Vietnam’s Revamped Rules on Advance Pricing Agreements

Oct. 21, 2021, 7:01 AM

Following the official introduction of the advance pricing arrangement (APA) program in Vietnam in 2013, very few companies applied for APAs under the “pilot” program in the early years. Starting in 2015, the number of companies applying for APAs in Vietnam increased significantly, while resources (i.e., experienced staff) dedicated to reviewing and processing APAs remained limited at Vietnam’s General Department of Taxation (GDT). This led to a backlog of applications and lengthy review process. Only one APA case was officially concluded with the GDT in the form of a written memorandum. See, Duong Hoang, Huynh Nhan, Ha Tran, “Make or break, first APA concluded,” International Tax Review, June 26, 2017. Consequently, due to the lack of progress, the government temporarily suspended its review of outstanding APA applications in 2018.

In November 2020, the government issued Decree 126/2020/ND-CP (Decree 126) to revamp the APA program following the new Tax Administration Law (effective from July 1, 2020). Decree 126 introduces a new legal framework, including administrative procedures, for the APA program. In addition, Circular 45/2021/TT-BTC (Circular 45), which provides guidance on the application of Decree 126, was released in June 2021. Key notable changes to the APA program, as introduced by Decree 126 and Circular 45, include:

  • Pre-filing dossiers/pre-filing meetings are no longer compulsory, but will instead be optional. This change is welcome, because it may reduce the administrative burden on both the tax authority and taxpayers.
  • Pre-approval for the submission of an official APA application is no longer required. Thus, taxpayers can now submit their official dossiers without the consent and approval of GDT.
  • The effective date/covered period starts when the APA is signed between the respective competent authorities (CA). This implies that rollback is not applicable in Vietnam. However, for bilateral APAs, the Ministry of Finance of Vietnam can request consideration for approval for rollback from the Prime Minister of Vietnam if the CAs agree on different effective dates. Approval for rollback is highly unlikely, as a rollback that impacts an approved past year budget is likely subject to Parliament’s approval.
  • The covered period is a maximum of three years, instead of the previous allowable period of five years.
  • Covered transactions must meet all four of the following conditions:
    • have occurred during the course of business and will continue to occur during the proposed covered period;
    • have substance and be capable of being analyzed using benchmarking of comparable data;
    • not be subject to / under tax dispute or tax appeal (this leaves uncertain whether taxpayers in the mutual agreement procedure (MAP) for a previous year’s dispute can apply for APA to cover future years); and
    • be carried out in a transparent manner and not for the purpose of tax evasion, tax avoidance or tax treaty abuse.
  • Revision/termination of unilateral APA: If, during the implementation of a unilateral APA, there is any double taxation or unfavorable transfer pricing adjustment made by the foreign tax jurisdiction, the taxpayer has the right to request that the GDT amend or terminate the APA (subject to the GDT’s consideration and approval).

Frequently asked questions (FAQ)

Q: Are there any APA processing or maintenance fees in Vietnam?

A: There are no regulatory APA processing and maintenance fees required to be paid to the local competent authorities.

Q: If the APA application is in the review and negotiation stages, can the local tax authority still conduct transfer pricing audits of the proposed covered transactions for the open years?

A: Yes, the local tax authority has the right to conduct transfer pricing audits for the open tax years even when the APA application is in the review and negotiation stage. However, in our experience, it is unlikely that the local tax authority will conduct an audit of transfer pricing matters for taxpayers that are actively discussing and negotiating an APA with the tax authority.

Q: If I submit an APA request in 2021 and the APA is concluded 2024, effective for the 2024-2026 period, what should I do to manage potential transfer pricing risks for the “open years” (i.e. 2021-2023)?

A: The following measures should be considered in managing transfer pricing risks for open tax years:

(1) Based on the results of the concluded APA, the taxpayer can make a voluntary self-initiated transfer pricing adjustment (either in Vietnam or in the counterparty jurisdiction) to align its transfer pricing position in those years with the agreed APA range. Before making a self-initiated adjustment (for example, in Vietnam), the taxpayer should consult with the counterparty jurisdiction’s tax authority to determine whether a corresponding adjustment will be accepted, and vice versa. Please note, however, that a downward transfer pricing adjustment leading to a profit reduction for a Vietnamese taxpayer is generally not accepted in Vietnam for years not covered by the APA.

(2) If a “double tax” event is triggered, the taxpayer can file a MAP request to resolve the double taxation. The MAP request should be made after the APA is concluded, rather than during the APA process, because GDT will not handle both an APA and MAP case at the same time.

Q: If I have an on-going MAP case covering a cross-border intercompany transaction, can I still apply for an APA for future years covering the same transaction?

A: If the transaction is under dispute, through either a MAP case or in appeals, the GDT will not process the APA application until the dispute has been resolved.

Q: Is the use of a regional benchmarking analysis (i.e., the use of Asia-Pacific comparables) acceptable for an APA application in Vietnam?

A: The benchmarking analysis for an APA in Vietnam should follow the principles set out in Vietnam’s transfer pricing rules. Those rules do not prohibit the use of regional comparables for benchmarking, but the use of a local benchmarking analysis (i.e., the use of Vietnamese comparables) is both prioritized by local transfer pricing rules and preferred by the GDT if the tested party is a Vietnamese taxpayer.

KPMG’s Observations

The relaunch of the APA program in Vietnam aims to expedite the review of APA applications and reduce the administrative burden on both the GDT and taxpayers. In the context of BEPS and the increasing scrutiny on transfer pricing worldwide, we anticipate a greater interest in Vietnam APAs in the coming years. Given the new structure of the APA program, APA applications will be processed on a first-come basis. Therefore, taxpayers interested in the APA program are encouraged to submit their APA applications as soon as possible to ensure their application will be prioritized for processing.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Sean Foley and Lillie Sullivan are with the Washington National Tax practice of KPMG LLP, and Duong Hoang, Joseph Vu, Ha Tran, Thang Nguyen, Tri Ngo, and Thu Huong Ngyuen are with KPMG Tax and Advisory Limited, KPMG’s member firm in Vietnam.

The information in this article is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the author(s) only, and does not necessarily represent the views or professional advice of KPMG LLP.

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