Legal up date - August 2013



Following the new amendments of the Law on Tax administration ( the “Tax Law”), the Government of Vietnam has passed Decree No. 83/2006/ND-CP dated 22 July 2013 (the “Decree 83”) which provides some guidelines for implementation of the said Law. One of the most valuable and essential amendment, among several others, is the new regulations of the Decree 83 on Advance Pricing Agreement (the “APA”).


What is APA?


Owing to the definition of the Organization for Economic Cooperation and Development, an APA is “An arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the transfer pricing for those transactions over a fixed period of time.

Article 5.11 of the Tax Law provides that: “Prior agreement on the method of calculating taxable prices is a written agreement between the tax authority and tax payers, or between the tax authority, tax payers and the tax authorities of the nations and territory with which Vietnam has signed the Agreements on double taxation and the prevention of tax evasion, applicable to income tax within a certain period, specifying the bases for tax calculation, the method of determining taxable prices or taxable prices according to market prices. The prior agreement on the method of determining taxable prices shall be made before the tax payer submits the tax declaration dossier”.

 In short, APA is a written agreement established between the tax authorities and taxpayers which specifies the bases for tax calculation, the method of determining taxable prices or taxable prices in a particular period of time. Basically, APA can be viewed as a commitment to make transactions under methods anticipated and agreed by the tax authorities.

An APA may be classified into three types:

(1) Unilateral APA: this agreement will be made between domestic taxpayers/enterprises and tax authorities, which is chiefly suitable for domestic or simple transactions without risks on transfer pricing or tax coincidence.

(2) Bilateral or (3) Multilateral APA: these agreements will be made between domestic tax authorities, enterprises and a foreign tax authority on price determination methods.

Besides, another noticeable feature of APA is that the price agreed between parties in an APA is just for the purpose of tax declaration and therefore, it neither mutually bind the parties nor influences the price in a purchasing contract.


Subjects of APA


Pursuant to Article 36.1 of the Decree 83, the APA shall be applied to calculate the Corporate Income Tax in the tax year of enterprises involved. For this reason, subjects of the APA shall comprise of the taxpayers defined in the Law on Corporate income tax who perform transactions with other involved parties and use methods stipulated in Article 11.1 of Law on Corporate income tax to declare their tax.


Advantages and disadvantages of APA


In the recent years, some corporations, including Intel, Samsung, etc., have initiatively proposed tax authority to apply this approach, instead of inspection and examination activities. Some concrete advantages of an APA are:

⇒ Firstly, enterprises may take the initiative role in adjusting their internal transaction to comply with the supposed conditions, situations of the Agreement legally and legitimately;

⇒ Secondly, to form a Bilateral or a Multilateral APA, it may commonly take at least three steps in which the participation of two or more competent tax authorities, besides enterprises, is indispensable. Whereby, enterprises will be efficiently protected from the risks of tax coincidence when performing investment in a foreign country. Additionally, the agreement also plays an important part in reducing the complex procedures or process to ensure the conformity, as well as the costs of compliance.

⇒ Thirdly, a remarkable advantage of APA, in comparison with other traditional tax methods, is that the tax authorities and enterprises will reach to an agreement on determining the price of transactions before they take place. Therefore, the enterprises are not compulsory to use auditing service of another third party, which may help them save a huge amount of money.

Vice versa, as the dual nature of a phenomenon, taking part in an APA may also bring some troubles for applicants. The most easily seen inconvenience of APA is its complexity and entanglement which may prolong the essential time for negotiation, as well as accelerate the risk of unable to reach an agreement between parties. According to the experience of South Korea, it will take one year and eight months in average to bargain and enter into a unilateral APA, and two years and a half for a bilateral one, while those agreements are merely utilized effectively in two to three years, since the fluctuations of the socio-economic circumstance. Other noticeable issue is that enterprises will have to reveal and declare several types of information, comprising of confidential ones (know-how, recipe, risk management method, etc.). And lastly, joining an APA will not exempt enter from auditing obligations applied for works and services not in the scope of this APA.


How to apply for APA?


Irrespective of a few defects, the benefits of APA brought to enterprises and entrepreneurs is undeniable. Therefore, signing an APA is now become a popular trend in both developed and developing countries. However, Decree 83 has just provided a general provision on the process of signing an APA, which is: (1) the taxpayer in demand may submit an APA application to the General Department of Tax; (2) the Department will consider and decide to negotiate with the taxpayer or not, and liaise with foreign tax authority (if necessary).

 Based on experience from other countries who already negotiated and entered into APAs, the said process may comprise of five steps as follows:

Step 1 - Preparation:

In this step, the taxpayer is advised to consider any obstacle with regard to a transaction or group of associated transactions which may happen to him when entering into an APA. Also the tax authority may explain and provide essential information to the taxpayer while suggest an anticipated duration for the APA.

For this purpose, tax player should:

1. Determine the nationality of its partners for the specifying of the competent tax authority;

2. Determine which transactions will be in the scope of APA, as well as which type of APA should be applied;

3. Choose method of transfer pricing used in the APA and assess its market conformity and its effects to the business of the taxpayer, as well as price of goods;

4. Choose any third company to make comparison on the method of transfer pricing;

5. Consider the expected duration of the APA and explain;

6. If the taxpayer decides to apply for the APA, he must refer and follow the application form and procedures provided by the relevant tax authority.

Step 2 – Official submission:

The APA application form may be used by the tax authority to determine tax calculation methods with regard to transactions between the taxpayer and relevant parties. In case it takes more than the expected time for the enterprise to gather essential documents for accomplishment of the official form, the taxpayer should timely inform the tax authority.

Normally, contents of the form may comprise of:

Name and address of enterprise;

Description of transactions (the taxpayer should focus on describing periodic, big and complicated transactions);

Name, address, nationality of partners;

Type of APA and its duration;

Description of business lines and operation of the taxpayer;

Description of transfer pricing methods and explanation;

Description of argumentative hypothesis (on market, competition factors, exchange rate and other economic issues of which the transfer pricing method is a premise) to form the APA;

Processes on report and certification on conformity of the APA provisions.

Step 3 – Check and analyzing:

This step shall be performed by the tax authority in order to assess the APA and the application form, and liaise with the foreign tax authority in case of  bilateral APA. The taxpayer will have to give answer and explanation to any issue raised by the tax authority. For the reason that parties have agreed on contents of the APA in the first two steps, the necessary time for this step may not be too long.

Step 4 – Final agreement:

The APA will be approved by parties in case it does not violate and breach the legal system, especially provisions on tax systems, of the local country. Noticeably, contents of the final agreement is not required to take after the provisions of the APA application form in the step two, it may be broader or narrower due to its dependence on assessment of the tax authority and other additional agreements between parties. Furthermore, any provision on issues which may relate to scope of a signed APA will not bind the taxpayer and tax authority during the validity of the agreement.

Step 5 – Supervision and annual report:

The taxpayer may be required to make regular report to the tax authority on the actual transaction in the fiscal and APA year; confirmation on applying transfer pricing method as agreed in APA; proving that the hypothesis has not been breached.


The Decree 83 shall take effect from the date of 15 September 2013.




The Ministry of Health has recently passed Circular 23-2013/TT-BYT dated 13 August 2013 guiding drugs processing activity (“Circular 23”). This Circular will replace the Circular 06-2004/TT-BYT (“Circular 06”) providing on the same matters.

1. Definitions

The Circular 23 has extended the scope of drugs processing activity by eradicate the phrase “owning some drugs (with or without registration numbers in Vietnam)” in its definition stipulated in Circular 06. In particular, the processee is not required to be the owner of the processed drugs under the new Circular, which also means that the processee may be allowed to play an intermediery role in the drugs processing activity. An obvious benefit of this extension is to encourage numerous potential entreprenuers with a huge amount of capital and experience in this activity to participate in. In turn, quality of the manufacturing, as well as the drugs, will be gradually accelerated.

Besides, the Circular 23 also supplements a new definition on transitional processing activity. Added to this, Article 2.6 of the Circular 23 provides that: “Transitional processing is the drugs processing in which there are several processors”. Article 2.6 also lists out two types of activity which can be considered as “transitional processing”, relying on usage of processed products of the previous processing contract: (1) to be the materials of other processing contracts or (2) to be delivered to other processors under the discretion of the processee.

2. Specific conditions

Together with the trend of welcoming potential manufacturers, the Circular 23 cuts down the number of conditions to be named as a processee. Pursuant to Article 3.1 of the Circular 23, to become a processee, an entreprenuer must be:

⇒ A legitimate drugs trading agency;

⇒ A foreign drug manufacturer or trading agency owning "operation license of foreign enterprises in drugs and drug materials in Vietnam"; or

⇒ The owner of an approved piece of the processee’s research or product research documents applied to unregistered drugs.

Contrary to the said trend, in comparision with the older Circular, the Circular 23 sets forth more conditions for a entreprenuer to be named as a processor by dividing the subjects of processing activity into two groups, as well as more certificate need to be provided. In particular, pursuant to section III.1 of the Circular 06, a entreprenuer is allowed to process all types of drugs if they are issued Certificate on Good Manufacturing Practice (GMP) by State authorities. Meanwhile, under the Circular 23, besides the GMP Certificate, this entrepreneur is required to possess a Certificate on drugs trading eligibility or Vietnam Standard TCVN ISO 13485 or equivalent, based on the groups the drug are classified in.

Besides, the Circular 23 also sets out requirements to the drugs to be processed. In addition, the registered drugs are allowed to be processed partly or in full by one or more manufacturers while the unregistered ones are merely allowed to be processed in full by a sole manufacturer.

In this case, in our view, the Circular 23 has made a legitimate steps to strengthen and improve the manufacturing capability of the domestic facilities. Whereby, it is a stepping stone for them to straightforwardly and impartially compete with other oversea strong opponents. Particularly, some benefits brought by the new Circular are:

⇒ Qualified foreign corporations are warmly welcomed to come and hiring a pharmacy enterprise or  facility of Vietnam to process their drugs. It is a firm basis to encourage them to transfer their pharmaceutical technologies, production lines, experience, etc. to the domestic enterprises. In detail, the Circular 23 does not raise any special provision on capital, experience or procedures applied for foreign enterprises in demand, except for a permission to operate in Vietnam. Besides, provision of manufacturing process, technical specifications and testing methods is stipulated as a principal obligation of processee and the processor is entitled to claim for accomplishment of this obligation.

⇒ By tightening up conditions to be a processor, the Circular 23 can be viewed as  an important step to restructure the pharmacy industry and accelerate the competitive competence of Vietnamese enterprises. Under the laws of Vietnam, to be issued the Certificate on GMP, an enterprise or facility has to conform to statutory standards on manufacturing process; quality of machine and equipment; air and waste water treatment system; experience and capacity of the staff relevant to the operation of the facility; etc. Consequently, there will be a demand for a big and long term investment in infrastructure and training, as well as professional, modern approach of this enterprise in order to  meet all these requirements and be qualified for the Certificate.

3. Processing contracts

Another significant point is that the Circular 23 also fastens provisions on form and contents of the drugs processing contract. In particular:

⇒ The contract shall be made in written form and comply with other legal legislations of Vietnam relevant to economic contracts;

⇒ Apart from the existing regulations on compulsory contents already stipulated in the Circular 06, the new one requires the contracting parties to clarify duties of processee relevant to intellectual property rights of the registered drugs.

⇒ In case the registering agency is different from the manufacturing one, the parties shall have the permission of the manufacturing to process the drugs already granted registration number by the Ministry of Health.


The Decree 23 shall take effect from the date of 01 October 2013.



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