Do not let countries lose 14,600 billion VND

There are currently 335 FDI projects with investment capital of more than 100 million USD.

In order to prevent multinational companies from shifting profits to low-tax countries to avoid taxes, in October 2021, the Organization for Economic Cooperation and Development (OECD) set a global minimum corporate tax rate of 15% for these companies.

Countries with large capital investments in Vietnam have planned to apply the Global Minimum Tax to gain tax collection rights. Countries receiving similar investment capital as Vietnam have been studying response policies and policies to support investors against the impact of the Global Minimum Tax.

“Applying global minimum tax in Vietnam is necessary to ensure Vietnam's legitimate rights and interests,” said Mr. Phan Duc Hieu, member of the National Assembly's Economic Committee.

Maintain global tax base to prevent developing countries from losing 14,600 billion dong, shape 1 — Applying the Global Minimum Tax will increase state budget revenue from additional tax collection, enhance international integration and reduce tax evasion, tax avoidance, transfer pricing and profit shifting. Illustrative photo

Applying the Global Minimum Tax will increase state budget revenue from additional tax collection, enhance international integration and reduce tax evasion, tax avoidance, transfer pricing and profit shifting.

However, the Global Minimum Tax also poses new challenges in attracting foreign investment. To ensure the competitiveness and attractiveness of the investment environment in Vietnam, along with the early application of the Global Minimum Tax, Vietnam needs to supplement new forms of investment incentives and support.

“The Vietnamese Government needs to minimize the impacts of the Global Minimum Tax, and needs to make changes to the current Corporate Tax Incentives to maintain competitiveness and attract foreign investment that the Vietnamese Government proposed at the beginning,” said Mr. Hong Sun, Chairman of the Korean Business Association in Vietnam.

Since the news of the global minimum tax, foreign investment flows seem to have slowed down as they wait to see how countries will implement the global minimum tax and whether there will be any other policies to compensate.

Although the Global Minimum Tax is not mandatory for all countries to apply, if Vietnam does not apply it, it must still accept that other countries applying the Global Minimum Tax have the right to collect additional taxes on enterprises in Vietnam (if applicable) that enjoy an actual tax rate in Vietnam lower than the global minimum rate of 15%, especially enterprises with foreign investment capital.

Currently, there are about 335 FDI projects with registered investment capital of over 100 million USD that are enjoying corporate income tax incentives lower than 15%. These are usually enterprises in the high-tech sector (such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, Pegatron...).

Standard minimum domestic supplementary tax

According to the 2022 corporate income tax settlement data, if the Global Minimum Tax is applied from 2024, the General Department of Taxation has a preliminary calculation that about 122 foreign corporations investing in Vietnam will be affected by the Global Minimum Tax. If Vietnam does not apply the Global Minimum Tax, but the countries investing in Vietnam do, the parent company in that country will be able to collect an additional tax difference in 2024 of about more than VND 14,600 billion.

In which, if Vietnam does not have the right to collect taxes, then: Korea has 18 MNE corporations investing in Vietnam, with the tax difference payable in Korea in 2024 being more than 10,700 billion VND. Japan has 36 MNE corporations investing in Vietnam, with the tax difference payable in Japan in 2024 being more than 250 billion VND.

Several other countries with large investments in Vietnam (Singapore, Taiwan, China, Thailand, the United States, Canada, Hong Kong, the Netherlands, Malaysia, British Virgin Islands, the United Kingdom) have 50 MNE corporations, with the tax difference payable in the investing country of more than VND 3,560 billion.

Therefore, Vietnam needs to gain the right to tax and limit the transfer of taxes to other countries that need to apply the Global Minimum Tax.

However, to ensure competitiveness and to respond to the application of Global Minimum Tax by countries, the Ministry of Finance believes that it is necessary to regulate the Standard Domestic Minimum Additional Tax (QDMTT).

Thus, Vietnam has expanded its tax base in accordance with the country's socio-economic context and international practices. At the same time, it has achieved the goal of maintaining current preferential policies applicable to enterprises not subject to the Global Minimum Tax.

In case the current regulations are kept unchanged and the standard domestic minimum supplementary tax is not applied, the benefits from preferential corporate income tax policies that projects enjoy in Vietnam will no longer exist, leading to a loss of competitive advantage in attracting FDI and affecting the investment expansion plans of the projects.

According to the Ministry of Finance, if Vietnam applies the regulations on the Standard Domestic Minimum Additional Tax, the budget will increase revenue due to additional corporate income tax collection for enterprises subject to the Global Minimum Tax whose projects are enjoying investment incentives on corporate income tax in Vietnam with actual tax amounts lower than the minimum level.

And in order not to lose its competitive advantage in attracting FDI, Vietnam will have to build more attractive and sustainable investment policies that are not based on taxes such as: administrative procedures, land access, high-quality labor resources, etc.

At the Government's special meeting on law-making in July 2023, the Government agreed to submit to the National Assembly two National Assembly Resolutions according to shortened procedures and order.

The first is the Resolution on the application of additional corporate income tax according to the regulations on preventing global tax base erosion. The Government assigned the Ministry of Finance to preside over the drafting of this Resolution.

The second resolution is on non-tax investor support policies. The Ministry of Planning and Investment is assigned to preside over the development of this draft resolution.

The Government will submit these two resolutions to the National Assembly for approval according to the one-session process (October 2023).

Current preferential policies applicable to businesses not subject to the Global Minimum Tax still apply.

Ha Linh

Source