From February 5, enterprises can negotiate and reach agreements with taxauthorities over the taxable prices of their goods or services,according to a newly-released circular by the Finance Ministry on theimplementation of the Advance Pricing Agreement.
Under theamended Tax Administration Law, which came into effect last July, theAdvance Pricing Agreement (APA) is a binding and written agreementbetween the tax authority and taxpayers for a period of time withrespect to the determination of the ‘basis for tax' calculation, thetransfer pricing method and the application of the arm's lengthprinciple for transfer pricing.
The APA will be issued before taxpayers submit their tax declaration documents.
Inother words, under the APA, enterprises will have to pay a fixed amountof tax, regardless of whether they make a profit or loss on theiroperations. That is because the price and quantity of the goods arealready agreed to by the tax payer and the tax authority. The tax iscalculated on that price and quantity, not on the annual businessoperations of the firm.
According to the ministry, theimplementation of the APA will improve tax management, reduce the costsof tax compliance and reduce conflicts in determining market prices forbusiness activities that generate profits for enterprises to meet theirobligations of corporate income tax.
The APA is also expected to help in the fight against fraudulent transfer pricing.
UnderCircular 201/2013/TT-BCT, an APA can be unilateral, bilateral ormultilateral. In particular, when a taxpayer requests an APA for atransfer pricing method or a price based on arm's length pricing forrelated-party transactions, such a request will be based on an agreementbetween the tax authority and the taxpayer on a unilateral, bilateralor multilateral basis.
That means the agreement can be between aVietnamese tax authority, the taxpayer and the tax authorities ofrelevant countries or territories.
The APA can be enforced for up to five years, and can be extended for a maximum of another five years.
NguyenQuang Tien, Director of the Tax Reform and Modernisation Departmentunder the ministry's General Department of Taxation, said that the APAmechanism is expected to become an effective tool for tax authorities tocollect taxes and prevent fraudulent transfer pricing by enterprises.
"Itwill also make enterprises more careful while drawing up business plansand fulfilling their tax obligations," he was quoted by the Hai quan(Customs) newspaper said. When applying for an APA, corporate taxpayersneed to provide information and evidence to help the tax authorityassess a company's method of arriving at a proposed market price, headded.
The tax authority has the right to accept or refuse the applications, he pointed out.
Asquoted in Thoi bao Kinh Doanh (Business Times), deputy general directorof Ernst&Young Vietnam and member of the Vietnam Tax Consultants'Association Vu Thi Lan Huong said the APA provides a way to simplify taxadministration, help the government receive stable income and increasethe compliance of companies by ensuring that transfer pricing audits areavoided during the duration of the APA.
The APA will helpenterprises reduce some risks that affect their profit, such as payingarrears or fines if they were found to have violated tax regulations,she added.
Bui Ngoc Tuan, deputy general director of DeloitteVietnam, said that thanks to the APA, companies could estimate thetaxable prices of goods and services, as well as their profits orlosses.
However, he expressed worries about the application ofthe APA in Vietnam, noting that it could face challenges due to thecountry's inefficient tax management system.
For instance, hesaid, customs officials tend to prefer highly taxed imported goodsbecause that increases their tax collections, but it also leads to lowercorporate income tax.
"If the products are sold in Vietnam,Vietnamese tax authorities could have enough evidence to claim anenterprise is resorting to transfer pricing. But if an enterpriseimports inputs and then exports its goods, the transaction involvesoverseas markets and that could make it difficult to prove unfairtransfer pricing," he noted.-VNA
Under theamended Tax Administration Law, which came into effect last July, theAdvance Pricing Agreement (APA) is a binding and written agreementbetween the tax authority and taxpayers for a period of time withrespect to the determination of the ‘basis for tax' calculation, thetransfer pricing method and the application of the arm's lengthprinciple for transfer pricing.
The APA will be issued before taxpayers submit their tax declaration documents.
Inother words, under the APA, enterprises will have to pay a fixed amountof tax, regardless of whether they make a profit or loss on theiroperations. That is because the price and quantity of the goods arealready agreed to by the tax payer and the tax authority. The tax iscalculated on that price and quantity, not on the annual businessoperations of the firm.
According to the ministry, theimplementation of the APA will improve tax management, reduce the costsof tax compliance and reduce conflicts in determining market prices forbusiness activities that generate profits for enterprises to meet theirobligations of corporate income tax.
The APA is also expected to help in the fight against fraudulent transfer pricing.
UnderCircular 201/2013/TT-BCT, an APA can be unilateral, bilateral ormultilateral. In particular, when a taxpayer requests an APA for atransfer pricing method or a price based on arm's length pricing forrelated-party transactions, such a request will be based on an agreementbetween the tax authority and the taxpayer on a unilateral, bilateralor multilateral basis.
That means the agreement can be between aVietnamese tax authority, the taxpayer and the tax authorities ofrelevant countries or territories.
The APA can be enforced for up to five years, and can be extended for a maximum of another five years.
NguyenQuang Tien, Director of the Tax Reform and Modernisation Departmentunder the ministry's General Department of Taxation, said that the APAmechanism is expected to become an effective tool for tax authorities tocollect taxes and prevent fraudulent transfer pricing by enterprises.
"Itwill also make enterprises more careful while drawing up business plansand fulfilling their tax obligations," he was quoted by the Hai quan(Customs) newspaper said. When applying for an APA, corporate taxpayersneed to provide information and evidence to help the tax authorityassess a company's method of arriving at a proposed market price, headded.
The tax authority has the right to accept or refuse the applications, he pointed out.
Asquoted in Thoi bao Kinh Doanh (Business Times), deputy general directorof Ernst&Young Vietnam and member of the Vietnam Tax Consultants'Association Vu Thi Lan Huong said the APA provides a way to simplify taxadministration, help the government receive stable income and increasethe compliance of companies by ensuring that transfer pricing audits areavoided during the duration of the APA.
The APA will helpenterprises reduce some risks that affect their profit, such as payingarrears or fines if they were found to have violated tax regulations,she added.
Bui Ngoc Tuan, deputy general director of DeloitteVietnam, said that thanks to the APA, companies could estimate thetaxable prices of goods and services, as well as their profits orlosses.
However, he expressed worries about the application ofthe APA in Vietnam, noting that it could face challenges due to thecountry's inefficient tax management system.
For instance, hesaid, customs officials tend to prefer highly taxed imported goodsbecause that increases their tax collections, but it also leads to lowercorporate income tax.
"If the products are sold in Vietnam,Vietnamese tax authorities could have enough evidence to claim anenterprise is resorting to transfer pricing. But if an enterpriseimports inputs and then exports its goods, the transaction involvesoverseas markets and that could make it difficult to prove unfairtransfer pricing," he noted.-VNA
