Department of Taxation, thousands of businesses have their taxable income adjusted upwards and their losses reduced annually after transaction price reviews. Failure to strictly adhere to market pricing principles can lead to massive tax arrears and severe late payment penalties.
Currently, the highest legal framework governing this activity is Decree No. 132/2020/ND-CP The government's regulations on tax management for businesses with related-party transactions require a thorough understanding of the rules. Auditing related-party transactions is not only about completing documentation but also a strategic solution to help businesses assess the reasonableness of interest expenses and royalty fees. A clear understanding of these regulations enables chief accountants and CFOs to proactively protect their legitimate interests during tax settlement periods.
The importance of auditing related-party transactions in the new context.
Auditing related-party transactions acts as a safety "filter" for the corporate financial system. In the digital economy era, complex cross-border transactions have led tax authorities to tighten scrutiny of transfer pricing. If businesses do not prepare complete documentation, the risk of being taxed at the industry average rate is extremely high.
Practical examples show that controlling interest expense deductions according to the 30% EBITDA ceiling (Article 15 of Decree 132) has caused many businesses to face cash flow difficulties. Therefore, auditing related-party transactions helps to identify bottlenecks in non-deductible expenses early on, allowing for timely adjustments to strategies. This is a professional step that helps affirm the transparency and credibility of businesses with relevant authorities.
The governing legal framework and basic concepts
To properly conduct related-party transactions audits, professionals need a thorough understanding of the current legal framework. In addition to Decree 132/2020/ND-CP, businesses should refer to guiding circulars from the Ministry of Finance and guidance from the OECD to ensure international consistency. Related parties are defined when one party participates in the management, control, or equity investment of another party.
Identifying the correct related party is the first and most important step in auditing related-party transactions. Criteria such as owning at least 25% of equity or holding over 50% of debt must be carefully verified against the balance sheet. Errors in identifying the related party will lead to the entire pricing documentation being rejected by the tax authorities later on.
The parties are related under Decree 132/2020/ND-CP.
The table below summarizes the most common criteria for identifying related-party relationships that auditors regularly review:
| Criteria | Detailed content | Defining threshold |
| Direct capital contribution | One business holds the equity stake of another business. | At least 25% |
| Indirect capital contribution | Holding capital through a third party. | At least 25% |
| Guarantee/Loan | One business provides a guarantee or lends capital to another business. | At least 25% in equity and > 50% in total medium and long-term debt. |
| Management/Control | Appoint members of the executive or supervisory board. | On 50%, the number of members |
| Supply of materials | Control the supply of raw materials, both input and output. | Monopoly or large market share |
Comparing these figures with the ledger accounts 411 and 341 is a mandatory procedure in the audit of related-party transactions.
The process for conducting in-depth audits of related-party transactions.
A professional related-party transaction audit is typically divided into four phases: Planning, Execution, Comparative Analysis, and Reporting. Each phase requires close coordination between the accounting department, logistics department, and professional tax consultants.
Below is a detailed breakdown of the steps to ensure your application complies with regulations and is not rejected by the tax authorities.
Phase 1: Identifying transactions and collecting documentation
Auditors will list all transactions arising with related parties, such as sales, provision of services, or technical support. In related-party transaction audits, documentation includes VAT invoices, contracts, acceptance certificates, and reports allocating overhead costs from the parent company. Gathering sufficient evidence is fundamental to defending the reasonableness of transaction prices.
Phase 2: Selecting a method for determining transfer pricing.
Decree 132 outlines five main methods for determining market prices. Choosing the wrong method is a common mistake that leads to businesses failing to explain their position during audits. In related-party transaction audits, experts often prioritize the comparable prices method (CUP) if there is a high degree of market similarity.
The Cup (Cup) price comparison method
This method compares prices in related-party transactions with prices in similar independent transactions. The condition for application is that there are no material differences in the characteristics of goods, services, and contract conditions that significantly affect the actual transaction value.
Resale Price Method
This method is typically applied to trading entities that purchase from related parties and resell to independent parties. Auditing related-party transactions using this method focuses on determining the reasonable gross profit margin to cover operating expenses and generate net profit.
Cost Plus Method
Suitable for businesses involved in manufacturing or providing internal support services. Auditors will examine the reasonableness of the markup based on the functions performed and the risks the business assumes in the value chain.
Phase 3: Comparative analysis and selection of benchmarks
This is the "heart" of the related-party transaction audit file. Businesses need to find independent companies with similar functions and risks on reputable databases such as Orbis. A reliable file should have at least 3-5 comparable entities with financial ratios within the standard quartile range.
During the audit of related-party transactions, making adjustments for material differences in working capital or inventory is mandatory. These figures must be clearly presented in comparative tables to enhance their persuasiveness to the auditing authority.
| Financial indicators | Target businesses | Comparison object A | Comparison object B | Interquartile range |
| Return on Sales (ROS) | 5.2% | 4.8% | 6.5% | 4.5% – 7.0% |
| Return on Assets (ROA) | 8.1% | 7.9% | 9.2% | 7.5% – 9.5% |
Price list for services at MAN – Master Accountant Network
We offer flexible service packages tailored to the scale and complexity of related-party transactions at each business. Below is a price list for reference to help businesses proactively estimate costs.
| Type of service | Content of implementation | Estimated cost (VND) |
| Fill out Form 01 | Review and prepare quarterly/annual related-party transaction information declarations. | From 5,000,000 |
| Prepare a valuation report. | Create a Local File and a Master File for the Corporation. | From 30,000,000 |
| Review & Audit | Review existing records for compliance and optimize interest costs. | From 20,000,000 |
| In-depth consultation | Develop transfer pricing strategies and assist in tax audit explanations. | Agree |
Note: The above price list is for reference only; actual costs depend on the transaction volume and the nature of the business.
Common risks and how to handle them when auditing related-party transactions.
Many businesses mistakenly believe that simply submitting Form 01 under Decree 132 is sufficient for safety. However, the real risk lies in the storage of Transfer Pricing Documentation, including national records, group records, and country-by-country profit reports.
Risks related to the legality of interest expense.
According to Article 15, the total deductible interest expense shall not exceed 30% of total EBITDA. Regular audits of related-party transactions will help businesses closely monitor this indicator. This helps avoid having to disallow billions of dong in legitimate expenses at the end of the year when settling corporate income tax.
Risk of inconsistencies in reporting.
If the data on Form 01 contradicts the Notes to the Financial Statements, the tax authorities will place the business on a priority inspection list. Conducting an audit of related-party transactions helps review the entire reporting system, ensuring data consistency before submission to the authorities.
Conclude
Auditing related-party transactions is a crucial tool for optimizing cost structures and protecting long-term business profits. With the strict regulations from the General Department of Taxation, equipping a professional transfer pricing dossier based on actual data is a prerequisite for sustainable development. Avoid errors in declarations that could lead to unnecessary financial losses for your company.
Other services
- Financial statement audit services
- Internal audit services
- Internal Control System Assessment Service
- Auditing services on request
- Professional tax audit services
- Construction auditing services
- Completed project settlement audit service
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Auditing Related Party Transactions
Do small businesses need to file price determination documents?
According to Decree 132, businesses with revenue under 50 billion VND and related-party transactions under 30 billion VND are exempt from filing documents but must still submit Form 01. However, conducting internal audits of related-party transactions still helps ensure absolute safety.
What is the retention period for records determining transfer pricing?
The documentation must be prepared before the deadline for submitting the Corporate Income Tax Return and stored at the company. Delays in providing documentation when requested by an audit may result in the company being assessed tax at the most unfavorable rate.
Are corporate administrative expenses easily disallowed during an audit?
Yes, if the business cannot demonstrate the economic benefit received from the service, the related-party transaction audit will focus on building evidence of the service to most effectively defend this expense before the audit team.
