VẤN ĐỀ CẦN LƯU Ý KHI NHÀ THẦU PHỤ LÀ CÔNG TY LIÊN KẾT VỚI NHÀ THẦU / ISSUE TO NOTE WHEN THE SUBCONTR

Legal situation: Our company is currently acting as the main contractor for a public investment project. We intend to enter into a subcontract with a company that is affiliated with ours. I would like to inquire about the legal issues that need to be considered in this case. Sincerely yours.

Answer:

Some considerations when entering into a subcontract with a subcontractor affiliated with your company:

1. Legal issues concerning subcontractors

Pursuant to Clause 27, Article 3 of the Law on Bidding 2023 “subcontractor” means an organization or individual that is subcontracted by the contractor to perform construction tasks; provide consulting or non-consulting service; provide any part of the related services of the supply of goods package; or perform tasks of a mixed package”

Clause 2, Article 132 of Decree No. 24/2024/ND‑CP sets out the following provisions regarding subcontractor management: 

“2. Subcontractor management::

a) The bidder may sign contracts with subcontractors in the list of subcontractors stated in the bids, proposals or sign with subcontractors approved by the employer to participate in performing the construction work; consulting services; non-consulting services; related services of goods procurement packages or mixed packages. Employing a subcontractor will not change the bidder's obligations.  The bidder must be responsible for the volume, quality, progress and other responsibilities for the work performed by the subcontractor;

b) Any substitutions or additions of subcontractors (as detailed in point a) or modifications to their assigned tasks (as outlined in the bid or proposal) require prior written approval from the employer or supervisor and the total cost of subcontracted work cannot exceed the maximum amount stipulated in the contract; the employment of subcontractors must be consistent with the bidder's needs in implementing the contract; the subcontractor must meet the capacity and experience requirements of the bidder;

c) The bidder shall employ subcontractors with the capacity and experience to meet the requirements to perform the assigned work.  If a special subcontractor is employed to perform important work of the package according to the requirements of the bidding documents, their capacity and experience shall be evaluated according to the regulations stated in the bidding documents.  When employing special subcontractors, the bidder is not required to meet capacity and experience requirements for the work assigned to these special subcontractors;

d) The bidder shall pay the subcontractors in full and on schedule according to the agreement between the bidder and the subcontractors."

Furthermore, pursuant to the standard forms prescribed in Circular No. 22/2024/TT-BKHĐT issued by the Ministry of Planning and Investment, it is required that the total value allocated to subcontractors must not exceed the percentage limit set by the project owner, depending on the scale and nature of the bidding package.

At the same time, apart from the aforementioned provisions, the law on bidding does not contain any other restrictions prohibiting the main contractor and the subcontractor from having common capital contributors or familial relationships. Therefore, if the subcontractor your company intends to engage is included in the list of subcontractors specified in the bidding documents and the construction contract signed with the project owner, your company may enter into a subcontract with this entity to perform the project. However, you must ensure compliance with the above-mentioned regulations, particularly regarding the percentage limit specified in the bidding documents and the contract with the project owner.

2. Tax issues related to transactions between affiliated companies

Pursuant to Clause 21, Article 3 of the Law on Tax Administration 2019 ““related parties” means parties directly or indirectly participating in the management, control, capital contribution of enterprises; parties under direct or indirect management, control of an organization or individual; parties whose capitals are contributed to by one organization or individual; enterprises managed, controlled by close-knit individuals of a family” Clause 22 of this Article stipulates that: "A related-party transaction is a transaction conducted between parties that have a close relationship."

Article 5 of Decree No. 132/2020/ND-CP dated November 5, 2020, on tax administration for enterprises engaged in related-party transactions provides the criteria for determining related parties as follows:

“Article 5. Related parties

1. Related parties are parties having relationships where:

a) A party is directly or indirectly involved in the management, control of, contribution of capital to, or investment in, the other party;

b) Parties are directly or indirectly affected by the management, control of, contribution of capital, or investment, from the other party.

2. Related parties referred to in Clause 1 of this Article shall be subject to the following specific provisions:

b) Each of the two enterprises has at least 25% of its equity held, whether directly or indirectly, by a third party;

c) An enterprise is the shareholder having the greatest ownership interest in the other enterprise, or participates directly or indirectly in at least 10% of total share capital of the other enterprise;

d) Both enterprises are managed or controlled in terms of their personnel, financial and business activities by individuals, each of whom is in one of the following relationships with the others such as a wife, husband, natural/foster father, natural/foster child, natural/foster older/younger sibling, brother/sister-in-law, maternal/paternal grandfather/grandmother, maternal/paternal grandchild, and maternal/paternal aunt, uncle and nibling;”

If the relationship between your company and the subcontractor falls within the provisions mentioned above the two companies shall be considered related parties and the transaction between them shall the classified as related party transaction

When declaring and determining the taxable prices for a taxpayer involved in related-party transactions, the arm’s length principle must be applied in accordance with the Law on Tax Administration 2019 and its implementing regulations. This is to ensure that the conditions of the related-party transactions are equivalent to those of independent transactions under similar circumstances.

Specifically, the principles for declaring and determining taxable prices in related-party transactions are provided in Clause 5, Article 42 of the Law on Tax Administration 2019:

a) Values of related-party transactions shall be determined and declared by analyzing and comparing with independent transactions, the nature of operation and nature of the transaction, in order to determine tax liability in the same manner as that of transactions between independent parties;

b) Values of related-party transactions shall be adjusted according to independent transactions to declare tax in order that in taxable income is not decreased;

c) Taxpayers whose businesses are small in scale and pose low tax risk are exempt from compliance to provisions of Point a and Point b of this Clause and may apply simplified related-party transaction declaration procedures.

If an enterprise fails to comply with the obligations to declare and determine transfer prices in related-party transactions, or fails to provide information as required under tax administration regulations applicable to enterprises engaging in related-party transactions, it shall be subject to tax imposition in accordance with Point i, Clause 1, Article 50 of the Law on Tax Administration 2019.

In cases where related-party transactions involve the purchase, sale, exchange, lease, sublease, loan, lending, transfer, or assignment of goods; provision of services; lending, borrowing, financial services, financial guarantees, and other financial instruments; purchase, sale, exchange, lease, sublease, loan, lending, transfer, or assignment of tangible or intangible assets; or agreements to jointly purchase, sell, or use shared resources such as assets, capital, labor, or cost-sharing arrangements between related parties excluding transactions involving goods and services subject to state price control as governed by the Law on Pricing it is necessary to comply with the provisions of Decree No. 132/2020/ND-CP dated November 5, 2020 on tax administration for enterprises engaged in related-party transactions.

According to Hoang Thuy Quynh - FDVN Law Firm