Disputes between parent companies and subsidiaries regarding tax obligations are legal issues that frequently arise in the course of management, accounting, and allocation of financial obligations within corporate groups with ownership relationships. These disputes involve not only the determination of the entity responsible for tax declaration and payment but are also governed by tax laws, corporate laws, and regulations on related-party transactions. Proper identification of the legal nature of such disputes and the applicable legal framework is of significant importance in preventing risks and safeguarding the lawful rights and interests of the parties involved.

I. Current situation of disputes between parent companies and subsidiaries regarding tax obligations

In recent years, alongside the expansion of operational scale, diversification of business lines, and restructuring under group models, the relationship between parent companies and subsidiaries has become increasingly complex, leading to a growing number of disputes related to tax obligations. In practice, such disputes often arise from the unclear allocation of responsibilities for tax declaration, payment, and finalization among legal entities within the same corporate group, particularly in respect of taxes arising from internal transactions, transfer pricing, profit allocation, and cross-border activities.

In addition, the increasing intensity of tax inspections and audits targeting enterprises engaged in related-party transactions, together with stricter enforcement of regulations on tax administration, transfer pricing, and transparency in transfer pricing documents, has increased the risk of internal disputes. When large amounts of tax are reassessed, the financial pressure and legal responsibilities expose shortcomings in internal tax governance mechanisms between parent companies and subsidiaries, thereby leading to prolonged disputes that adversely affect business operations and the reputation of the entire corporate group.

II. What are disputes between parent companies and subsidiaries regarding tax obligations?

1. Definition of disputes between parent companies and subsidiaries regarding tax obligations

Such disputes may be understood as conflicts arising between two entities within the same corporate group concerning the determination of which party is responsible for declaring, paying, or taking liability for taxes incurred during business operations.

2. Circumstances leading to disputes

The following are common situations that may give rise to disputes:

  • Unclear allocation of tax declaration and payment responsibilities: Where internal agreements or group governance regulations fail to clearly designate the entity responsible for tax obligations, disputes are likely to arise in cases of tax reassessment or sanctions. 
  • Parent company control affecting subsidiary tax obligations: Instructions relating to transfer pricing, costs, or revenues may result in tax adjustments imposed on the subsidiary, leading to disagreements over liability.
  • Lack of transparency in related-party transactions: Internal transactions lacking proper basis or failing to comply with disclosure requirements increase tax risks and lead to disputes.
  • Tax authority reassessment or requests for explanation: When violations are identified, the parent company and subsidiary may disagree on which party takes the reassessed tax, sanctions, or late payment interest.
  • Shared financial resources: Guarantees, capital transfers, or financial support from the parent company may blur the boundaries of tax responsibility between the parties.

In summary, such disputes mainly arise from unclear allocation of responsibilities and insufficient transparency in internal transactions.

3. Methods for resolving disputes

The following approaches may be applied:

  • Review of tax obligations: The parties should reassess their respective tax declaration and payment responsibilities.
  • Examination of related-party transactions: Review of documents to determine which party is responsible for tax obligations arising from internal dealings.
  • Internal negotiation and mediation: It is the preferred approach to minimize costs and time. Management or legal departments of both parties should work together to reach a resolution.
  • Consultation with tax experts or legal advisors: Where internal resolution fails, professional advice should be sought to assess risks, identify liable parties, and propose lawful solutions.
  • Engagement with tax authorities: The parties should cooperate in providing information, offering explanations, and seeking official guidance regarding their respective obligations.
  • Resolution through court or arbitration: If no agreement can be reached, the dispute may be brought before a court or arbitration tribunal (if agreed). Current laws do not prohibit independent legal entities from initiating legal proceedings against each other to determine legal responsibilities, including tax obligations.

Timely resolution helps minimize risks and adverse consequences.

III. Legal framework governing disputes on tax obligations

1. Relevant legal provisions

The determination of tax obligations is governed by:

  • Law on Tax Administration 2019 (as amended in 2025): Providing obligations for tax declaration and payment (Article 16), and provisions on late payment, reassessment, and sanctions (Articles 59, 142). Tax authorities are empowered to inspect, audit, and impose taxes (Articles 17, 99).
  • Regulations on related-party transactions under Decree No. 132/2020/ND-CP: Requiring arm’s length pricing (Articles 1, 16). Where transfer pricing or improper cost allocation is detected, tax authorities may adjust taxable income and impose sanctions (Article 20).
  • Specialized tax laws, including the Law on Corporate Income Tax 2008 (as amended in 2023) and the Law on Value Added Tax 2008 (as amended in 2023): Governing deductible expenses, taxable income, and pricing in internal transactions.
  • Law on Accounting 2015 (as amended in 2024): Supporting the determination of transaction substance for dispute resolution.

2. Consequences if disputes between a parent company and a subsidiary regarding tax obligations cannot be resolved

If such disputes are not fully resolved, the enterprise may face a range of serious consequences.

  • Tax authorities have the power to impose and reassess taxes under Article 50 of the Law on Tax Administration 2019 (as amended in 2025), and to apply sanctions and late payment interest under Articles 38 and 159 of the same law. In cases of prolonged violations, the enterprise’s bank accounts may be subject to enforcement measures such as freezing, and invoices may be suspended, causing severe disruption to financial and business operations.
  • A lack of consistency in fulfilling tax obligations may also lead tax authorities to expand inspections and audits across the entire parent–subsidiary system, significantly affecting the enterprise’s time, costs, and operational progress. The company’s reputation may also be adversely impacted if partners, banks, or investors perceive tax compliance risks, thereby limiting cooperation or access to credit.
  • If the dispute results in late submission of tax returns, incorrect declarations, underreporting of tax obligations, or failure to comply with decisions issued by tax authorities, the enterprise may be subject to administrative sanctions under Articles 13, 16, and 18 of Decree No. 125/2020/ND-CP (as amended in 2025).
  • In cases where there are indications of tax evasion or tax fraud, the individuals and legal entities involved may be subject to criminal liability under Article 200 of the Criminal Code 2015 (as amended in 2025), leading to particularly serious legal consequences.

Prolonged tax disputes may also distort the consolidated financial statements of the parent company, directly affecting audits and disclosure obligations, and increasing legal and financial risks for the entire corporate group.

IV. Questions on disputes between parent companies and subsidiaries regarding tax obligations

1. Does a parent company take responsibility for the tax obligations of its subsidiary?

In general, a parent company is not liable for the tax obligations of its subsidiary, as each company is a separate legal entity. However, the parent company may be held responsible in the following cases:

  • It issues directions that lead to tax violations;
  • It provides guarantees for the subsidiary’s financial obligations;
  • It engages in related-party transactions that violate regulations;
  • It merges with or consolidates the subsidiary (in which case it inherits the tax obligations).

Therefore, a parent company is not responsible for a subsidiary’s tax obligations except in cases provided by law.

2. When a tax obligation dispute arises, does the subsidiary have the right to sue the parent company? Why?

A subsidiary has the right to initiate legal action if there are grounds to believe that the parent company’s actions have caused damage or infringed upon its lawful rights and obligations, because:

  • The parent company and subsidiary are independent legal entities under the Law on Enterprise (Articles 74 and 195 of the Law on Enterprise 2025);
  • If the parent company issues improper directives, causes damage, forces the subsidiary into transactions that create tax risks, or breaches agreed obligations, the subsidiary has the right to file a lawsuit to protect its interests;
  • Such disputes are governed by civil and commercial law (contracts, corporate governance), rather than tax law.

In summary, since the parent company and subsidiary are separate legal entities, the subsidiary has the right to sue when the parent company’s actions infringe upon its lawful rights or cause damage.

3. What financial risks may arise from disputes between a parent company and its subsidiary?

Such disputes may lead to various financial risks, including:

  • Tax reassessment, sanctions, and late payment interest, increasing unexpected costs;
  • Enforcement measures (e.g., freezing bank accounts, suspension of invoice usage), disrupting cash flow;
  • Increased legal, audit, and consulting costs due to prolonged dispute resolution;
  • Business disruption and reduced revenue due to extensive inspections and audits;
  • Reduced access to financing, as banks may view the enterprise as having compliance risks;
  • Decline in enterprise value and reputation, affecting investors and partners;
  • Criminal risks if there are signs of tax fraud, potentially causing significant losses to the group;
  • Distortion of consolidated financial statements, leading to risks in disclosure and auditing.

These risks can cause substantial damage and impact the company, so they should be carefully understood and managed.

4. How is compensation determined?

Compensation is based on actual damages, including reassessed tax, sanctions, late payment interest, and related costs. A causal connection and fault must be established. If internal agreements exist, they will apply in accordance with the principle of full compensation under Article 585 of the Civil Code 2015.

5. What measures can be taken to prevent disputes?

Enterprises should establish clear internal regulations on tax responsibilities, ensure compliance with transfer pricing rules, maintain proper documentation, conduct regular tax risk assessments, and seek professional advice to ensure transparency and compliance.

V. Are you looking for a reputable legal advisor?

If you are seeking a reliable legal advisor to handle disputes between parent companies and subsidiaries regarding tax obligations, NPLaw is a trusted choice. With a team of experienced professionals specializing in corporate governance and tax law, NPLaw provides advisory services, representation before tax authorities, dispute resolution, and comprehensive protection of clients’ lawful interests.

In conclusion, disputes between parent companies and subsidiaries regarding tax obligations not only affect financial performance but also significantly impact reputation, operations, and strategic direction. Understanding legal responsibilities, establishing transparent coordination mechanisms, and proactively managing tax risks are essential to preventing conflicts. When necessary, enterprises should seek professional legal support to ensure stability and sustainable development.

The above information is for reference purposes only. For detailed advice tailored to specific cases, please contact NPLaw for prompt assistance.