Enforcing the Advance Pricing Agreement (APA) mechanism is considered an effective solution for combating transfer pricing which has been reportedly increasing among multinational corporations (MNCs) in Vietnam.
At a recent seminar in Hanoi, Dang Tuan Hiep from the General Department of Taxation noted since 2000, MNC transactions have accounted for more than 70 percent of the global total, with their annual revenue of approximately 6 trillion USD, radio the Voice of Vietnam (VOV) reported.
Transfer pricing is a hot issue that has garnered the great attention of taxation agencies throughout the world, because MNCs can directly affect the allocation of profits to individual countries by increasing or decreasing the prices they charge each other, even though the profits of the group as a whole remain unchanged.
Many countries including the US, Japan and the Republic of Korea have formulated APAs as a special instrument for dealing with disputes for tax agencies and between tax agencies and MNCs.
I n late 2013 the Vietnamese Ministry of Finance issued a circular, guiding APA implementation, creating an important legal corridor for preventing tax evasion and minimising disputes about market price evaluation in related-party transactions.
Colin Clavey, a senior consultant on APA of the International Financial Corporation, and Sabine Wahl, an independent consultant, shared experience in reaching viable APA deals, saying both tax agencies and tax payers must prepare necessary conditions before negotiations.
Businesses should have meetings and consultations before submitting an APA dossier to the tax agency. Receiving the dossier, it is the tax agency’s task to study the payers’ economic, trading and tax payment reports in order to come up with proper negotiation plans.
When the two sides agree on price levels, provisions, and payment methods, they can then proceed to enter into agreements to apply the APA, the two consultants concluded.
In the initial periods of implementing an effective APA, Vietnam should limit the number of fields it is applied to and, as the legal foundation and experience expand it can be expanded accordingly to a wider number of fields.