Principles of applying APA in tax administration with enterprises having associated transactions in Vietnam

10:29, 23/06/2021

Circular 45/2021/TT-BTC dated June 18, 2021 stipulates guidelines for the application mechanism of the prior agreement on tax calculation method (APA) in tax administration with enterprises having associated transactions in Vietnam.

Principles of applying APA in tax administration with enterprises having associated transactions in Vietnam (Illustration image)

According to this Circular, the principles of applying APA to enterprises with associated transactions in Vietnam are as follows:

(1) 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 covered by APA in conformity with arm’s length principle and substance-over-form principle.

(2) APAs are applied to improve the efficiency in tax administration, reduce the cost of compliance with tax laws, determine prices of taxpayers’ related-party transactions in conformity with arm’s-length and substance-over-form principles in order to determine the nature of related-party transactions and corporate income tax liability of taxpayers in the same manner as that of transactions between independent parties, and prevent double taxation and tax evasion and minimize disputes over determination of prices of related transactions.

(3) 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 126/2020/ND-CP provided by the taxpayer in a sufficient, accurate, truthful and timely manner.

(4) 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 132/2020/ND-CP.

(5) The application of APAs shall adhere to the principles set out in Clause 6 Article 42 of the Law on Tax Administration.

The proposed transactions to which APA would apply are the following related transactions:

- Transactions of buying, selling, exchanging, renting, leasing, borrowing, lending, transferring, transferring goods or providing services;

- Loans; loans; financial services; financial guarantees; and other financial instruments;

- Buy, sell, exchange, rent, lease, borrow, lend, transfer, transfer tangible assets and intangible assets and agree to buy, sell, use common resources such as assets, capital, labor, and cost sharing among related parties, except for business transactions for goods and services subject to the state's price adjustment scope in accordance with the law on prices.

To use APA, trading conditions should be met.

Transactions proposed to apply APA must simultaneously meet the following conditions:

- The actual transaction has arisen in the production and business activities of the taxpayer and will continue to take place during the period of application for APA.

- Transactions that have a basis to determine the nature of the transaction, determine tax obligations and have a basis for analysis, comparison, and selection of independent comparables as prescribed in Articles 16 and 17 of Decree 132/2020/ND-CP, based on information and data in compliance with the provisions of Point b, Clause 6, Article 42 of the Law on Tax Administration.

- Transactions are not subject to tax disputes or complaints.

- Transactions are made transparently, not for the purpose of evading, avoiding tax or taking advantage of the Tax Agreement.

Bao Ngoc

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