Issuing resolution on global minimum tax to proactive international integration

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The soon adoption of the Resolution on global minimum tax will ensure legal clarity for investors.

Ensuring legal clarity

On the morning of November 29, 2023, the National Assembly officially passed a Resolution on applying additional corporate income tax (CIT) according to global anti-base erosion rules at the closing session the National Assembly.

Previously, the NA discussed the draft Resolution on applying additional CIT according to global anti-base erosion rules.

According to the report on explaining, approving and revising the draft Resolution of the NA’s Standing Committee, the NA delegates strongly agreed on the need to issue the Resolution to proactively integrate internationally and internalize regulations of Organization for Economic Co-operation and Development (OECD) to retain the right to levy global minimum tax in Vietnam.

According to the NA’s Standing Committee, from the perspective of investors governed by the global minimum tax, the fact that Vietnam has not yet internalized regulations on global minimum tax before January 1, 2024 will make investors not clear about the possibility of applying global minimum tax in Vietnam. This may force investors to make a plan for 2024 in direction of tax declaration and payment in the parent country instead in Vietnam

Therefore, investors expect Vietnam to soon pass a Resolution on additional corporate income tax to ensure legal clarity for investors when making a plan for 2024.

Thus, on November 1, 2023, the NA’s Standing Committee issued Resolution No. 39/2023/UBTVQH15 to add the Resolution on applying additional corporate income tax according to global anti-base erosion rules to the 2023 law-making program to report the NA at this meeting.

Previously, in 2021, the Organization for Economic Cooperation and Development (OECD) issued a statement on the Two-Pillar Solution Framework to address tax challenges arising from the digitalization of the economy including: Pillar one is the allocation of taxing right for digital-based business activities; Pillar two sets a global minimum corporate tax rate of 15% for multinational companies.

The implementation of this global minimum corporate tax rate has reached agreement with the participation of more than 100 countries around the world, including Vietnam.

Countries investing abroad will apply the global minimum tax from 2024 to collect the difference from the actual tax rate compared to the global minimum tax (15%). Countries that receive foreign investment, similar to Vietnam, also research to come up with response policies, including the application of qualified domestic minimum top-up taxes (QDMTT) (QDMTT) regulations to avoid payment of additional tax on the income of member companies who are enjoying effective tax rates lower than the minimum level in countries where the parent company is headquartered, and also research several financial support solutions to retain FDI enterprises subject to the global minimum tax and attract new investors.

Bringing many benefits, ensuring a fair and transparent competitive environment among countries

According to National Assembly delegate Tran Van Lam, Vietnam has actively participated in the global minimum tax convention. This is in the national interest and if Vietnam does not participate, implement or apply the global minimum tax, the "home countries" of business owners have the right to "levy" the minimum tax rate of 15%.

Therefore, if Vietnam does not participate in the convention, businesses will not enjoy the difference compared to the global minimum tax. Accordingly, this difference will be transferred to the home country of that enterprise.

Therefore, to ensure national interests, Vietnam needs to have a policy to participate in implementing the global minimum tax from the beginning of 2024 when all countries participating in the convention will ensure their taxing rights and national interests.

According to Tran Van Lam, joining the global minimum tax convention will reject Vietnam's prevailing preferential policies to attract investment based on the tool of corporate income tax policy. Therefore, it must be affirmed that corporate income tax incentives are only one of the preferential policies to attract investment.

There are many other factors attracting foreign investment into Vietnam such as: the stability of the political system, infrastructure foundations, human resource, institutions, investment policies, administration, legality and security.

All of these factors combine together to create an attractive investment environment, and tax is a factor. Therefore, it must be determined that the application of preferential tax policies also creates loopholes for businesses to conduct transfer pricing and tax fraud.

“Therefore, the application of the financial information tax will have some impact on the business environment. However, the level of impact and investment attractiveness is not too great. On the other hand, Vietnam has certain benefits such as increased revenue for the budget; reduce smuggling and transfer pricing...", delegate Tran Van Lam emphasized.

National Assembly delegate and economic expert Tran Hoang Ngan emphasized that the upcoming application of global minimum tax will definitely help increase budget revenue. The global minimum tax rate is set at 15%, applicable to multinational corporations and companies which have total global revenue of EUR 750 million, equivalent to US$800 million for at least two years of four most recent years and have operated profitably.

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In response to the opinion that the application of the global minimum tax leads to limiting the attractiveness of FDI capital of multinational corporations and companies. Expert Tran Hoang Ngan said that, to ensure a fair and transparent competitive environment among countries, and fight against transfer pricing, we still need to apply regulations on global minimum tax.