Vietnam sets October for move towards global minimum tax adoption

July 13, 2023 | 16:18 – VIR

The Vietnamese government is slated to table the proposed legislation regarding global minimum tax before the National Assembly in October, with the General Department of Taxation (GDT) forecasting an implementation timeline commencing at the outset of 2024.

The forum on countering base erosion and profit shifting, organised by the Organisation for Economic Co-operation and Development (OECD) on July 11, served as the backdrop for unveiling of Vietnam’s trajectory towards the adoption of the global minimum tax (GMT) policy.

Dang Ngoc Minh, deputy director of the GDT, outlined the contours of this proposed fiscal reform. The tax, a corollary of the agreement minted by the G7 countries in June 2021, is an instrument engineered to impede multinational corporations’ tax evasion stratagems, slated for enforcement from January 1, 2024.

The stipulated tax rate is pegged at 15 per cent, targeting multinational enterprises whose consolidated revenue streams exceed €750 million (approximately $800 million) in any two years of the preceding four-year interval.

Minh revealed that the Ministry of Finance (MoF) initiated dialogues with the government in June, regarding the practicalities of enforcing global base erosion provisions in Vietnam. Following this initial proposal, the government is primed to submit the tax proposal to the National Assembly in October for deliberation, eyeing a potential enactment in the early part of the subsequent year.

The National Assembly is expected to institute policies on the GMT, inclusive of the income inclusion rules and under taxed payments. The under taxed payment mechanism could be construed as a domestic apparatus in which surplus profit calculations and minimum taxes are administered in alignment with OECD prescriptions.

This mechanism aims to forestall foreign-invested enterprises (FIEs) from remitting additional taxes to the jurisdictions where their parent companies are domiciled. Such measures are currently under active consideration in other financial hubs, including Hong Kong, Singapore, and Malaysia, which are inclined towards adoption.

Representatives of the GDT emphasised that these stipulations will be assimilated into Vietnamese jurisprudence, ensuring adherence to the standardised mandates and procedural guides underpinning the Global Anti-base Erosion initiative. Extensive consultations with the business community and the relevant departments will precede the submission of the draft to the National Assembly.

According to the data compiled by the MoF, there are currently 1,015 FIEs operating in Vietnam whose parent companies are tax-eligible. Of these, a cohort exceeding 70 entities will likely grapple with the implications of this tax, once it takes effect in 2024.

Should all countries, where the parent companies are domiciled, enforce the GMT, they could accrue an additional tax differential of approximately $500 million in 2024.

However, records from the tax department indicate a count of 335 industrial projects, each boasting a registered investment exceeding $100 million, located in designated economic and industrial zones, currently availing themselves of corporate income tax incentives below the 15 per cent threshold.

Multinational giants such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, and Pegatron – whose registered investments constitute close to 30 per cent of Vietnam’s total FDI pool, an estimated $131.3 billion, are among those likely to experience the fiscal repercussions of the tax.

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