Circular 45/2021/TT-BTC has supplemented and provided detailed instructions on how to determine taxable prices in tax management for enterprises with related-party transactions, creating a transparent legal framework and approaching international standards. This article will help you understand the key content of Circular 45/2021/TT-BTC, new points compared to previous regulations, as well as practical impacts on business activities and tax declaration obligations of enterprises.

Introducing Circular 45/2021/TT-BTC

What is Circular 45/2021/TT-BTC?

Circular 45/2021/TT-BTC is a legal document issued by the Ministry of Finance on June 18, 2021, providing detailed guidance on determining taxable prices in tax management for enterprises with related-party transactions. This is one of the important documents, directly supporting Decree 132/2020/ND-CP, helping enterprises clearly understand how to declare, prepare documents and apply the method of determining related-party transaction prices according to the independence principle (Arm's Length Principle).

Relationship between Circular 45/2021/TT-BTC and Decree 132/2020/ND-CP

The relationship between Circular 45/2021/TT-BTC and Decree 132/2020/ND-CP can be understood simply: Decree 132 is the overall legal framework, while Circular 45/2021/TT-BTC is a specific guiding document for practical implementation. Thanks to that, enterprises can fulfill their tax declaration obligations and manage related party transactions in a clear, transparent and synchronous manner.

Circular 45/2021/TT-BTC not only creates a transparent legal corridor for domestic enterprises and FDI enterprises, but also contributes to improving the efficiency of tax management and preventing budget losses due to transfer pricing. At the same time, this document also affirms Vietnam's commitment to approaching international standards (OECD - BEPS), thereby building a fair and sustainable investment environment.

Scope of regulation and subjects of application of Circular 45/2021/TT-BTC

Scope of adjustment

Circular 45/2021/TT-BTC clearly states the scope of regulation and relevant applicable subjects..

“1. This Circular guides the implementation of Article 41 of Decree No. 126/2020/ND-CP dated October 19, 2020 of the Government on the application of the Advance Pricing Agreement (hereinafter referred to as APA) mechanism in tax management for enterprises with related-party transactions.

2. Other contents on the APA mechanism are implemented according to the provisions of Tax Administration Law No. 38/2019/QH14 June 13, 2019, Decree No. 132/2020/ND-CP dated November 5, 2020 of the Government regulating tax management for enterprises with related-party transactions and other relevant legal documents.”

Source: Law Library

Applicable objects

Circular 45/2021/TT-BTC also emphasizes that not only international transactions are regulated, but also domestic transactions between related parties in Vietnam must be declared and determined for tax purposes in accordance with regulations.

Circular 45/2021/TT-BTC has a wide scope of coverage, directly affecting both FDI and domestic enterprises. This affirms the goal of tightening tax management, while promoting transparency in production and business activities in Vietnam.

Circular 45/2021/TT-BTC guides the application of the Advance Pricing Agreement (APA) mechanism in tax management with enterprises having related-party transactions.

Circular 45/2021/TT-BTC applies APA to enterprises with related party transactions

Circular 45/2021/TT-BTC on transactions proposed to apply APA

Circular 45/2021/TT-BTC proposes to apply the price determination method (APA) to specific transactions as follows:  

• Transactions proposed to apply the price determination method (APA) are related party transactions specified in Clause 2, Article 1 of Decree No. 132/2020/ND-CP.
• Circular 45/2021/TT-BTC on transactions proposed to apply APA as prescribed in Clause 1 of this Article must simultaneously satisfy the following conditions::

Word explanation 

Circular 45/2021/TT-BTC, in addition to the concepts explained in the Law on Tax Administration and Decree 132/2020/ND-CP, technical terms related to related party transactions will be understood and applied according to the detailed instructions in Circular 45/2021/TT-BTC, specifically as follows:

• Unilateral APA is understood as an agreement established and signed directly between the Vietnamese tax authority and the taxpayer when they have a need to request the application of APA. This is the simplest form of agreement, including only one party, the tax and the business.
• Bilateral APA is an agreement on APA signed between three entities: the Vietnamese tax authority, the taxpayer and the tax authority of the partner country or territory. The main purpose is to determine the tax obligations of the taxpayer in a transparent manner, on the basis of compliance with the provisions of the Double Taxation Avoidance Agreement.
• Multilateral APA A multilateral APA is a more complex type of agreement, involving the Vietnamese tax authority, the taxpayer and many foreign tax authorities. The application of a multilateral APA aims to ensure consistency in determining cross-border tax obligations, and is also based on the foundation of international tax treaties to limit the risk of tax disputes.

Circular 45/2021/TT-BTC on the effective period of APA

The effective period of the price determination method (APA) after being signed is now stipulated to be a maximum of 3 years for tax calculation, instead of 5 years as in the previous Circular 201. For dossiers requesting to apply the price determination method (APA) submitted before August 3, 2021 (the date Circular 45/2021/TT-BTC officially takes effect) but not yet completed the signing, and at the same time the period of requesting to apply APA is still within the time limit calculated as of August 3, 2021, these cases will continue to be handled in accordance with the provisions of the Law on Tax Administration, Decree 126 and Circular 45/2021/TT-BTC.

Principles of application

Circular 45/2021/TT-BTC clearly stipulates the principles for applying the method of determining price in APA, to ensure transparency, consistency and suitability with practice. Before going into details, it is necessary to understand these principles as a basis for implementation.

“1. APA is applied on the principle that the tax authority and the taxpayer or the Vietnamese tax authority and the partner tax authority and the taxpayer cooperate, exchange and negotiate on the application of legal provisions on the implementation of corporate income tax obligations for related-party transactions within the scope of APA in accordance with the principles of independent transactions and the principle that the nature of the activity and transaction determines tax obligations.

2. The application of APA aims to improve the efficiency of tax administration, reduce the cost of tax law compliance, determine the price of related party transactions of taxpayers in accordance with the principles of analysis, comparison with independent transactions and the principle of the nature of activities and transactions determining tax obligations to determine the nature of related party transactions, the corporate income tax obligations of taxpayers as in the conditions of transactions between independent parties and prevent double taxation and tax evasion, minimize disputes on determining the price of related party transactions.
3. The taxpayer's request to apply the method of determining the price (APA) is resolved on the basis of the dossier with the necessary documents and information as prescribed in Clause 3, Article 41 of Decree No. 126/2020/ND-CP provided by the taxpayer fully, accurately, honestly and promptly.
4. The analysis, comparison, selection of independent comparables and methods used to compare and determine prices of related-party transactions within the scope of application of APA are carried out according to the provisions of Decree No. 132/2020/ND-CP.
5. The application of the APA mechanism must ensure compliance with the principles prescribed in Clause 6, Article 42 of the Law on Tax Administration.”

Source: Law Library

Circular 45/2021/TT-BTC requires preparation of what information and data documents? 

The application for the advance pricing agreement (APA) mechanism is made according to regulations. Clause 3, Article 41, Decree 126/2020/ND-CP.

According to Circular 45/2021/TT-BTC, in case an enterprise requests to apply bilateral APA or multilateral APA, the taxpayer is responsible for ensuring that all contents in the dossier submitted to the Vietnamese tax authority are consistent with the dossier submitted by the foreign affiliate to the partner tax authority. This synchronization is to avoid information conflicts between relevant tax authorities, while ensuring the transparency and honesty of the data used by the enterprise to negotiate and implement the APA agreement.

The information, data and databases used must comply with the regulations in Point b, Clause 6, Article 42 of the Law on Tax Administration and Article 17 of Decree 132/2020/ND-CP.

Appraisal of APA application dossier according to Circular 45/2021/TT-BTC

Circular 45/2021/TT-BTC, after receiving the application for application of the transfer pricing method (APA), the General Department of Taxation will conduct an appraisal to check and compare all information provided by the taxpayer. The purpose of this stage is to assess the completeness, accuracy, legality, reasonableness and validity of the application, and at the same time consider the transfer pricing method proposed by the enterprise. On that basis, the tax authority will make an assessment of the appropriateness of the valuation method, the selected comparable, as well as determine the price, profit margin or profit allocation ratio applicable to transactions within the scope of the APA.

During the appraisal process, the General Department of Taxation may apply a number of specialized measures to clarify and verify information, including:

• Request for explanation: Enterprises and related organizations and individuals are obliged to provide additional information or clarify incomplete points in the application dossier for application of the price determination method (APA).
• Additional tax management measures: Tax authorities have the right to implement necessary professional measures to verify the accuracy and legality of data, vouchers and documents submitted by taxpayers.

Thus, the appraisal process according to Circular 45/2021/TT-BTC is not only to check the form of the documents but also a substantive assessment step, ensuring that the price determination method agreement (APA) is built on a reliable database and correctly reflects the principle of independent transactions.

After comprehensively analyzing the provisions of Circular 45/2021/TT-BTC on the mechanism of price determination method (APA) and how to manage related-party transactions. Circular 45/2021/TT-BTC has created a clear foundation for businesses in determining transparent and stable tax prices.

Conclude

Circular 45/2021/TT-BTC approaches international standards in tax management for enterprises with related-party transactions. In particular, the price determination method (APA) not only helps enterprises stabilize tax obligations, reduce the risk of disputes, but also creates trust with management agencies and investors. 

If your business is looking for a comprehensive solution to declare, build Affiliated transaction records or deploying the valuation method (APA) effectively, MAN – Master Accountant Network is ready to accompany you. With a team of experienced legal and tax experts, MAN – Master Accountant Network is committed to providing consulting services transfer pricing standards, helping businesses comply with the law and enhance competitive advantage.

For specific advice, businesses Please contact MAN – Master Accountant Network via: 

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