Tax management over associated transaction enterprises

Question: What are types of associated transactions?

Answer: Under Decree 20, an Associated Transaction is one that arises between the parties with associated partnership in the course of production and business, including: Purchase, sell, exchange, rent, rent out, borrow, lend and transfer machinery, equipment, goods and services; borrowing, lending, financial services, financial guarantee and other financial instruments; purchase, sell, exchange, rent, rent out, borrow, lend and transfer tangible and intangible assets, and agreement on the mutual use of resources such as cooperation to exploit human resources; and sharing of expenses among associated parties.

The parties are determined as having associated relationship with each other of (i) one party gets involved directly or indirectly in the management and control of capital contributions to or investment in the other; (ii) both parties are directly or indirectly subject to the management, control, capital construction or investment by another, which falls into one of the following specific cases:

One enterprise directly or indirectly holds at least 25% of equity of the other; or both enterprises have at least 25% of their equities held directly or indirectly by a third party;

One enterprise is the biggest shareholder in respect of equality of the other, and directly or indirectly holds at least 10% of the total of shares of the other;

One enterprises provides a guarantee or loan for another under whatsoever form provided that the loan must account for at least 25% of equity of the borrowing enterprise and make up more than 25% of equity of the borrowing enterprise and make up more than 50% of the total value of its medium and long term debts.

One enterprise appoints members of the board of directors which manages or holds control of another provided that the number of members appointed by the former enterprise accounts for more than 50% of a total number of members of the board of directors which manages or holds control of the latter; or one member appointed by the former enterprise has the right to decide financial policies or business operations of the latter.

Two business enterprises are related to each other either as a head office and its permanent establishment or as permanent establishments of a foreign organization or individual.

One or more enterprises are under the control of one individual through his capital contribution thereto or his direct involvement in the operation thereof;

Other cases where one enterprise is responsible for actually managing, controlling and making decisions on business activities of the other./.