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Frequently asked questions about interest expense deductions for Related-Party Transactions

To understand the interest expense deductions in related-party transactions and some common issues related to interest deductions for businesses engaged in related-party transactions, as regulated in the latest provisions of Decree 132/2020/ND-CP, RSM Vietnam - Hanoi Office would like to share with you through the following article.


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1. Regulations on Interest Expense Deductions under Decree 132

In accordance with sections a and b of Article 3, Clause 16 of Decree 132/2020/ND-CP, it is stipulated that:

The total interest expenses after deducting interest on deposits and interest on loans incurred during the taxable period shall be deductible when determining the taxable income of enterprises, not exceeding 30% of the net profit from business activities during the period, after adding interest expenses following the subtraction of interest on deposits and interest on loans incurred during the period, and depreciation expenses incurred during the period.

  • Any portion of interest expenses not deductible according to the provisions in point a of this clause shall be carried forward to the next tax calculation period when determining the total interest expenses deductible. This applies if the total interest expenses incurred for the next tax calculation period are less than the prescribed limit in point a of this clause. The period for transferring interest expenses shall be continuous and not exceed 5 years, starting from the year following the year in which the interest expenses were not deductible;

The net profit from business activities during the period, after adding interest expenses following the subtraction of interest on deposits and interest on loans incurred during the period, and depreciation expenses incurred during the period, as stipulated by Decree 132, is commonly referred to by the business community as EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This represents the formula for determining the maximum limit of interest expenses deductible during the period as follows:

The maximum deductible interest expense = 30% of EBITDA = 30% * ((Total net profit from business activities during the period + (interest expenses - minus interest on deposits and interest on loans) + depreciation expenses))

In which: Net profit from operating activities for the period = Gross profit from sales and provision of services - Selling expenses - Business management expenses + Financial revenue - Financial expenses.

So, compared to Decree 20/2017/ND-CP, the limit on controlling interest expenses in Decree 132 has been increased (from 20% to 30%). Along with this change, any interest expenses exceeding the control limit can be carried forward to subsequent years, but only for a maximum of 5 consecutive years. If not fully utilized within this period, they will not be carried forward further.

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2. Some frequently asked questions:

Some frequently asked questions:


Question: In a period when there are transactions with affiliated parties but all the interest expenses are from independent parties, how should they be treated?

Answer: In cases where a business borrows from independent parties while engaging in transactions with affiliated parties, the interest expenses are still subject to the regulations of Decree 132/2020/ND-CP.

Question: When calculating EBITDA to determine interest expenses eligible for deduction in a period, does it include other income and expenses?

Answer: According to Decree 132, EBITDA does not include other income and expenses. Specifically, you can refer to the formula mentioned above.


Question: "Related-party transactions" refer to transactions that occur between related parties during production and business activities, including buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, assigning machinery, equipment, goods, and providing services; borrowing, lending, financial services, financial guarantees, and other financial instruments; buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, assigning tangible and intangible assets and agreements on shared resource utilization such as joint ventures, cooperative utilization of human resources, and cost sharing among related parties.


So, is the value of related-party transactions for loans understood as the value of the loan or the value of the interest expense?


Answer: The value of related-party transactions for loans is understood as the value of the interest expense because the interest expense represents the actual interest or profit incurred between related parties in lending transactions. In addition, in the form number 01 (Information about related-party relationships and transactions), submitted along with the annual CIT tax settlement, financial activities reported on this form only include interest expenses, not the value of the loan.


3. How can RSM assist businesses?

With experience in assisting over 300 companies in preparing transfer pricing documentation, along with a team of highly experienced consultants, we are ready to accompany businesses in the following areas:

  • Support businesses in compliance with tax regulations and determining transfer pricing.

  • Provide businesses with essential tools to minimize time and effort when addressing tax authority questions during tax audits or transfer pricing audits.

  • Assist businesses in reducing potential penalties that may be imposed when tax authorities adjust transfer pricing determined by the company.

  • Enhance the company's internal control over transfer pricing compliance, including identifying necessary adjustments and tax planning opportunities early on.

>>> See more Our Transfer Pricing Advisory Services.




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