What is Drafting an Advance Pricing Agreement
Drafting An Advance Pricing Agreement (APA) is a procedural agreement between one or more taxpayers and one or more tax authorities that aims to avoid any transfer pricing disputes, by determining in advance a set of criteria to apply, within a specified period of time, for specific cross-border controlled transactions, therefore to ensure their consistency with the market principle.
It does not intend to determine the taxable profits or the revenue to be tax in Vietnam, but the criteria for their assessment (e.g. the most appropriate transfer pricing method).
Which transactions are subject of an APA
Cross-border controlled transactions with associated parties (not domestic transactions).
What are the benefits of an APA for a company
The main benefit provides by an APA to a taxpayer is the reduction of risks of revaluations by transfer pricing audits, by determining in advance the methodology that will be applied to assess the tax base in line with the market principle.
What are the different types of APAs
a) Unilateral APA – entered between a taxpayer and the General Tax Directorate (GTD);
b) Bilateral APA – whereby a taxpayer requests that the GTD enters into an agreement with a foreign tax administration, under the ‘mutual agreement’ provisions of the respective Double Tax Treaty (DTT);
c) Multilateral APA – whereby a taxpayer requests that the GTD enters into an agreement with two or more foreign tax administrations, under the ‘mutual agreement’ provisions of the respective DTTs.
In case there is a DTT in place, applications shall be file for bilateral or multilateral APAs. Unilateral filings for APAs will be taken into consideration by the GTD only in special occasions. E.g. when the foreign tax administration does not accept to enter into negotiations.
What is the maximum period of time cover by an APA
The maximum period of time covered by an APA is 5 years. The commencement date for the APA shall be the tax year that follows the date of signature also conclusion of the APA.
Can there be a ‘roll-back’ of the concluded APA to cover past open years
APAs cover only prospective years and they cannot be required for certain prior years (commonly referred as ‘roll-back years’). However, to the extent that the APA is signed and conclude after the first year of the proposed APA term. The proposed commencement tax year will still be cover under the APA.
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