What is an international tax agreement? What are cases where the Vietnamese tax authorities automatically communicate according to Decree 132?

What is an international tax agreement?

Pursuant to Clause 3, Article 4 of Decree 132/2020/ND-CP, the regulation on international tax agreements is as follows:

Explanation of Terms

In addition to the terms already explained in the Law on Tax Administration No. 38/2019/QH14 dated June 13, 2019, the following terms are understood as follows:

1. “Tax Agreement” is an abbreviated term for the Agreement on Avoiding Double Taxation and Preventing Tax Evasion regarding taxes imposed on income or assets signed between Vietnam and other countries or territories, including amendments and supplements to effective agreements in Vietnam.

2. “Agreement of Competent Authorities” is an abbreviated term for agreements in effect between competent authorities of countries or territories participating in international tax agreements and requiring automatic information exchange for the multinational profit report.

3. “International Tax Agreement” or “International Treaty on Taxation” refers to bilateral and multilateral agreements or treaties in the field of taxation.

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Therefore, according to the above regulation, an international tax agreement refers to bilateral and multilateral agreements or treaties in the field of taxation.

What is an international tax agreement? What are cases where the Vietnamese tax authorities automatically communicate according to Decree 132? (Image from the Internet)

What are cases where the Vietnamese tax authorities automatically communicate according to Decree 132?

Pursuant to Clause 5, Article 18 of Decree 132/2020/ND-CP, the regulations are as follows:

Rights and obligations of taxpayers in declaring, determining transfer pricing transactions

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5. Taxpayers have obligations related to the multinational profit report:

a) If the taxpayer is the ultimate parent company in Vietnam with a global consolidated revenue of 18,000 billion VND or more in the tax period, they are responsible for preparing the multinational profit report in the transfer pricing documentation according to Appendix IV issued along with this Decree. The deadline for submitting the report to the Tax Authority is no later than 12 months after the end of the financial year of the ultimate parent company.

b) Taxpayers in Vietnam whose ultimate parent company is abroad and has the obligation to prepare a multinational profit report according to the regulations of the country of residency must submit it to the Tax Authority in the following cases:

- The country or territory where the ultimate parent company resides has a tax agreement with Vietnam but does not have an Agreement of Competent Authorities at the time the report is due as specified at point a of this clause.

- The foreign country or territory where the ultimate parent company resides has an Agreement of Competent Authorities with Vietnam but has suspended the automatic information exchange mechanism or cannot automatically provide Vietnam with the multinational profit report of the group that is a resident of those foreign countries or territories.

- In the case of a multinational group with more than one taxpayer in Vietnam and the ultimate parent company abroad issues a written notice designating one of the taxpayers in Vietnam to submit the multinational profit report, the designated taxpayer has the obligation to submit the multinational profit report to the Tax Authority. The taxpayer must submit the designation notice from the ultimate parent company to the Tax Authority before or on the final day of the financial year of their ultimate parent company.

c) The provisions at point b of this clause do not apply in cases where the ultimate parent company of a taxpayer in Vietnam designates an organization to submit the multinational profit report on its behalf to the Tax Authority in the host country before or on the date specified in point a of this clause and meets the following conditions:

- The country or territory where the organization submitting the report on behalf is a resident must have regulations requiring the submission of the multinational profit report.

- The country or territory where the organization submitting the report on behalf is a resident must have an Agreement of Competent Authorities with Vietnam as a signatory at the time the report is due as stipulated at point a of this clause.

- The country or territory where the organization submitting the report on behalf is a resident must have an Agreement of Competent Authorities with Vietnam, does not suspend the automatic information exchange mechanism, and can provide Vietnam with the multinational profit report of the group that is a resident in that foreign country or territory.

- The organization submitting the report on behalf has a written notice of being designated to submit the multinational profit report to the Tax Authority of the country of residence before or on the closing date of the financial year of the ultimate parent company of the group.

- The designation notice for the organization submitting the report on behalf is provided by the taxpayer in Vietnam to the Vietnamese Tax Authority as per the provisions at point b of this clause.

- The taxpayer in Vietnam notifies the Vietnamese Tax Authority of the name, tax code, and country of residence of the ultimate parent company or organization submitting the report on its behalf before or on the last day of the financial year of the group.

d) If a taxpayer has an ultimate parent company abroad that is required to submit a multinational profit report according to the regulations of the country of residence, the Tax Authority shall automatically communicate as per Vietnam's commitments in its international tax agreements.

đ) If a taxpayer's ultimate parent company is not required to submit a multinational profit report according to the regulations of the country of residence, they shall comply with the international tax treaty.

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Therefore, according to the above regulations, if a taxpayer has an ultimate parent company abroad required to submit a multinational profit report according to the regulations of the country of residence, the Vietnamese Tax Authority will automatically communicate.

What are the responsibilities of the tax authority in managing transfer pricing transactions in Vietnam?

Based on Clause 1, Article 20 of Decree 132/2020/ND-CP, the regulations on the responsibilities of the tax authority in managing transfer pricing transactions are as follows:

- Apply risk management in tax administration concerning transfer pricing as per tax law regulations.

+ Manage and use information of taxpayers with affiliated transactions to serve risk management;

+ Apply risk management in planning the inspection and audit of enterprises with affiliated relations and transactions;

+ Manage and use the multinational profit report of taxpayers for risk management, exchange information according to the regulations and commitments of Vietnam in international tax agreements, not to use it to impose taxes.