Vietnam: What is a bilateral APA?

What is a bilateral APA?

The agreement on the method of determining taxable prices hereinafter is called APA.

Based on the provisions at Clause 2, Article 4 of Circular 45/2021/TT-BTC, “bilateral APA” is an agreement signed between the Vietnam tax authority, the taxpayer, and a related partner tax authority concerning the determination of the tax obligation of the taxpayer proposing the application of APA based on a Tax Treaty.

What are bases for application of bilateral APA in Vietnam?

Based on the provisions of Article 5 of Circular 45/2021/TT-BTC regarding the principles of applying bilateral APA for enterprises with related party transactions, as follows:

Principles of Applying APA

1. APA is applied on the principle that the tax authority and the taxpayer, or the Vietnam tax authority and the partner tax authority and the taxpayer, jointly cooperate, exchange, and negotiate the application of legal provisions concerning corporate income tax obligations for the related party transactions within the scope of APA compliant with the arm's length principle and the principle that the essence of operations and transactions determines the tax obligation.

2. The application of APA aims to enhance the efficiency of tax administration, reduce the costs of complying with tax laws, determine the pricing of the taxpayer's related party transactions in line with the analysis principle, comparison with independent transactions, and the principle that the essence of operations and transactions determines the tax obligation to identify the nature of the related party transactions, the payable corporate income tax obligation of the taxpayer as in the conditions of transactions between independent parties, and prevent double taxation and tax evasion, minimize disputes regarding the determination of related party transaction prices.

3. The taxpayer's proposal to apply APA is resolved based on the dossier with the necessary documents and information as per the provisions at Clause 3, Article 41 of Decree No. 126/2020/ND-CP, provided fully, accurately, honestly, and promptly by the taxpayer.

4. The analysis, comparison, selection of independent comparables, and methods used to compare and determine the prices of related party transactions within the APA's scope are implemented as per the provisions of Decree No. 132/2020/ND-CP.

5. The application of the APA mechanism must ensure compliance with the principles stipulated at Clause 6, Article 42 of the Tax Administration Law.

Therefore, the taxpayer's proposal to apply a bilateral APA is resolved based on the dossier with the necessary documents and information as per the provisions at Clause 3, Article 41 of Decree 126/2020/ND-CP, provided fully, accurately, honestly, and promptly by the taxpayer.

What is a bilateral APA? (Image from the Internet)

To which authority should the taxpayer submit the proposal for applying a bilateral APA in Vietnam?

Based on the provisions at Clause 3, Article 41 of Decree 126/2020/ND-CP regarding the application of a bilateral APA for enterprises with related party transactions, as follows:

Application of the mechanism of advance pricing agreement for enterprises with related party transactions

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3. Taxpayers requesting the application of APA shall submit an official proposal to apply APA as per Form No. 02/APA-CT in Appendix III issued with this Decree along with one complete dossier to the General Department of Taxation.

In the case of requesting the application of a bilateral or multilateral APA, taxpayers shall submit the proposal along with the application for bilateral/multilateral agreement procedures as per Form No. 03/APA-MAP in Appendix III issued with this Decree.

Taxpayers may consult with the General Department of Taxation before submitting the official proposal for APA by sending a consultation request as per Form No. 01/APA-TV in Appendix III issued with this Decree to the General Department of Taxation.

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Therefore, taxpayers requesting the application of a bilateral APA shall submit an official proposal to apply APA as per Form No. 02/APA-CT in Appendix III issued with Decree 126/2020/ND-CP along with one complete dossier to the General Department of Taxation.

In this case, taxpayers need to submit along with the proposal an application for bilateral agreement procedures as per Form No. 03/APA-MAP in Appendix III issued with Decree 126/2020/ND-CP.

Note: Taxpayers may consult with the General Department of Taxation before submitting the official proposal for APA by sending a consultation request as per Form No. 01/APA-TV in Appendix III issued with Decree 126/2020/ND-CP to the General Department of Taxation.