What is a Unilateral APA? Who Drafts the Unilateral APA Proposal in Vietnam?

What is a unilateral APA?

The Advance Pricing Agreement (APA) is a prearranged agreement on the method for determining the taxable price.

Pursuant to the provisions of Clause 1, Article 4 of Circular 45/2021/TT-BTC, a "unilateral APA" is an agreement signed between the Vietnamese tax authorities and the taxpayer who applies for the APA.

Who does the General Department of Taxation of Vietnam negotiate with on the content of the APA in case of a unilateral APA application?

Based on the provisions of Article 8, Circular 45/2021/TT-BTC regarding the exchange and negotiation of the APA's content in tax management for enterprises with related-party transactions, as follows:

Exchange and Negotiation on APA Content

1. The General Department of Taxation of Vietnam shall exchange and negotiate the APA content with the taxpayer (in case of applying for a unilateral APA) or with the partner tax authority and the taxpayer (in the case of applying for a bilateral or multilateral APA) through meetings, direct meetings, phone calls, online meetings, or through correspondence on issues related to the taxpayer's APA application.

The exchange and negotiation aim to reach an agreement with the taxpayer, the partner tax authority on the content of the final draft APA as stipulated in Clause 6, Article 41 of Decree No. 126/2020/ND-CP to submit for approval by the competent authority.

The result of each exchange and negotiation must be recorded in writing by the participating parties.

2. In the case of applying for a bilateral or multilateral APA, the taxpayer is responsible for notifying the related party within the scope of the APA application to request the partner tax authority to contact and proceed with the exchange and negotiation with the General Department of Taxation of Vietnam.

During the bilateral or multilateral exchange and negotiation between the relevant tax authorities, if necessary and approved by the General Department of Taxation of Vietnam and the partner tax authority, the taxpayer may appoint a representative to attend at the invitation of the tax authority to explain relevant issues.

The tax authority may inform the taxpayer of the summary information on the progress and results of the negotiations; at the same time, it can request the taxpayer to explain related issues.

Accordingly, the General Department of Taxation of Vietnam shall exchange and negotiate the content of the APA with the taxpayer in case of a unilateral APA application through meetings, direct meetings, phone calls, online meetings, or through correspondence on issues related to the taxpayer's APA application.

The exchange and negotiation aim to reach an agreement with the taxpayer, the partner tax authority on the content of the final draft APA as stipulated in Clause 6, Article 41 of Decree 126/2020/ND-CP to submit for approval by the competent authority. To be specific:

Application of the advance pricing agreement mechanism on determining taxable prices for enterprises with related-party transactions

...

6. The final draft APA includes at least the following contents:

a) Names and addresses of the related parties involved in the APA;

b) Description of the related-party transactions within the APA's scope;

c) Comparison method for determining the prices of related-party transactions as the basis for tax calculation, the method of determining and calculating the data on prices, profit margin as the basis for determining taxable values related to related-party transactions within the APA's scope (including the standard independent transaction range if applicable);

d) Important assumptions that may significantly affect and impact the APA's implementation process (including analysis and forecasting contents);

e) Regulations on the responsibilities and obligations of the taxpayer;

f) Regulations on the responsibilities and obligations of the tax authority;

g) Rules on the effective period;

h) Other rules in compliance with legal provisions regarding tax obligations under the APA commitment;

i) Appendices (if any).

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

Who drafts the unilateral APA in Vietnam?

According to the provisions of Clause 5, Article 41 of Decree 126/2020/ND-CP concerning the application of the APA in tax management for enterprises with related-party transactions as follows:

Application of the advance pricing agreement mechanism on determining taxable prices for enterprises with related-party transactions

...

5. Based on the assessment results, exchanges, and negotiations with the taxpayer (in the case of a unilateral APA) or with the partner tax authority and the taxpayer (in the case of a bilateral or multilateral APA) concerning APA content, the General Department of Taxation of Vietnam shall draft the APA and submit it to the Ministry of Finance for approval and proceed with the APA signing.

For bilateral or multilateral APA agreements involving foreign tax authorities, the Ministry of Finance shall seek the opinion of the Ministry of Foreign Affairs, the Ministry of Justice, and relevant authorities, and submit to the Government of Vietnam, the Prime Minister of Vietnam for opinion on signing the APA following the procedures and order stipulated in the legal regulations on the signing of international treaties, international agreements.

Thus, in the case of applying for a unilateral APA, the General Department of Taxation of Vietnam shall draft the APA based on the assessment results, exchanges, and negotiations with the taxpayer concerning APA content.