Advanced Pricing Agreement mechanism ("APA" or “the mechanism”) has been a common trend that tax authorities worldwide have been applying effectively to manage revenues from cross-border transactions. At the same time, technically, this mechanism will also bring many benefits to both taxpayers and help Vietnam integrate with the general orientation of international taxation. In addition, APA is regulated as a voluntary mechanism which is implemented and built based on taxpayer's request, expected information and taxation plans.
Accordingly, the mechanism also began to be implemented in Vietnam from 2014 in accordance with the provisions of the Law amending and supplementing articles of the Law on Tax Administration No. 21/2012/QH13 being guided by the Circular No. 201/2013/TT-BTC. In the process of implementation, there were also concerns and difficulties for enterprise. Therefore, the issuance of Circular No. 45/2021/TT-BTC by the Ministry of Finance not only inherits but also emends and updates the contents of Circular 201/2013/TT-BTC to meet the actual implementation of this mechanism in Vietnam.
The subjects of application of this Circular are:
Organizations that manufacture and/or sell goods/services that pay corporate income tax by declaration, conduct related-party transactions and submit requests for APA application to tax authorities. Related parties are specified in Article 5 of Decree No. 132/2020/ND-CP.
Key points
Transactions to which an APA is proposed to be applied are related-party transactions specified in Clause 2 Article 1 of the Decree No. 132/2020/ND-CP and meet the following conditions at the same time:
1. Actual transactions arise in the taxpayer's production and business activities and will continue to take place during the proposed APA application period.
2. Transactions have any basis for determination of the nature of transaction deciding tax liabilities, and any basis for analysis, comparison and selection of independent comparable according to the provisions in Articles 6 and 7 of the Decree No. 132/2020/ND-CP , based on information and data in compliance with the provisions in Point b Clause 6 Article 42 of the Law on Tax Administration.
3. Transactions are not involved in tax disputes or complaints.
4. Transactions are made in a transparent manner, not for the purpose of tax evasion, avoidance or misuse of tax treaties.
Effect of APA
A concluded APA is binding upon both the tax authority and the taxpayer.
The effective period of a concluded APA is up to 03 tax years but must not exceed the actual number of years in which the taxpayer has conducted their production and business activities, paid and declared corporate income tax in Vietnam.
Apart from the key points above, the Circular also includes the below important information:
Principles of application of APAs
An APA will be applied on the principle that the tax authority and the taxpayer or a Vietnamese tax authority and a party tax authority and a taxpayer cooperate, discuss and negotiate the application of regulations of law on payment of corporate income tax on the related transactions
A taxpayer’s application form for APA shall be processed on the basis of an application with necessary documents and information in Clause 3 Article 41 of the Decree No. 126/2020/ND-CP provided by the taxpayer in a sufficient, accurate, truthful and timely manner.
The analysis, comparison and selection of independent comparables and the methods used for comparison and determination of prices of related transactions covered by an APA shall comply with the Decree No. 132/2020/ND-CP.
Applications, information and data used
Applications for APA shall comply with Clause 3 Article 41 of the Decree No. 126/2020/ND-CP ..
The application for APA shall be made in Vietnamese language;
In the case of an application for bilateral APA or multilateral APA, an English translation is required.
The taxpayer shall append their seal to and take responsibility for the translation.
The taxpayer shall assume responsibility for the consistency of contents of the application submitted to the Vietnamese tax authority with those of the application submitted by the related party to which the APA is proposed to be applied to the party tax authority.
Last but not least, Circular 45/2021/TT-BTC also regulates the rights and responsibility for tax payers and tax authorities in concluding APAs.
Should you have any concerns during the process of implementing the regulations, please contact us.