Creating investor confidence in the legal environment in Vietnam

On the morning of November 10, the National Assembly listened to the Presentation and Report on the examination of the draft Resolution on the application of additional corporate income tax according to regulations against global tax base erosion.

Minister of Finance Ho Duc Phoc said that the global minimum tax is not an international treaty, not an international commitment, and does not require countries to apply it. However, if Vietnam does not apply it, it must still accept that other countries apply the global minimum tax, and 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 of 15%, especially enterprises with foreign investment capital.

In the above context, to ensure its legitimate rights and interests, Vietnam needs to affirm the application of the global minimum tax. According to the guidance of the Organization for Economic Cooperation and Development (OECD) on regulations against global tax base erosion, the global minimum tax is essentially an additional corporate income tax and countries need to regulate it appropriately in their legal systems.

Minister of Finance Ho Duc Phoc, authorized by the Prime Minister, presented the Draft Resolution on applying additional corporate income tax according to regulations on preventing global tax base erosion. Photo: Doan Tan/VNA

Presenting the Verification Report, Chairman of the National Assembly's Finance and Budget Committee Le Quang Manh said that the majority of opinions in the Committee believe that it is necessary to issue a legal document to create a legal basis for foreign-invested enterprises subject to the global minimum tax to declare additional corporate income tax in Vietnam instead of having foreign investors pay this additional tax in the mother country. On the other hand, the early issuance of the Resolution will clearly demonstrate Vietnam's determination to implement the global minimum tax from January 1, 2024, creating confidence for investors in the legal environment in Vietnam.

In the context that the Government has not yet implemented the plan to amend and supplement the Law on Corporate Income Tax to stipulate in the Law the contents related to the global minimum tax, the majority of opinions in the Committee agreed that it is necessary to temporarily issue a Resolution (pilot) of the National Assembly on the application of additional corporate income tax according to the OECD's Regulation on Global Minimum Tax before amending the Law to ensure Vietnam's tax collection rights, in line with international trends and standards in tax management. The Committee requested the Government to clearly report on the plan and time to amend and supplement the Law on Corporate Income Tax to ensure that tax contents must be uniformly stipulated in the Law.

There are opinions in the Committee that do not agree with the issuance of this Resolution in isolation; there are opinions that suggest the early issuance of a resolution on additional support policies to retain old investors and avoid huge consequences if these investors leave Vietnam. There are opinions that are concerned about the feasibility of implementing the Resolution.

In the Submission, the Drafting Agency expressed its view to continue to "maintain the current preferential policies applicable to enterprises not subject to the global minimum tax". The Reviewing Agency agreed with this view, but suggested that it should be determined that this is only a temporary solution, before comprehensively amending the Law on Corporate Income Tax. In the new context and trend of implementing the global minimum tax, continuing to maintain the current corporate income tax incentive system is inappropriate and no longer effective in practice, while the cost of tax exemptions and reductions reduces the State budget revenue by tens of thousands of billions of VND annually. Experts all believe that implementing the global minimum tax opens up opportunities for Vietnam to review and re-evaluate the effectiveness of the current tax incentive system.

Therefore, the Finance and Budget Committee recommends that the Government fully assess the impact on the investment environment due to the implementation of the global minimum tax, so that when amending the Law on Corporate Income Tax, in addition to including provisions on the global minimum tax in the Law, the Government also needs to study and reform the tax rate and tax incentive system in a comprehensive and appropriate manner, in order to have a policy direction for new investors and ensure the actual effectiveness of tax incentives. Accordingly, it is necessary to study and replace the current incentive policy based on profits (through tax exemptions and reductions) with appropriate cost-based incentives.

Chairman of the National Assembly's Finance and Budget Committee Le Quang Manh presented the Report on the examination of the draft Resolution on the application of additional corporate income tax according to regulations on preventing erosion of the global tax base. Photo: Doan Tan/VNA

According to Chairman Le Quang Manh, the Government's Impact Assessment Report was calculated based on corporate income tax settlement data in 2022 and it is expected that about 122 foreign investment corporations will be subject to the Resolution's adjustment with a total additional corporate income tax payment of VND 14,600 billion.

For domestic corporations, the Government's Report predicts that there will be 6 corporations subject to the Resolution's adjustment and it is expected that the additional corporate income tax (IIR) that can be collected from overseas investments of these corporations will be about 73 billion VND (in case the investment recipient countries do not apply the global minimum tax).

However, according to the Global Minimum Tax Regulation, even for the domestic income of these corporations with an effective tax rate of less than 15%, they will still have to pay additional domestic minimum corporate income tax to avoid third countries being entitled to collect this tax from Vietnam from 2025. This could have a significant impact on domestic corporations. The Government's impact assessment report has not yet fully assessed these impacts, including the possibility that the number of domestic corporations affected will change every year and may be larger than the expected number. Therefore, the Government needs to take these impacts into account to prepare appropriate handling plans and perspectives.

According to VNA/Tin Tuc Newspaper

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