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What is Advance Pricing Agreement (APA)?

In many countries, an Advance Pricing Agreement (APA) is considered an effective solution to minimize transfer pricing risks for many taxpayers by ensuring that future profits are accepted by the tax authorities at a reasonable level, while allowing multinational corporations to plan their tax strategies for the entire group. The APA mechanism also benefits tax authorities in effectively managing related-party transactions. In this article, RSM Vietnam will analyze APAs and the noteworthy points mentioned in Circular No. 45/2021/TT-BTC.

Table of contents:

  1. What is an Advance Pricing Agreement (APA)?

  2. Key Points in Circular No. 45/2021/TT-BTC

  3. How Can RSM Vietnam Assist Businesses?


1. What is an Advance Pricing Agreement (APA)?

An Advance Pricing Agreement (APA) is an agreement between a taxpayer and the tax authority regarding the application of tax policies in the future. The taxpayer independently determines the basis for taxation, transfer pricing methods, profit rates, etc., as the basis for determining the tax value related to related-party transactions subject to APA.

In Vietnam, APA is still considered a relatively new tax mechanism. Circular 201/2013/TT-BTC issued by the Ministry of Finance on December 20, 2013, was the first guidance document on the implementation of APA. However, after nearly 8 years of implementation, the number of APA files prepared and submitted is quite limited. Only a few APA files are currently under review, and the remaining APA files have not shown significant progress as of the present time. Negotiating an APA can be complex and time-consuming for taxpayers in terms of preparing relevant documents to submit to the tax authorities.

In this context, on June 18, 2021, the Ministry of Finance issued Circular 45/2021/TT-BTC, outlining new regulations on the Advance Pricing Agreement (APA) mechanism in Vietnam. Circular 45 came into effect on August 3 and replaced Circular 201 on APA issued in 2013. Some changes in Circular 45 are considered more aligned with the practical resources of the tax authorities and taxpayers in Vietnam.

Businesses need to pay attention to some points mentioned in Circular No. 45/2021/TT-BTC.

2. Key Points in Circular No. 45/2021/TT-BTC

Transactions proposed for APA application

Transactions proposed for APA application are transactions as specified in Clause 2, Article 1, Decree No. 132/2020/NĐ-CP. Transactions proposed for APA application must satisfy the following conditions simultaneously:

  • The actual transactions have arisen in the business operations of the taxpayer and will continue to occur during the APA application period; and

  • The transaction has a basis to determine the nature of the transaction that determines the tax liability and a basis for analysis, comparison, and selection of independent comparables; and

  • The transaction is not subject to tax disputes or complaints; and

  • The transaction is conducted transparently, without the purpose of tax evasion or tax avoidance, or taking advantage of tax agreements.

Principles of APA application

  • The taxpayer's APA application is processed based on the dossier with necessary documents and information as regulated in Clause 3, Article 41, Decree No. 126/2020/NĐ-CP, provided by the taxpayer in a complete, accurate, truthful, and timely manner.

  • The analysis, comparison, selection of independent comparables, and the methods used for comparison and determining the price of related-party transactions falling under the scope of APA application are carried out as stipulated in Decree No. 132/2020/NĐ-CP.

  • The application of the APA mechanism must ensure compliance with the principles specified in Clause 6, Article 42, Tax Administration Law.

APA Application Procedure

  • Reducing the administrative procedure burden as the consultation phase is no longer mandatory.

  • The APA application procedure still requires mandatory stages, including formal submission, examination, negotiation, signing, and APA implementation.

  • Specific timeframes for each mandatory stage are not specified.

Documentation and information, Data used

  • The application dossier for APA shall be prepared in accordance with the provisions of Article 3, Article 41, Decree No. 126/2020/NĐ-CP.

  • The APA application dossier shall be presented in the Vietnamese language. In the case of bilateral or multilateral APA applications, an additional version in English shall be included. The taxpayer shall stamp the confirmation and take responsibility for the content of the translation.

  • All information, data, and databases used must comply with the regulations in Point b, Article 6, Article 42 of the Tax Administration Law, and Article 17 of Decree No. 132/2020/NĐ-CP.

Rights, obligations, and responsibilities of taxpayer

Rights of the taxpayer:

  • The taxpayer has the right to request the General Department of Taxation to withdraw the application or terminate negotiations at any time before the APA is signed.

  • The taxpayer has the right to invite or hire independent experts with skills and knowledge relevant to the APA content to participate in discussions and negotiations on the APA.

  • In the event that, while unilaterally implementing the APA, tax disputes arise or adjustments to taxable income are made that are detrimental to the taxpayer due to decisions of the tax authorities of the partner country, the taxpayer has the right to propose to the General Department of Taxation to amend or cancel the APA as prescribed in Article 9 and Article 10 of Decree No. 126/2020/NĐ-CP.

Duties and Responsibilities of the Taxpayer:

  • The taxpayer is responsible for providing complete, timely, honest, and accurate information and data to the tax authority during the consultation process (if any), in the official application, review, negotiation, signing, and implementation of the APA, as well as during the process of resolving requests for extension or amendment of the APA as stipulated in Article 97 of the Tax Management Law.

  • The taxpayer is responsible for preparing and submitting annual APA reports for each tax year and extraordinary reports (if any) during the effective period of the signed APA, in accordance with Article 7, Article 41, Decree No. 126/2020/NĐ-CP.

Quyền hạn và trách nhiệm của cơ quan thuế

Powers of the Tax Authority:

The tax authority has the right to suspend negotiations in the event of at least one of the following circumstances:

  • The continuation of APA negotiations does not comply with the principles of APA application stipulated in the Tax Management Law, Decree No. 126/2020/NĐ-CP, and Article 5 of this Circular.

  • The parties involved cannot agree on the content of the APA when the proposed APA application phase ends.

  • The taxpayer or the partner tax authority proposes to suspend APA negotiations.

Responsibilities of the Tax Authority:

  • The tax authority is responsible for managing, inspecting, and auditing the implementation of the APA signed by the taxpayer in accordance with the provisions of Article 9, Article 20, Decree No. 132/2020/NĐ-CP, based on its assigned functions and tasks.

APA Effectiveness

The maximum effective period of an APA signed is three (3) years for tax purposes but shall not exceed the actual years the taxpayer has been engaged in business operations and has filed and paid corporate income tax in Vietnam.

Transition Provisions

For APA applications submitted before the effective date of Circular 45 but have not been signed and the proposed APA application phase has not yet ended as of the effective date of Circular 45, they shall continue to be processed in accordance with the provisions of this Circular.

3. How can RSM Vietnam assist businesses?

In RSM Vietnam's experience, persuasive arguments are crucial during the APA submission process to support the application to tax authorities in Vietnam. With our extensive experience in transfer pricing and APAs, we can assist clients in working with the relevant authorities to achieve successful APA negotiations.

The process of handling tax-related procedures for transfer pricing documentation or transactions under the APA mechanism can raise various complex issues for businesses. If your business is considering submitting an APA application or wants to learn more about this process, please contact RSM's team of experts today.

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DECREE NO. 64/2024/ND-CP ON EXTENDING THE DEADLINE FOR PAYING TAXES AND LAND RENT IN 2024 Issued by: Gorverment Issued date: 17 June 2024 Effective date: 17 June 2024 Expiration date: 31 December 2024



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