On June 18, 2021, the Ministry of Finance issued Circular No. 45/2021/TT-BTC (Circular 45) guiding the application of the Advance Pricing Agreement (APA) mechanism in tax valuation. Tax management for related-party transactions.
1. Rights of taxpayers when agreeing on the tax base price in related-party transactions.
According to Circular 45, taxpayers who agree on the tax base price in related-party transactions have certain rights, such as: withdrawing their application or halting negotiations, inviting or hiring independent consultants to negotiate the tax base price, etc.
Specifically, according to the guidance in Article 9 of Circular 45/2021/TT-BTC on the rights, obligations, and responsibilities of taxpayers, taxpayers have the right to request the General Department of Taxation to withdraw their application or stop negotiations at any time before the Agreement on the Method of Determining the Taxable Price (APA) is signed.
The taxpayer has the right to invite or hire independent experts with skills and knowledge relevant to the APA content to participate in discussions and negotiations. Documents recording the results of these discussions and negotiations must be signed and confirmed by the taxpayer.
In the event that, during the implementation of a unilateral APA, double taxation occurs, or adjustments to taxable income result in disadvantages for the taxpayer due to a decision by the partner tax authority, the taxpayer has the right to request the General Department of Taxation to amend or cancel the APA in accordance with Clauses 9 and 10 of Article 41 of Decree No. 126/2020/ND-CP.
Regarding the obligations and responsibilities of taxpayers, according to Circular 45, taxpayers are responsible for providing complete, timely, truthful, and accurate information and data to the tax authorities during the consultation process (if any), submission of official documents, assessment, negotiation, signing, and implementation of APA, as well as during the process of resolving requests for extension or amendment of APA as stipulated in the Law on Tax Administration.
NNT is legally responsible for the truthfulness and accuracy of this information.
Taxpayers are obligated to retain relevant records and documents during the assessment, negotiation, signing, and implementation of the APA, and to provide them to the tax authorities upon request.
The taxpayer is responsible for preparing and submitting annual APA reports for each tax year and ad hoc reports (if any) during the validity period of the signed APA. If the taxpayer commits any administrative tax violations during the implementation of the signed APA, they will be subject to administrative tax penalties in accordance with current regulations.
2. Determining the taxable price for businesses with related-party transactions.
Circular 45 provides guidance on the implementation of Article 41 of Government Decree No. 126/2020/ND-CP dated October 19, 2020, on the application of APA in tax management for enterprises with related-party transactions.
Accordingly, the transactions proposed for APA application include: Related-party transactions as stipulated in Clause 2, Article 1 of Decree No. 132/2020/ND-CP; and also meeting the following conditions: The transaction has actually occurred in the taxpayer's production and business activities and will continue to occur during the period for which the APA application is proposed.
The transaction has a basis for determining the nature of the transaction that determines the tax obligation and has a basis for analysis, comparison, and selection of independent comparable entities as prescribed in Articles 6 and 7 of Decree No. 132/2020/ND-CP, based on information and data complying with the provisions of point b, clause 6, Article 42 of the Law on Tax Administration.
Circular 45 provides guidance on the implementation of Article 41 of Government Decree No. 126/2020/ND-CP dated October 19, 2020, on the application of APA in tax management for enterprises with related-party transactions.
Accordingly, the transactions proposed for APA application include: Related-party transactions as stipulated in Clause 2, Article 1 of Decree No. 132/2020/ND-CP; and also meeting the following conditions: The transaction has actually occurred in the taxpayer's production and business activities and will continue to occur during the period for which the APA application is proposed.
The transaction has a basis for identification. The nature of the transaction determines the tax liability. and there is a basis for analyzing, comparing, and selecting independent comparable entities as prescribed in Articles 6 and 7 of Decree No. 132/2020/ND-CP, based on information and data complying with the provisions of point b, clause 6, Article 42 of the Law on Tax Administration.
3. Points to note regarding Circular 45
During the APA period, the taxpayer is responsible for complying with the conditions of the signed APA and adjusting taxable income to reflect the price, profit margin, or profit allocation ratio stipulated in the APA in order to file and pay corporate income tax as required.
In cases where a taxpayer requests the application of a bilateral or multilateral Advance Pricing Agreement (APA), the taxpayer is responsible for notifying the related party within the scope of the proposed APA application to request the partner tax authority to contact and facilitate the exchange and negotiation with the General Department of Taxation.
During the process of carrying out tax procedures related to transfer pricing or related-party transactions under the APA mechanism, many confusing issues can arise for businesses. To help businesses resolve these difficulties, please contact EXPERTIS's Consulting Specialists for assistance.