What benefits does Vietnam gain from applying global minimum tax?

Bringing new opportunities

On September 28, continuing the 26th session, the National Assembly Standing Committee (NASC) gave opinions on the draft Resolution of the National Assembly on applying additional corporate income tax according to regulations against global tax base erosion.

Authorized by the Government, Minister of Finance Ho Duc Phoc presented the Government's Proposal stating the necessity of issuing a draft Resolution of the National Assembly on applying additional corporate income tax in accordance with regulations against global tax base erosion.

Accordingly, on July 9, 2021, the Finance Ministers and Central Bank Governors of the Group of 20 leading developed and emerging economies (G20) agreed in principle on a two-pillar solution to address tax challenges arising in the process of digitalizing the economy, including:

The first pillar, allocates taxes on digital-based business activities. The second pillar, sets a global minimum corporate tax rate of 15% for multinational companies.

On December 16, 2022, the Global Cooperation Forum on BEPS announced that 138 countries agreed to the content of the Two-Pillar Framework mentioned above. Vietnam is the 100th member of BEPS and has no reservations on this content, so it is one of the countries that agreed.

Minister of Finance Ho Duc Phoc affirmed 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.

Dialogue - What benefits does Vietnam gain from applying global minimum tax? — Minister of Finance Ho Duc Phoc presented the Government's Proposal.

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.

The application of global minimum tax regulations brings new opportunities to Vietnam, specifically: Increasing state budget revenue from additional tax collection; enhancing international integration; minimizing tax evasion, tax avoidance, transfer pricing, and profit transfer.

Minister of Finance Ho Duc Phoc also stated the purpose and viewpoints of developing the Resolution project, the process of developing the Resolution project, the structure and basic content of the Resolution project.

Accordingly, the purpose of developing the Resolution is to develop a Global Minimum Tax policy to be applied from 2024;

Ensure the legitimate rights and interests of Vietnam; create a level of trust between enterprises and the Government so that enterprises continue to invest and expand investment in Vietnam;

Demonstrate progress and transparency in the tax administration system and business investment environment approaching international standards;

Maintain current preferential policies applicable to enterprises not subject to the Global Minimum Tax.

The Draft Resolution of the National Assembly on the application of additional corporate income tax according to the regulations against global tax base erosion includes 9 Articles stipulating: Scope of regulation; taxpayers; explanation of terms; regulations on the minimum standard domestic additional corporate income tax; regulations on the synthesis of minimum taxable income; regulations on tax declaration and payment; implementation organization; enforcement provisions.

Peace of mind about the legal environment

Examining the draft Resolution of the National Assembly on the application of additional corporate income tax according to regulations against global tax base erosion, Chairman of the National Assembly's Finance and Budget Committee Le Quang Manh said that the Finance and Budget Committee expressed the necessity of issuing the Resolution.

According to Mr. Manh, many countries have internalized these regulations to apply from the 2024 corporate income tax period. If Vietnam does not internalize the regulations on global minimum tax, countries exporting investment capital will be able to collect additional corporate income tax (up to the full level of 15%) for multinational companies with foreign investment projects (foreign investment) in Vietnam that are currently enjoying an actual tax rate of less than 15%.

Dialogue - What benefits does Vietnam gain from applying the global minimum tax? (Figure 2). — Chairman of the National Assembly's Finance and Budget Committee Le Quang Manh reports on the review.

"Therefore, to ensure Vietnam's taxing rights, the Standing Committee of the Finance and Budget Committee agreed that it is necessary to issue legal documents to create a basis for foreign-invested enterprises subject to GloBE regulations to be able to declare and pay additional corporate income tax and feel secure about the legal environment in Vietnam," Mr. Manh shared.

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 Standing Committee of the Finance and Budget 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 regulations on preventing global tax base erosion before amending the Law;

At the same time, it is requested that the Government clearly report the plan and time for amending and supplementing the Law on Corporate Income Tax and the expected time of implementation to ensure that tax contents must be uniformly regulated in the Law.

The Government proposed that the name of the Resolution not include the word "pilot" to ensure certainty that the document meets standards when the OECD conducts a review.

This is only a matter of document form. The majority of opinions in the Standing Committee of the Finance and Budget Committee agree that the word "pilot" is not included in the name of the Resolution, but in essence, this Resolution must still be considered a pilot Resolution, with specific provisions on the application period and end date according to the provisions of the Law on Promulgation of Legal Documents.

The majority of opinions in the Standing Committee of the Finance and Budget Committee agreed to submit to the National Assembly to add to the Law and Ordinance Development Program for 2023 and submit at the October 2023 Session according to the simplified procedure in one session .

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