by Thu Ngan
HCM CITY (VNS)— With transfer pricing emerging as an urgent issue in Viet Nam, the amended tax administration law that covers advance pricing agreement (APA) schemes has been welcomed by experts including lawyers, professionals and tax officials.
APA is a new concept in Viet Nam even though it has been applied in many countries in the region and world with the main target of limiting tranfer pricing situations.
With the new amendments approved in November, laws covering the APA will be applied in Viet Nam from the middle of 2013.
The Ministry of Finance is working hard at present to compile implementation guidelines for the law, and experts and foreign-invested firms in the country have expresses concerns even as they agree the time is right for APA scheme to be applied in the country.
"I think APA must be applied as soon as possible. We are ready and just waiting for the guiding circulars and decrees," said the tax manager of an FDI auto company who requested anonymity.
Experts from Ernst&Young Viet Nam also said the law was a "timely move".
"With the APA programme available in most of the major countries in the Asia-Pacific region and trading partners of Viet Nam, introduction of APA in the country is a very welcome and timely move," said Nitin Jain, the partner of Ernst&Young Viet Nam and leader of Transfer Pricing Services in Viet Nam.
Jain said APA was slowly becoming one of the more popular tools for both tax payers and tax authorities to proactively mitigate transfer pricing risks and related controversies.
Some companies, however, were still worried and unsure about applying the scheme for themselves.
"I am worried there could be problems because the knowledge of tax staff in Viet Nam is not equal to that of staff working for foreign companies. They do not have a wide understanding of transfer pricing. We need quality human resources and a perfect tax system to apply APA," said a tax manager from an FDI chipmaker in Viet Nam who wished to remain unnamed.
He said APA was much more suitable for big companies because they paid big taxes. He said it was now too soon to say whether his company would use the scheme or not because "it is a complicated issue and it will take time to implement. We are still waiting for guiding documents."
Vo Thanh Thuy of the HCM City Tax Department tried to assuage concerns saying transfer pricing would be eradicated if APA was correctly implemented.
With APA, companies could save time because it was shorter to do an APA programme than to carry out an investigation of a transfer pricing case. Furthermore, APA would help boost transparency of the tax system and avoid double taxation, he said.
Nguyen Trong Hanh, former deputy director of HCM City's Tax Department, said that to successfully apply the APA scheme, "we should have reached agreements with local countries and work with companies first so that they know it is going to be applied in Viet Nam.
"It should not be done in a hurry as it will hurt foreign investment in the country," he said.
Jain said the success of an APA programme depends on various factors, the most significant of them being "accessibility, timeliness, confidentiality and reasonableness of outcome.
"In addition to the formal regulations, having trained resources and efficient execution is key to the success of APA programme in any country." — VNS
What is an Advance Pricing Agreement?
The Advance Pricing Agreement (APA) is a program allowing the taxpayer and the tax authority to avoid future transfer pricing disputes by entering into a prospective agreement, generally covering at least five tax years, regarding the taxpayer's transfer prices. APAs specify: transactions covered by the APA, transfer pricing method, APA term, operational and compliance provisions, appropriate adjustments, critical assumptions regarding future events, required APA records and annual compliance reporting responsibility.
Taxpayers may enter into APAs with more than one tax authority – i.e, bilateral or multilateral APAs – through the mutual agreement procedure (MAP) included in most income tax treaties. Unilateral APAs involve agreements between the taxpayer and one government.
As of July 2012, more than 30 countries were allowing Advance Pricing Agreements.
Source: Ernst&Young Viet Nam