Viet Nam needed to take action to come up with appropriate tax policies and adapt to the global minimum corporate income tax, a major pillar of the Organisation for Economic Co-operation Development (OECD)’s base erosion and profit–shifting (BEPS) framework.

A number of countries were adopting Pillar Two global minimum corporate tax and moving toward implementing this measure.

In the tax insights issued early last week, PwC wrote that South Korea was the first country to have codified the global minimum tax rules in its domestic legislation.

The newly enacted rules are added to the existing Korean Law for the Coordination of International Tax Affairs.

In December, the European Union (EU) reached a unanimous agreement to implement this global minimum tax starting from 2024, which would pave the way for the EU to roll out a global corporate minimum tax rate of 15 per cent imposed on large multinational companies with annual revenue of US$790 million.

Other countries including the UK, Switzerland, Japan and Australia also initiated domestic legislative procedures to introduce the global minimum tax rules.

To date, over 140 countries and jurisdictions, including Viet Nam, joined the OECD’s two-pillar solution to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate. As part of this plan, Pillar Two introduces domestic rules that establish a global minimum effective corporate tax rate of 15 per cent for large multinational enterprises (MNEs).

The other half of the OECD framework, Pillar One, would cover the allocation of taxing rights over large multinationals to jurisdictions where profits are generated.

Under the OECD’s implementation plan, Pillar Two should be brought into law in 2022 and be effective in 2023.

The global minimum tax rules were forecast to have a significant impact on Viet Nam where foreign direct investment (FDI) played a significant role in the economy.

According to the report of the Central Economic Commission, the FDI sector contributed around 20 per cent of GDP, accounted for 70 per cent of the country’s export value and 50 per cent of the industrial output.

The FDI not only created jobs but also contributed to accelerating the economic restructuring, improving trade balance and promoting economic growth in Viet Nam.

For a long time, tax incentives have been an important tool for Viet Nam to attract FDI.

Given the short timeline before the new rules were in force, experts urged Viet Nam to take action to come up with appropriate tax policies in adaptation to the global minimum corporate tax in order to remain an attractive destination for FDI.

The Pillar Two would limit the ability of countries to use tax incentives to compete for investment attraction, forcing affected multinational corporations to consider other factors rather than tax for investment decisions, such as infrastructure development, market potential, policy environment, political stability, labour and other support measures besides tax.

According to PWC, when Pillar Two was adopted, tax incentives of countries would not bring many benefits to in-scope multinational corporations. If the government did not change the domestic legislation, the country might lose its competitiveness in the race of attracting FDI because tax incentives were no longer attractive, and investors might look to other countries for investment location.

Phan Duc Hieu, Permanent Member of the National Assembly’s Economic Committee, said it was necessary to develop appropriate tax and fee policies, especially building policies to adapt to the global minimum tax and improving the business environment transparency to remain an attractive FDI destination.

The global minimum tax would have a significant impact on Viet Nam’s FDI attraction, he said, adding that many countries were gearing up preparations in reviewing the legal frameworks and even implementing other measures to attract FDI as an alternative to tax incentives.

For Viet Nam, the slow policy change might affect many FDI projects which were operating in the country, especially in the plans for expansion of production and business.

Director of the General Statistics Office Nguyen Thi Huong said that to attract investment, Viet Nam needed to reduce logistics fees, enhance human resources quality, improve the infrastructure system and create a transparent business environment.

At the recent reception for President of the Republic of Korea’s Samsung Electronics Park Hark Kyu, Deputy Prime Minister Le Minh Khai said that a special work group was founded under the Prime Minister’s Decision No 55/QD-TTg dated August 4 to be in charge of studying and proposing solutions related to OECD’s Pillar Two.

Khai said that the working group would focus on reviewing the framework of corporate income tax in the adoption of the global minimum tax.

According to OECD, the introduction of the global minimum corporate tax rate set at 15 per cent would be applied to multinational enterprises with revenue above $790 million and was estimated to generate around $150 billion in additional global tax revenues annually. — VNS