Circular No. 201/2013/TT-BTC dated December 20, 2013 of the Ministry of Finance guiding the application of Advance Pricing Agreements to Tax Administration

THE MINISTRY OF FINANCE

Circular No. 201/2013/TT-BTC dated December 20, 2013 of the Ministry of Finance guiding the application of Advance Pricing Agreements to Tax Administration

Pursuant to the Law on Tax Administration No. 78/2006/QH11 dated November 29, 2006;

Pursuant to the Law on Amending and Supplementing several articles of the Law on Tax Administration No. 21/2012/QH13 dated November 20, 2012;

Pursuant to the Law on Corporate Income Tax No. 14/2008/QH12 dated June 03, 2008, the Law No. 32/2013/QH13 dated September 16, 2013 on the amendments to the Law on Corporate Income Tax;

Pursuant to the Government's Decree No. 83/2013/NĐ-CP dated July 22, 2013 on elaboration of some Articles of the Law on Tax Administration and the Law on Amending and Supplementing to the Law on Tax administration;

Pursuant to the Government's Decree No. 124/2008/NĐ-CP dated December 11, 2008 on elaboration of some Articles of the Law on Corporate Income Tax; the Government's Decree No. 122/2011/NĐ-CP dated December 27, 2011 on amendments to the Decree No. 124/2008/NĐ-CP;

Pursuant to the Government's Decree No. 118/2008/NĐ-CP dated November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the request of the Director of the General Department of Taxation;

The Minister of Finance promulgates a Circular on application of Advance Pricing Agreements to tax management.

Chapter I

GENERAL REGULATIONS

Article 1. Scope of regulation

This Circular provides guidance on application of Advance Pricing Agreements (APAs) to tax management.

Article 2. Subjects of application

1. A organization that manufactures and/or sells goods/services (Hereinafter referred to as taxpayers) that pays tax under the Law on Corporate Income Tax and makes tax statements using the method in Clause 1 Article 11 of the Law on Corporate Income Tax No. 14/2008/QH12 (Corporate Income Tax payable equals assessable income multiplied by tax rate), makes business transactions with related parties, and submits an APA application before stating and paying tax on the first year of the period covered by the APA (hereinafter referred to as covered period).

The taxpayers are the entities covered by the APA mentioned in Clause 3 Article 3 of this Circular.

2. Tax Administrations: the General Department of Taxation, Departments of Taxations of provinces.

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

Article 3. Advance pricing agreement (APA)

1. An APA is a written agreement between a tax administration and a taxpayer, or between Vietnamese tax administrations, taxpayers, and a tax administration of a country or territory with which Vietnam has concluded a tax treaty for a certain period of time, where tax calculation basis, pricing methodologies, or market prices are determined. An APA must be concluded before the taxpayer submits the corporate tax statement.

2. Types of APAs:

a) A unilateral APA is an APA between a Vietnamese tax administration and an APA applicant (Hereinafter referred to as applicant).

b) A bilateral and multilateral APA is an APA between a Vietnamese tax administration, a taxpayer, and one or some foreign tax administrations related to the determination of tax liabilities of the applicants under the tax treaty.

3. The following entities are covered by APAs:

a) The organizations and units in an association with a company or corporation that operate in multiple localities (Including other countries or territories);

b) The organizations and units that are offices or head office of the company. In this case, every office is considered a separate company (Taxpayer) and is independent from the head office or other offices of the company.

4.  Transactions covered by the APA:

a) Sale, exchange, lease, transfer of goods and services during the business operation (Called business transactions) among related parties, except for the transactions related to the goods and services subject to price stabilization by the State.

b) The taxpayer may requests one or multiple related transactions covered by the APA. The taxpayer may combine multiple related transactions that are interdependent to reflect the objectivity and the conformity with business practice, which correspond to the functions, assets, and risks related to tax liabilities, in accordance with legislative documents on market price determination in business transactions among related parties serving tax statement.

Article 4. Interpretation of terms

1. The definitions of “market price”, “product”, “related parties”, “inter quartile range” are similar to those in legislative documents on determination of market prices in business transactions among related parties.

2. “Tax treaty” is short for Agreement on avoiding double taxation and prevention of fiscal evasion with regard to income tax that are applicable in Vietnam; “foreign tax administration” means a tax administration of a country or territory with which Vietnam concludes a tax treaty.

3. “Criticality” is a term describing the importance of some information (data) in an APA application and the implementation of the APA. A piece of information is considered critical if the omission or inaccuracy of such information affects the decisions of the parties to the APA.

The criticality of information shall be considered from both the quantitative and qualitative aspect, under the guidance on Vietnam’s Audit Standard No. 320 “Levels of criticality in planning and running audit” promulgated together with the Circular No. 214/2012/TT-BTC dated December 06, 2012 of the Ministry of Finance.

Article 5. Rules for concluding APAs

1. An APA will be concluded when the tax administration and the taxpayer (covered by the APA), or a Vietnamese tax administration, a foreign tax administration that is a party to a tax treaty, and the taxpayer negotiate the application of law to payment of corporate income tax on the related transactions on following arm’s length principle.

2. APAs are concluded to improve the effectiveness of tax management, reduce the cost of compliance to tax law, determine market prices in related transactions that suit the nature of the business, generate profits in order to pay income tax, prevent double taxation and fiscal evasion, minimize disputes over market prices in related transactions.  While negotiating an APA, the taxpayer shall state and pay tax in accordance with current law.

3. The method for market price determination in related transactions within the regulation of an APA shall comply with legislative documents on determination of market prices in transactions among related parties. When deciding on a method for market price determination in an APA, the nature and calculation method of the method is more important than its name.

Article 6. The power to handle applications for APA

1. The Ministry of Finance shall approve the plan for negotiating, concluding, amending, renewing, revoking, and invalidating APAs.

2. The General Department of Taxation shall receive applications, hold negotiations, conclude, amend, renew, revoke, invalidate APAs, supervise and inspect the implementation of APA.

3. Departments of Taxation of provinces shall negotiate and implement APAs within their duties.