Reviewing policies to close loopholes in global minimum tax enforcement

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Economic expert, Assoc. Prof. Dr. Dinh Trong Thinh

What is your assessment for key contents in the draft Resolution of the National Assembly on the application of additional corporate income tax in accordance with the regulation on global anti- base erosion, which is being developed by the Ministry of Finance?

The adoption of a global minimum tax is very important and necessary for the governments of the countries that have participated in the Global Forum on Base Erosion and Profit Shifting (BEPS) to implement initiatives to combat tax base erosion and profit shifting with the Two-Pillar Framework, where the second pillar sets a global minimum tax rate of 15% on multinational companies to prevent these companies from profit shifting to low-tax countries for tax avoidance. Most of our major partners have decided to implement the global minimum tax from January 1, 2024, if we don't do it, we will lose a source of income from global minimum tax, meanwhile, incentives for enterprises subject to global minimum tax will also no longer make sense. If we do not collect the tax at the minimum, the country with parent companies or a 3rd country will gain the right to collect the tax.

The same goes for Vietnamese enterprises investing abroad, if we do not collect the global minimum tax, the investment receiving country may not collect the difference in tax, but if our enterprise invests through an intermediary country, this country will collect that difference in tax, and thus, we also lose revenue for Vietnamese enterprises investing abroad. The source of state budget revenue is an important issue, but the most important issue here is how to not be disadvantaged to the international community and still ensure preferential treatment for businesses that have been investing in Vietnam. To do so, we must implement the global minimum tax as soon as possible, including internalization of the global minimum tax, maybe in the same way as Singapore, whereby, they can consider the appropriate rates for businesses in line with specific conditions of each country by domestic tax laws.

In a short run, Vietnam initially developed policies to implement OECD regulations on global minimum tax? What do you think about this work?

It is clear that the policy-making on global minimum tax has changed. From the beginning of the year until now, especially from February and March, the Ministry of Finance, General Department of Taxation and Government agencies have said that it is necessary to urgently build policies on global minimum tax in the context of countries around us and other partner countries have determined to apply the global minimum tax from 2024. However, despite the urgency, it also requires all resources to issue mechanisms and policies, and internalize requirements as well as execute works to be able to apply global minimum tax from January 1, 2024 in accordance with international practices as well as the requirements of the global tax.

This is a great effort of the General Department of Taxation as well as the Ministry of Finance, the Government and related agencies. These agencies have to both study experience of countries that issued documents on the application of global minimum tax and consider the conditions of Vietnam to give appropriate solutions. For unfamiliar issues, the promulgation of the National Assembly's resolution is also a key issue. The promulgation of resolutions and documents equivalent to the law helps us to implement the global minimum tax as a law to replace the previous regulations issued by the National Assembly and the Government on tax policies as well as other incentives for domestic and foreign enterprises. On the other hand, basing on practical implementation, we draw lessons and have time to consider, research, complete, and prepare fully before promulgating the law. It can be said that promulgating the resolution ensures the timeliness to fulfill the requirements, but are also easy to amend.

In your opinion, what should be noted when implementing global minimum tax to achieve set goals?

I think that first of all, we need to classify businesses and jobs to have an appropriate policy and mechanism. The classification by businesses and partners and subjects shows that there are subjects enjoying policy incentives, but many subjects have not yet benefited from preferential policies, so they must have different treatments to each group, especially with large enterprises, corporations or enterprises that have just invested and enjoy incentives when investing in Vietnam. To do this, there must be negotiations with enterprises to remove and ensure not to violate the provisions of the global minimum tax, because the global minimum tax does not allow clearing methods. Obviously, there must be other methods that are suitable and approved by partners. At the same time, there must be appropriate mechanisms and policies to support enterprises so that they can reduce costs, thereby improving the investment environment as well as meeting other requirements for enterprises to continue to invest in Vietnam better on the basis of economic benefits they enjoy at an appropriate level even though tax incentives are no longer available.

I think this is very difficult, not simple. It is necessary to consider, amend, and even revise laws such as the Law on State Budget and tax laws. State agencies need to review all policies to close the loopholes when the policies on tax incentives are no longer implemented, but there must issue corresponding replacement mechanism. In particular, for activities in the current national economy, the simplification of administrative procedures and the digitization of operations of the General Department of Taxation, the General Department of Customs as well as of a number of government agencies have contributed to reducing informal costs, reduce costs of policy access, market access, and helping businesses reduce costs in production and business, creating an equal two-way relationship between investors and State agencies and between employees and owners of enterprises, to make the consensus.

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It should also be noted that in fact there are many specific proposals of enterprises, however, we must carefully consider these proposals and we must explain to the enterprise inappropriate proposals so that the two side jointly solve difficulties and obstacles in the implementation of the global minimum tax.