Circular No. 45/2021/TT-BTC guiding the application of APA mechanism in tax administration

CIRCULAR

Guiding the application of the Advance Pricing Agreement mechanism in tax administration for enterprises having related-party transactions^[1]

Pursuant to the June 13, 2019 Law on Tax Administration;

Pursuant to the June 3, 2008 Law on Enterprise Income Tax; the June 19, 2013 Law Amending and Supplementing a Number of Articles of the Law on Enterprise Income Tax; and the November 26, 2014 Law Amending and Supplementing a Number of Articles of the Law on Taxes;

Pursuant to the Government’s Decree No. 218/2013/ND-CP of December 26, 2013, detailing and guiding the implementation of the Law on Enterprise Income Tax; the Government’s Decree No. 91/2014/ND-CP of October 1, 2014, amending and supplementing a number of articles of the Decrees on taxes; the Government’s Decree No. 12/2015/ND-CP of February 12, 2015, detailing the Law Amending and Supplementing a Number of Articles of the Law on Taxes and amending and supplementing a number of articles of the Decrees on taxes; and the Government’s Decree No. 146/2017/ND-CP of December 15, 2017, amending and supplementing a number of article of the Government’s Decree No. 100/2016/ND-CP of July 1, 2016, and Decree No. 12/2015/ND-CP of February 12, 2015;

Pursuant to Article 41 of the Government’s Decree No. 126/2020/ND-CP of October 19, 2020, detailing a number of articles of the Law on Tax Administration;

Pursuant to the Government’s Decree No. 132/2020/ND-CP of November 5, 2020, providing tax administration for enterprises having related-party transactions;

Pursuant to the Government’s Decree No. 87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the General Director of Taxation;

The Minister of Finance promulgates the Circular guiding the application of the Advance Pricing Agreement mechanism in tax administration for enterprises having related-party transactions.

Article 1. Scope of regulation

1. This Circular guides the implementation of Article 41 of the Government’s Decree No. 126/2020/ND-CP of October 19, 2020, regarding the application of the Advance Pricing Agreement (APA) mechanism in tax administration for enterprises having related-party transactions (below referred to as Decree No. 126/2020/ND-CP).

2. Other contents concerning the APA mechanism must comply with June 13, 2019 Law No. 38/2019/QH14 on Tax Administration, the Government’s Decree No. 132/2020/ND-CP of November 5, 2020, providing tax administration for enterprises having related-party transactions (below referred to as Decree No. 132/2020/ND-CP), and other relevant legal documents.

Article 2. Subjects of application

1. Organizations producing and trading in goods and services that pay enterprise income tax based on declaration, have transactions with their related parties, and file requests to tax offices for the application of APAs. Related parties are specified in Article 5 of Decree No. 132/2020/ND-CP.

2. The General Department of Taxation and provincial-level Tax Departments (below collectively referred to as tax offices).

3. State agencies and other organizations and individuals engaged in the application of APAs in tax administration.

Article 3. Transactions requested for application of APAs

 1. Transactions requested for application of APAs are related-party transactions specified in Clause 2, Article 1 of Decree No. 132/2020/ND-CP.

2. Transactions requested for application of an APA under Clause 1 of this Article must concurrently meet the following conditions:

a/ The transactions have actually arisen in production and business activities of the concerned taxpayer and will continue to occur in the period during which the application of the APA is requested.

b/ There are grounds to determine that the substance of the transactions decides tax liability and grounds to analyze and compare transactions and select arm’s length comparables according to Articles 6 and 7 of Decree No. 132/2020/ND-CP on the basis of the compliance information and data specified at Point b, Clause 6, Article 42 of the Law on Tax Administration.

c/ The transactions are not involved in tax-related disputes or complaints.

d/ The transactions are carried out transparently and not for the purpose of tax evasion or avoidance or abusing the concerned Tax Agreement.

Article 4. Interpretation of terms

In addition to the terms interpreted in the Law on Tax Administration and Decree No. 132/2020/ND-CP, the terms below shall be construed as follows:

1. “Unilateral APA” means an agreement concluded between a Vietnamese tax office and a taxpayer requesting the application of the APA.

2. “Bilateral APA” means an agreement concluded between a Vietnamese tax office, a taxpayer and a counterpart tax authority and concerning the determination of tax liability of the taxpayer requesting the application of the APA on the basis of a Tax Agreement.

3. “Multilateral APA” means an agreement concluded between a Vietnamese tax office, a taxpayer and more than one counterpart tax authority and concerning  the determination of tax liability of the taxpayer requesting the application of the APA on the basis of a Tax Agreement.

Article 5. Principles of application of APAs

1. APAs shall be applied on the principle that the tax office and taxpayer or the Vietnamese tax office, counterpart tax authority(ies) and taxpayer coordinate, talk and negotiate with each other or with one another on the application of legal provisions on performance of enterprise income tax liability for related-party transactions covered by APAs in conformity with the arm’s length principle and the substance over form principle.

2. The application of APAs aims to improve the effectiveness of tax administration, reduce tax law compliance costs and determine prices of related-party transactions of taxpayers in conformity with the principle of analysis and comparison with arm’s length transactions and the substance over form principle so as to determine the substance of related-party transactions and payable enterprise income tax amounts of taxpayers like transactions between independent parties and prevent double taxation, tax evasion and tax fraud and minimize disputes related to determination of prices of related-party transactions.

3. Taxpayers’ requests for application of APAs shall be settled on the basis of dossiers with the documents and information specified in Clause 3, Article 41 of Decree No. 126/2020/ND-CP which shall be provided by taxpayers in an adequate, accurate, truthful and prompt manner.

4. The analysis, comparison and selection of arm’s length comparables and methods of comparing and determining prices of related-party transactions covered by APAs must comply with Decree No. 132/2020/ND-CP.

5. The application of the APA mechanism must adhere to the principles specified in Clause 6, Article 42 of the Law on Tax Administration.

Article 6. Dossiers and to-be-used information and data

1. Dossiers of request for application of APAs must comply with Clause 3, Article 41 of Decree No. 126/2020/ND-CP.

Dossiers of request for application of APAs shall be made in Vietnamese; for dossiers of request for application of bilateral or multilateral APAs, English versions are additionally required. Taxpayers shall affix their seals to certify, and be held responsible for the contents of, the translations.

For dossiers of request for application of bilateral or multilateral APAs, taxpayers shall be held responsible for the consistency between the contents of the dossiers submitted to Vietnamese tax offices and the contents of dossiers submitted to counterpart tax authorities by related parties covered by the APAs requested for application.

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

Article 7. Appraisal of dossiers of request for application of APAs     

1. The General Department of Taxation shall appraise taxpayers’ dossiers of request for application of APAs so as to inspect, compare, determine and evaluate the adequacy, accuracy, lawfulness, reasonability and validity of information and data provided by taxpayers in order to make a written assessment of whether the methods of determining prices of related-party transactions and selected comparables are suitable for the determination of prices, profit margins or profit distribution ratios with regard to the transactions covered by the  APAs requested for application.

2. In the course of appraisal, the General Department of Taxation may apply the following methods:

a/ Requesting taxpayers and other related organizations and individuals to explain and clarify information in dossiers of request for application of APAs. 

b/ Applying tax administration measures to taxpayers to verify the adequacy, accuracy, lawfulness, reasonability and validity of information and data provided by taxpayers.

Article 8. Talks and negotiations on the contents of APAs

1. The General Department of Taxation shall talk and negotiate on the contents of APAs with taxpayers (for cases of requesting application of unilateral APAs) or with counterpart tax authorities and taxpayers (for cases of requesting application of bilateral or multilateral APAs) through in-person or telephone meetings, webcasts or mails on contents relating to taxpayers’ requests for application of APAs.

Talks and negotiations aim to reach consensus with taxpayers and counterpart tax authorities on contents to be included in the final draft APAs according to Clause 6, Article 41 of Decree No. 126/2020/ND-CP for submission to competent authorities for approval.

The results of each talk or negotiation shall be acknowledged in writing by related parties.

2. Taxpayers that request application of bilateral or multilateral APAs shall notify the related parties covered by the APAs requested for application for the latter to request counterpart tax authorities to contact and proceed with talks and negotiations with the General Department of Taxation.

While bilateral or multilateral talks and negotiations are carried out among related tax authorities, when necessary and permitted by the General Department of Taxation and counterpart tax authorities, taxpayers may appoint their representatives to attend these talks and negotiations at the invitation of tax offices to give explanations about related issues.

Tax offices may provide brief notices of the progress and results of negotiation to taxpayers and, at the same time, may request taxpayers to give explanations about related contents.

Article 9. Rights, obligations and responsibilities of taxpayers

1. Rights of taxpayers

a/ Taxpayers may propose to the General Department of Taxation the withdrawal of their requests for application of APAs or stoppage of negotiation on contents of APAs at any time before APAs are concluded.

b/ Taxpayers may invite or hire independent experts who possess skills and knowledge suitable to the contents of APAs to participate in talks and negotiations on APAs. All documents on the results of talks and negotiations on APAs shall be signed for certification by taxpayers.

c/ In the course of implementing unilateral APAs, if double taxation occurs or taxable income is adjusted under decisions of counterpart tax authorities, causing disadvantages to taxpayers, taxpayers may propose the General Department of Taxation to revise or cancel APAs according to Clause 9 or 10, Article 41 of Decree No. 126/2020/ND-CP.

2. Obligations and responsibilities of taxpayers

a/ Taxpayers shall provide information and data to tax offices in an adequate, prompt, truthful and accurate manner in the course of consultation (if any), submission of official dossiers, appraisal, negotiation, conclusion and implementation of APAs as well as settlement of requests for extension or revision of APAs according to Article 97 of the Law on Tax Administration. Taxpayers shall be held responsible before law for the truthfulness and accuracy of such information and data.

b/ Taxpayers are obliged to preserve related dossiers and documents in the course of appraisal, negotiation, conclusion and implementation of APAs and provide them to tax offices when requested.

c/ While implementing APAs, taxpayers shall observe the conditions stated in the concluded APAs and adjust taxable incomes to suit the prices, profit margins or profit distribution ratios stated in the APAs in order to declare and pay enterprise income tax according to regulations.

d/ Taxpayers shall make and submit annual APA reports for each tax year and irregular reports (if any) during the validity period of the concluded APAs according to Clause 7, Article 41 of Decree No. 126/2020/ND-CP.

dd/ Taxpayers that commit tax-related administrative violations in the course of implementing the concluded APAs shall be sanctioned according to current regulations.

Article 10. Powers and responsibilities of tax offices

1. Powers of tax offices

a/ Tax offices may request taxpayers to give explanations and clarify information provided by the latter throughout the course of processing dossiers of request for application of APAs.

b/ Tax offices may stop the negotiation of APAs in one of the following cases:

b.1/ The continued negotiation of the APAs does not stick to the principles of application of APAs specified in the Law on Tax Administration, Decree No. 126/2020/ND-CP and Article 5 of this Circular;

b.2/ Related parties fail to reach agreement on the contents of the APAs when the period during which the application of the APAs is requested ends;

b.3/ The concerned taxpayers or counterpart tax authorities request the stoppage of the negotiation of the APAs.

The General Department of Taxation shall notify the concerned taxpayers (for unilateral APAs) or notify the concerned taxpayers and notify or certify the stoppage of negotiation of the APAs to/with foreign tax authorities (for bilateral or multilateral APAs).

2.  Responsibilities of tax offices

a/ Based on its powers specified in Article 41 of Decree No. 126/2020/ND-CP, the General Department of Taxation shall receive taxpayers’ dossiers; and process taxpayers’ requests for application of APAs, and extension, revision, cancelation or revocation of concluded APAs.

b/ Tax offices shall manage, examine and inspect the implementation of concluded APAs by taxpayers according to Clause 9, Article 20 of Decree No. 132/2020/ND-CP according to their functions and tasks, specifically: inspecting, examining and evaluating the observance of provisions of concluded APAs in reality; inspecting, examining and evaluating the declaration and payment of tax and adjustment of taxable income according to provisions of concluded APAs; examining and evaluating the compatibility between information in annual APA reports and irregular reports made by taxpayers and actual situation.

The management, inspection and examination of tax offices aim to supervise taxpayers’ compliance in implementation of concluded APAs without re-appraising these APAs.

c/ Provincial-level Tax Departments shall take part in and be held responsible for the opinions they give in the process of appraising and conducting talks and negotiations on APAs within the scope of their state management as assigned; and manage, examine and inspect the implementation of concluded APAs according to their functions and tasks.

Article 11. Information confidentiality

1. Tax offices, taxpayers and related agencies shall keep confidential information and data used throughout the course of processing APA dossiers according to provisions on confidentiality of taxpayers’ information in Article 99 of the Law on Tax Administration and guiding documents and relevant Tax Agreements.

2. In case the negotiation of APAs stops, requests for application of APAs are withdrawn or APAs are cancelled or revoked, tax offices may not use information and data provided by taxpayers in their official dossiers of request for application of APAs, explanations made by taxpayers as requested, and annual APA reports and irregular reports as proofs or evidences for the purpose of tax examination, inspection or assessment for taxpayers.

In case information and data provided by taxpayers are information and data they have made public, tax offices may continue using them as grounds for determining tax liability of taxpayers.

Article 12. Effect of APAs  

1. Concluded APAs are binding on tax offices and taxpayers.

2. The validity period of a concluded APA is at most 3 tax years but must not exceed the number of years during which the concerned taxpayer has actually conducted production and business and declared and paid enterprise income tax in Vietnam.

Article 13. Effect

1. This Circular takes effect on August 3, 2021, and replaces the Ministry of Finance’s Circular No. 201/2013/TT-BTC of December 20, 2013, guiding the application of the Advance Pricing Agreement in tax administration.

2. In case a request for application of an APA has been submitted before the effective date of this Circular but the APA has not yet been concluded and by the date this Circular takes effect, the period during which the application of the APA is requested has not ended, it shall be further processed according to the Law on Tax Administration, Decree No. 126/2020/ND-CP and this Circular.

3. In the course of implementation of this Circular, if meeting with any problems, organizations and individuals shall promptly report them to the Ministry of Finance for study and settlement.-

Minister of Finance
HO DUC PHOC