Advance Pricing Agreements (APAs): A Risk-Reduction Solution for Transfer Pricing in Vietnamese Enterprises

An Advance Pricing Agreement (APA) is a prior agreement between a business and the tax authority on the transfer pricing methodology for related-party transactions. It helps minimize the risk of disputes, provides better predictability of tax obligations, and enhances transparency in transfer pricing management. In Vietnam, APAs are governed by Circular No. 201/2013/TT-BTC, updated by Circular No. 45/2021/TT-BTC, in alignment with Decree No. 132/2020/NĐ-CP and Decree No. 126/2020/NĐ-CP. This article analyzes the legal framework, procedures, benefits, and challenges of APAs, along with expert insights and recommendations to help businesses effectively leverage this mechanism.

Overview of Advance Pricing Agreements (APAs)

An Advance Pricing Agreement (APA) is a written agreement between a taxpayer and the tax authority that determines the transfer pricing method for related-party transactions over a specified period, prior to the submission of tax filings.

According to the OECD, APAs help ensure that related-party transactions adhere to the arm’s length principle, thereby preventing non-transparent profit shifting and minimizing tax disputes between businesses and tax authorities.

In Vietnam, APAs were first introduced under Circular No. 201/2013/TT-BTC, issued by the Ministry of Finance on December 20, 2013, and effective from February 5, 2014. While Circular 201 laid the foundation for the APA mechanism, it still had limitations in terms of procedures and scope of application.

Legal Framework Guiding APAs in Vietnam

Circular No. 201/2013/TT-BTC

Circular 201 provides detailed guidance on the applicable entities, procedures for application, and the content of Advance Pricing Agreements (APAs), including the following types:

• Unilateral APA: An agreement between the enterprise and the Vietnamese tax authority.

• Bilateral/Multilateral APA: Agreements involving foreign tax authorities under bilateral or multilateral tax treaties.

Decree No. 126/2020/NĐ-CP

On October 19, 2020, the Government issued Decree No. 126/2020/NĐ-CP, in which Article 41 recognizes APAs as a key tax administration tool for enterprises engaging in related-party transactions.

Circular No. 45/2021/TT-BTC

To address the limitations of Circular 201, the Ministry of Finance issued Circular No. 45/2021/TT-BTC on June 18, 2021, which updates the APA mechanism. It took effect on August 3, 2021, and replaced Circular 201. Key updates include:

• Simplification of APA registration procedures.

• Expansion of eligible taxpayers in line with Decree No. 132/2020/NĐ-CP.

• A multi-level coordination mechanism between the General Department of Taxation and provincial tax departments.

• Clearer guidelines on APA duration and renewal processes.

APA Application Process for Enterprises

Eligibility Criteria

• The enterprise must engage in related-party transactions with both domestic and foreign affiliates.

• The APA application must be submitted before filing the corporate income tax return for the first year of the intended APA period.

• For multilateral APAs, the consolidated revenue (for multinational enterprises) must exceed €750 million.

APA Application Dossier

An APA application must include:

• A written request, explanation of the rationale, and the proposed transfer pricing method.

• A description of the related-party transactions, involved parties, functions, and risks.

• A benchmarking analysis demonstrating that the proposed method complies with the arm’s length principle.

• Financial data: audited financial statements, cost structures, and profit figures.

• Relevant international tax agreements (for bilateral or multilateral APA applications).

Evaluation and Approval Process

• Dossier submission: The Provincial Tax Department or the General Department of Taxation will review the application and request additional documents if necessary.

• Method negotiation: Dialogue between the enterprise and tax authority to agree on the pricing methodology and evaluation criteria.

• APA signing: A written agreement is issued, detailing the method, applicable period, and renewal conditions.

• APA renewal/adjustment: The enterprise may apply for an extension or revision in case of significant changes to the related-party transactions.

Benefits of APAs in Transfer Pricing Management

Minimizing Tax Dispute Risks

An APA provides upfront certainty on the transfer pricing method, reducing the risk of adjustments by tax authorities during audits or inspections.

Accurate Tax Liability Forecasting

Through an APA, businesses can predict their corporate income tax obligations related to related-party transactions for each applicable year. This enables more accurate financial planning and cash flow management.

Enhanced Transparency and Investment Confidence

An APA helps businesses establish transparent transfer pricing documentation, building trust with tax authorities, investors, and partners.

Global Risk Management Support

For multinational enterprises (MNEs), bilateral and multilateral APAs help minimize the risk of double taxation and align transfer pricing strategies across multiple jurisdictions.

Challenges and Considerations When Applying for an APA

Time and Resource Commitment

The APA process can take 6–12 months or longer, requiring businesses to invest significant human and financial resources for preparing documentation, negotiating with tax authorities, and meeting reporting obligations.

High-Quality Data Requirements

APAs rely heavily on accurate benchmarking and financial data. Companies need robust IT systems and strong internal controls to ensure data is consistently reliable and up to date.

Scope of Applicability

• The cost–benefit ratio is generally justified only for businesses with substantial related-party transactions.

• SMEs may consider unilateral APAs for resolving domestic transfer pricing issues, though the documentation process remains complex.

According to Mr. Bui Manh Quan, Director of Tax Services at RSM Vietnam:

“Advance Pricing Agreements not only enable businesses to proactively determine transfer pricing but also provide essential legal certainty—especially as Vietnam strengthens its transfer pricing regulations under Decree No. 20/2025/NĐ-CP. Early investment in APAs helps minimize post-audit tax penalties and adjustments, while supporting effective long-term tax planning strategies.”

Strategic Recommendations for Businesses

• Assess APA needs early: Enterprises should analyze their related-party transactions to determine whether a unilateral or bilateral/multilateral APA aligns better with their operational scale and long-term strategy.

• Establish a dedicated APA team: Form an interdisciplinary task force—comprising tax, accounting, and legal professionals—to prepare documentation and engage in negotiations with tax authorities.

• Invest in IT systems: Implement an ERP system with integrated transfer pricing modules to automate data collection, analysis, and reporting.

• Seek professional advisory support: Collaborate with reputable audit and tax consulting firms to streamline the APA process and ensure full compliance with regulatory requirements.

• Monitor legal updates: Regularly review Circular 45, Decree 126/2020/NĐ-CP, Decree 20/2025/NĐ-CP, and the latest guidelines from the General Department of Taxation to stay compliant and proactive.

Conclusion

An Advance Pricing Agreement (APA) is a proactive and effective tool for mitigating transfer pricing risks, providing businesses with certainty regarding pricing methods and tax obligations. In Vietnam, with a progressively refined legal framework—through Circulars 201 and 45, along with relevant Decrees—enterprises have the opportunity to leverage APAs to optimize tax costs, enhance transparency, and strengthen relationships with tax authorities.