From a case of a BOT enterprise, looking back at the tax policy for enterprises with related-party transactions

A recent official letter of the tax authority related to businesses seems to only solve a technical problem about interest costs for BOT enterprises. However, if we look more broadly, this case reflects an important policy question that is being asked not only in Vietnam but also in many countries around the world: how to effectively combat transfer pricing without inadvertently creating an additional compliance burden on businesses that do not have transfer pricing purposes?

The Department of Taxation believes that the current law does not have separate exclusion provisions for BOT enterprises when applying regulations on related-party transactions.

In the context that Vietnam is promoting infrastructure investment, energy transition and the development of public-private partnership (PPP) projects, this question is becoming increasingly remarkable. Because behind the regulations on related-party transactions is not only the issue of budget revenue but also the story of the ability to mobilize resources for long-term growth.

From a proposal of a BOT business

According to Official Letter No. 3911/CT-KTr dated June 11, 2026[1], the Department of Taxation replied to Trung Phuong Co., Ltd. regarding the application of regulations on related-party transactions and interest expenses for BOT enterprises. Previously, the enterprise requested the tax authority to consider applying the regulation on controlling interest expenses in their case.

The Department of Taxation believes that the current law does not have separate exclusion provisions for BOT enterprises when applying regulations on related-party transactions. In case the enterprise is subject to the adjustment of Decree No. 132/2020/ND-CP, it must still determine the deductible interest expense according to current regulations. At the same time, the tax authority also cited amendments in Decree No. 20/2025/ND-CP related to the determination of the association relationship in some cases of loans with credit institutions.

Legally, this is a conclusion that does not come as much of a surprise. The tax administration cannot make an exception if the law does not provide for it. However, what is worth paying attention to is not the content of the answer but the question that the business asks. Why does a BOT business want to be considered differently from businesses with ordinary related-party transactions? And why can a regulation developed to combat transfer pricing become a topic of debate for infrastructure projects?

To answer this question, it is necessary to go back to the original goal of the affiliate transaction management policy.

From anti-transfer pricing to anti-erosion of the tax base

For decades, tax authorities around the world have faced the phenomenon of multinational corporations shifting profits from high-tax countries to lower-tax countries through internal transactions.

One of the most common methods is to use loans between companies within the same group. For example, a parent company in a country with a low tax rate lends capital to a subsidiary in a country with a high tax rate at a significant interest rate. Interest expenses recorded in a country with a high tax rate will reduce taxable income there, while interest income is recorded in a country with a lower tax rate. In essence, profits have been shifted without changing the actual business.

To deal with this phenomenon, the OECD launched the Tax Base Erosion and Profit Transfer Scheme (BEPS). Among the recommended measures, Action 4 focuses on limiting the ability to deduct interest expense in order to prevent businesses from using excessive financial leverage to reduce tax liability.

Vietnam approached this trend through Decree No. 20/2017/ND-CP and then Decree No. 132/2020/ND-CP. Accordingly, the total net interest expense deductible when calculating corporate income tax does not exceed 30% of EBITDA[2].

In principle, this is a modern tax management tool and in line with international practices. However, the difficulty of any anti-abuse policy is how to distinguish between what is behavior to be controlled and what is normal business activity.

When businesses do not transfer pricing, they are still affected

In fact, not every business with a high loan ratio has transfer pricing risk.

For BOT, PPP, renewable energy, seaports, airports, or large-scale infrastructure projects, a high loan ratio is often a structural feature of the project rather than a tax optimization tool.

A traffic BOT project can require trillions of VND of investment capital. In many cases, equity accounts for only 15% to 20% of the total investment, the rest is financed through bank credit or financial institutions.

Similarly, wind, solar or data center projects are often implemented under the project finance model, in which the future cash flow of the project is the basis for raising capital.

In these cases, interest expense is not a transfer pricing tool but a condition for the project to be formed and operated.

Therefore, when the regulations on related-party transactions are applied rigidly, many businesses can be put under special management even though they are not able to manipulate profits in the way that the policy wants to prevent.

This is also the reason why the business community for many years has continuously proposed amendments to regulations related to the determination of association relationships arising from loan activities.

Decree 20/2025/ND-CP and changes in management thinking

The above debates eventually led to the Government issuing Decree No. 20/2025/ND-CP amending Decree No. 132/2020/ND-CP.

The most notable point is the adjustment of the criteria for determining the association relationship for lending and loan guarantee activities. Accordingly, many cases of borrowing capital from credit institutions are no longer considered as association relationships if the credit institution does not participate in the administration, control or investment in the borrowing enterprise.

In essence, this is not just a technical change. It reflects a shift in tax management thinking. Instead of just looking at the legal form of the transaction, lawmakers began to pay more attention to the economic nature of the relationship between the parties. If a transaction does not create the possibility of manipulating profits, then the application of the anti-transfer pricing mechanism should be considered on the basis of actual risk rather than just based on formality criteria. This is also a trend that many advanced tax authorities are pursuing in recent years.

Although the OECD recommends the application of a mechanism to limit interest expenses, the actual implementation is very different.

BEPS 2.0 and the changing international tax environment

It is worth noting that Vietnam's changes take place in the context that the international tax system is entering a new phase.

While the early-stage BEPS focuses on preventing the transfer of profits through internal transactions such as interest expense, royalties, or administrative services, BEPS 2.0 aims to ensure that multinational corporations are subject to a global minimum tax rate.

Under the Global Minimum Tax mechanism, corporations with a consolidated turnover of €750 million or more are subject to a minimum effective tax rate of 15% regardless of where they place their profits. This has significantly changed the mindset of international tax management.

If in the past the focus was to prevent the transfer of profits to tax havens, now the focus is increasingly shifting to ensuring that profits everywhere are subject to a certain minimum tax.

The regulations on related-party transactions therefore do not lose their role. However, their function is gradually changing from a mainstream anti-transfer pricing tool to a part of the overall tax risk management system.

This trend also leads to a change in management methods. Many tax authorities now use big data, artificial intelligence, and risk analysis models to identify businesses that have a high potential for erosion of the tax base instead of applying the same level of control to all businesses.

International experience: not all loan interests are viewed the same

Although the OECD recommends the application of a mechanism to limit interest expenses, the actual implementation is very different.

In the UK, Corporate Interest Restriction regulations allow certain eligible public infrastructure projects to enjoy their own regulatory mechanisms. The British lawmaker said that these projects often have stable cash flows, are subject to close supervision and are less likely to be used as profit transfer tools.

Australia also applies a mechanism to limit financial costs but allows the reasonableness of the capital structure to be assessed on the basis of certain economic criteria. This helps tax authorities still control the risk of transfer pricing without unduly affecting projects with large capital needs.

Meanwhile, Singapore focuses more on the principle of independent trading and assesses the economic nature of each transaction. This approach significantly reduces compliance costs for low-risk businesses.

The common point of these models is that they do not abandon the goal of anti-transfer pricing but increasingly focus on risk classification and identifying the right objects to be controlled.

Which direction should Vietnam choose?

Looking at the case of Trung Phuong Co., Ltd., it can be seen that Decree No. 20/2025/ND-CP has marked an important adjustment step in the policy of managing related-party transactions. However, the process of finalizing the policy is probably only just beginning.

In the coming years, Vietnam will need to mobilize huge amounts of capital for high-speed rail, seaports, airports, data centers, renewable energy, and other strategic PPP projects. What these projects have in common is a long life cycle, high loan ratios, and multi-year payback periods.

If anti-transfer pricing tools are applied without taking these characteristics into account, capital costs and compliance costs may increase, thereby affecting the ability to mobilize social resources for development investment. Conversely, if regulations are excessively relaxed, the risk of loss of budget revenue and profit transfer will also increase.

The problem therefore does not lie in choosing between anti-transfer pricing or promoting investment. The real challenge is to build a risk management mechanism that is sophisticated enough to properly identify transactions that have the potential to erode the tax base, while not creating an additional burden on investments for economic growth. It is also an ongoing trend in international tax management. Modern tax authorities are relying less and less on hard legal criteria and more and more on data, risk analysis and the economic nature of transactions.

Perhaps this is the most contemplative policy message from a tax dispatch that seems to only revolve around determining the interest cost of a BOT business. Because behind that story is not only the issue of tax compliance of a specific business but also the way Vietnam chooses to balance between protecting budget revenues and promoting investment in the new development period.