Circular No. 45/2021/TT-BTC guides the application of the Advance Pricing Agreement (APA) mechanism for determining the tax base price in tax administration for enterprises with related-party transactions.

CIRCULAR

Guidelines on the application of the Advance Pricing Agreement (APA) mechanism for determining the tax base price in tax administration for enterprises with related party transactions

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On the basis of Law on Tax Administration dated June 13, 2019;

On the basis of Law on Corporate Income Tax dated June 3, 2008; Law amending and supplementing certain articles of the Law on Corporate Income Tax dated June 19, 2013; Law amending and supplementing certain articles of the Tax Laws dated November 26, 2014;

Decree No. Decision No. 218/2013/NĐ-CP dated December 26, 2013 of the Government detailing and guiding the implementation of the Law on Corporate Income Tax; Decree No. Decision No. 91/2014/NĐ-CP dated October 1, 2014 of the Government amending and supplementing certain articles of the decrees on taxation; Decree No. Decision No. 12/2015/NĐ-CP dated February 12, 2015 of the Government detailing the implementation of the Law amending and supplementing certain articles of the Tax Laws and amending and supplementing certain articles of the decrees on taxation; Decree No. Decision No. 146/2017/NĐ-CP dated December 15, 2017 of the Government amending and supplementing certain articles of Decree No. Decision No. 100/2016/NĐ-CP dated July 1, 2016 and Decree No. Decision No. 12/2015/NĐ-CP dated February 12, 2015 of the Government;

On the basis of Article 41 of Decree No. 126/2020/NĐ-CP dated October 19, 2020 of the Government detailing certain provisions of the Law on Tax Administration;

Decree No. Decision No. 132/2020/NĐ-CP dated November 5, 2020 of the Government on tax management for enterprises with related party transactions;

Decree No. Decision No. 87/2017/NĐ-CP dated July 26, 2017 of the Government on the functions, tasks, powers, and organizational structure of the Ministry of Finance;

At the proposal of the Director General of the State Revenue总局局长的提议；

The Minister of Finance issues this Circular to guide the application of the Advance Pricing Agreement (APA) mechanism for determining the tax base price in tax administration for enterprises with related party transactions.

Article 1. Scope of Regulation

1. This Circular guides the implementation of Article 41 of Decree No. 126/2020/NĐ-CP dated October 19, 2020 of the Government on the application of the Advance Pricing Agreement (hereinafter referred to as APA) mechanism for determining the tax base price in tax administration for enterprises with related party transactions.

2. Other contents regarding the APA mechanism shall be implemented in accordance with the provisions of the Law on Tax Administration No. 38/2019/QH14 dated June 13, 2019, Decree No. 132/2020/NĐ-CP dated November 5, 2020 of the Government on tax management for enterprises with related party transactions, and other relevant legal documents.

Article 2. Applicability

1. Organizations engaged in production and business of goods and services that are taxpayers under the self-assessment method, conducting transactions with related parties and requesting the tax authority to apply APA. Related parties are defined in Article 5 of Decree No. 132/2020/NĐ-CP.

2. The General Department of Taxation and the Tax Departments (hereinafter referred to as the tax authority).

3. State agencies, organizations, and individuals related to the application of APA in tax administration.

Article 3. Transactions proposed for APA application

1. Transactions proposed for APA application are related party transactions as stipulated in Clause 2, Article 1 of Decree No. 132/2020/NĐ-CP.

2. Transactions proposed for APA application as stipulated in Clause 1 of this Article must meet the following conditions simultaneously:

a) The transaction has actually occurred in the taxpayer's business activities and will continue to take place during the period requested for APA application.

b) The transaction has a basis for determining its nature which affects tax obligations and has a basis for analyzing, comparing, and selecting independent comparables according to Articles 6 and 7 of Decree No. 132/2020/NĐ-CP based on information and data complying with Point b, Clause 6, Article 42 of the Law on Tax Administration.

c) The transaction does not fall within cases involving tax disputes or complaints.

d) The transaction is transparently conducted without the purpose of evading or avoiding taxes or exploiting tax treaties.

Article 4. Definitions

In addition to terms already explained in the Law on Tax Administration and Decree No. 132/2020/NĐ-CP, the following terms are understood as follows:

1. "Unilateral APA" is an agreement signed between the Vietnamese tax authority and the taxpayer requesting APA application.

2. "Bilateral APA" is an agreement signed between the Vietnamese tax authority, the taxpayer, and a partner tax authority related to the determination of the taxpayer's tax obligations on the basis of a tax treaty.

3. "Multilateral APA" is an agreement signed between the Vietnamese tax authority, the taxpayer, and multiple partner tax authorities related to the determination of the taxpayer's tax obligations on the basis of a tax treaty.

Article 5. Principles for Applying APA

1. APA shall be applied on the principle that tax authorities and taxpayers or Vietnamese tax authorities and foreign tax authorities and taxpayers cooperate, exchange, negotiate regarding the application of legal provisions concerning the fulfillment of corporate income tax obligations for related party transactions within the scope of APA in accordance with the arm's length principle and the principle of the nature of business operations and transactions determining tax obligations.

2. The application of APA aims to enhance the effectiveness of tax administration, reduce compliance costs, determine the price of related party transactions of taxpayers in accordance with the principles of analysis and comparison with independent transactions and the principle of the nature of business operations and transactions determining tax obligations to identify the nature of related party transactions, corporate income tax payable by taxpayers as if they were transactions between independent parties, prevent double taxation and tax evasion, minimize disputes over the determination of related party transaction prices.

3. Taxpayers' requests for applying APA shall be resolved based on the file containing necessary documents and information provided fully, accurately, truthfully, and promptly in accordance with Clause 3 of Article 41 of Decree No. 126/2020/ND-CP.

4. The analysis, comparison, selection of independent comparables and methods used for comparison and determination of the price of related party transactions within the scope of APA shall be carried out in accordance with Decree No. 132/2020/ND-CP.

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

Article 6. Files and Information, Data Used

1. The request file for applying APA shall be implemented in accordance with Clause 3 of Article 41 of Decree No. 126/2020/ND-CP.

The request file for applying APA shall be in Vietnamese; in cases of bilateral or multilateral APA requests, there shall also be an English version. Taxpayers shall affix their seal to confirm and bear responsibility for the content of the translation.

For the request file for bilateral or multilateral APA, taxpayers shall be responsible for the consistency of the content between the file submitted to the Vietnamese tax authority and the file submitted by the related party within the scope of the APA request to the foreign tax authority.

2. The information, data, databases used must comply with the provisions of Point b Clause 6 of Article 42 of the Law on Tax Administration and Article 17 of Decree No. 132/2020/ND-CP.

Article 7. Examination of Request Files for Applying APA

1. The General Department of Taxation shall conduct an examination of taxpayers' request files for applying APA to check, compare, determine, and evaluate the completeness, accuracy, legality, reasonableness, and validity of the information and data provided by taxpayers to issue an assessment on the method of determining the price of related party transactions, the selected comparables suitable for determining the price, profit margin, or profit distribution ratio for transactions within the scope of the APA request.

2. During the examination process, the General Department of Taxation may apply the following measures:

a) Require taxpayers and other relevant organizations and individuals to explain and clarify the information in the request file for applying APA.

b) Apply tax management measures against taxpayers to verify the completeness, accuracy, legality, reasonableness, and validity of the information and documents provided by taxpayers.

Article 8. Exchange and Negotiation of APA Content

1. The General Department of Taxation shall conduct exchanges and negotiations on APA content with taxpayers (in cases where a unilateral APA is requested) or with the partner tax authority and the taxpayer (in cases where a bilateral or multilateral APA is requested) through various forms such as organizing meetings, face-to-face meetings, telephone calls, video conferences, or exchanging written documents via correspondence regarding the content related to the taxpayer's request for APA application.

The exchange and negotiation aim to reach consensus with the taxpayer and the partner tax authority on the contents proposed in the final draft APA according to Clause 6, Article 41 of Decree No. 126/2020/ND-CP for submission to the competent authority for approval.

The results of each exchange and negotiation must be recorded in writing by all participating parties.

2. In cases where the taxpayer requests a bilateral or multilateral APA, the taxpayer has the responsibility to notify the associated party within the scope of the APA request to request the partner tax authority to contact and promote the exchange and negotiation with the General Department of Taxation.

During the bilateral or multilateral exchange and negotiation process among relevant tax authorities, if necessary and approved by the General Department of Taxation and the partner tax authority, the taxpayer may appoint representatives to attend upon invitation from the tax authority to explain related issues.

The tax authority may provide summarized information about the progress and results of negotiations to the taxpayer; at the same time, it may require the taxpayer to explain related contents.

Article 9. Rights, Obligations, and Responsibilities of Taxpayers

1. Rights of Taxpayers

a) Taxpayers have the right to request the General Department of Taxation to withdraw their application or stop negotiations at any time before the APA is signed;

b) Taxpayers have the right to invite or hire independent experts with skills and knowledge appropriate to the APA content to participate in the exchange and negotiation of APA. The results of the exchange and negotiation must be confirmed by the taxpayer in the written records.

c) In cases where there is overlapping taxation or adjustments to taxable income leading to disadvantage for the taxpayer due to decisions made by the partner tax authority during the implementation of a unilateral APA, the taxpayer has the right to request the General Department of Taxation to amend or cancel the APA according to Clause 9 and Clause 10, Article 41 of Decree No. 126/2020/ND-CP.

2. Obligations and Responsibilities of Taxpayers

a) Taxpayers are responsible for providing complete, timely, truthful, and accurate information and data to the tax authority during consultation (if applicable), formal submission, assessment, negotiation, signing, implementation of APA, as well as during the process of handling requests for extension, amendment of APA according to Article 97 of the Law on Tax Administration. Taxpayers bear legal responsibility for the truthfulness and accuracy of this information.

b) Taxpayers are obligated to retain relevant files and documents during the assessment, negotiation, signing, and implementation of APA and provide them to the tax authority when required.

c) During the implementation of APA, taxpayers are responsible for complying with the conditions stipulated in the signed APA and adjusting taxable income in accordance with the prices or profit margins or profit allocation ratios specified in the APA to comply with regulations on corporate income tax declaration and payment.

d) Taxpayers are responsible for preparing and submitting annual APA reports for each tax year and any extraordinary reports (if any) during the effective period of the signed APA according to Clause 7, Article 41 of Decree No. 126/2020/ND-CP.

đ) Taxpayers who commit administrative violations concerning taxes during the implementation of the signed APA will be subject to administrative penalties for tax violations according to current regulations.

Article 10. Powers and Responsibilities of Tax Authorities

1. Powers of Tax Authorities

a) The tax authority has the right to request taxpayers to explain and clarify information provided by taxpayers throughout the process of handling applications for APA implementation.

b) The tax authority has the right to suspend negotiations when any of the following situations occur:

b1) Continuing negotiations on APA does not comply with the principles of APA application as stipulated in the Law on Tax Administration, Decree No. 126/2020/ND-CP, and Clause 5 of this Circular;

b2) The parties involved cannot agree on the content of APA when the period for applying APA ends;

b3) The taxpayer or the counterpart tax authority requests to suspend APA negotiations.

The General Department of Taxation shall notify the taxpayer (in case of unilateral APA) or both the taxpayer and the foreign tax authority (in case of bilateral or multilateral APA) about the suspension of APA negotiations.

2. Responsibilities of Tax Authorities

a) Based on the authority prescribed in Article 41 of Decree No. 126/2020/ND-CP, the General Department of Taxation shall accept the documents submitted by taxpayers; handle the requests of taxpayers regarding the application, extension, amendment, cancellation, or recovery of signed APAs.

b) The tax authority is responsible for managing, inspecting, and auditing the implementation of signed APAs by taxpayers according to Clause 9 of Article 20 of Decree No. 132/2020/ND-CP within its assigned functions and tasks, including: Inspecting, auditing, and verifying the actual compliance with the provisions of signed APAs; inspecting, auditing, and verifying the declaration and payment of taxes and adjustment of taxable income according to the signed APAs; checking and verifying information in annual APA reports and extraordinary APA reports submitted by taxpayers in accordance with actual occurrences.

The management, inspection, and audit activities of the tax authority aim to monitor taxpayers' compliance with signed APAs without re-evaluating signed APAs.

c) The Provincial Tax Service participates and is responsible for the contents involved during the determination, exchange, and negotiation of APAs within the scope of state management assigned to it; manages, inspects, and audits the implementation of signed APAs according to the functions and tasks of the Provincial Tax Service.

Article 11. Confidentiality of Information

1. The tax authority, taxpayers, and related agencies have the responsibility to maintain confidentiality of information and data used throughout the process of handling APA files in accordance with the provisions on taxpayer information confidentiality under Article 99 of the Law on Tax Administration, guiding documents, and relevant tax treaties.

2. In cases where APA files are suspended, withdrawn, canceled, or recovered, the information and data provided by taxpayers in formal APA application documents, explanations made upon request, annual APA reports, and extraordinary APA reports will not be used by the tax authority as evidence or documentation for inspection, audit, or tax assessment purposes against taxpayers.

If the information and data provided by taxpayers are publicly disclosed information, the tax authority may continue to use them as a basis for determining taxpayers' tax obligations.

Article 12. Effectiveness of APA

1. An APA that has been signed shall have binding force with respect to the tax authority and the taxpayer.

2. The period of effectiveness of an APA that has been signed shall not exceed three years of taxation but shall not exceed the actual number of years the taxpayer has operated production and business activities and declared and paid corporate income tax in Vietnam.

Article 13. Effective Date

1. This Circular shall take effect from August 3, 2021, replacing Circular No. 201/2013/TT-BTC dated December 20, 2013, issued by the Ministry of Finance guiding the application of Advance Pricing Agreements (APA) in tax administration.

2. For applications for APA submitted before this Circular takes effect but have not yet been signed and the application stage has not ended at the time this Circular takes effect, they shall continue to be processed in accordance with the Law on Tax Administration, Decree No. 126/2020/NĐ-CP, and this Circular.

3. In the course of implementation, if there are any difficulties, organizations and individuals are requested to promptly report to the Ministry of Finance for research and resolution.