The move comes amid concerns that this measure might undermine the competitive advantage of developing countries in attracting foreign investment through offering tax incentives.
The global minimum tax was Pillar Two of the Organisation for Economic Co-operation Development (OECD)’s base erosion and profit-shifting (BEPS) framework.
To date, the solution drew the participation of over 140 countries and jurisdictions, including Viet Nam, which aimed to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate through the establishment of a global minimum effective corporate tax rate of 15 per cent for those with annual revenue of 750 million euros, starting from 2024.
Do Van Su, Deputy Director of the Ministry of Planning and Investment’s Foreign Investment Agency, said the global situation was changing rapidly with unpredictable and complicated developments, negatively affecting the economic prospects and budget revenues of most countries.
In addition, the rapid development of information and technology and the emergence of new economic models allowed multinational companies to take advantage of policy loopholes to avoid tax obligations through transferring profits from countries with a high tax rate to counties with lower rates, or transfer pricing. In addition, the competition in attracting investment among capital-importing countries was in a race to the bottom, he said.
In Viet Nam, tax incentives were being used as a financial leverage tool to influence investment trends. Viet Nam’s corporate income tax incentives were considered attractive compared to other countries in the region.
Specifically, the common corporate income tax was 20 per cent, higher than the global minimum tax rate. The preferential rates of 10 per cent, 15 per cent and 17 per cent were applied depending on the industries, sizes and locations of the investment. Notably, some investors were given special rates of just 5 per cent, 7 per cent and 9 per cent. Other incentives included tax exemption and a 50 per cent reduction.
When the global minimum tax came into force, tax incentives would no longer give Viet Nam a competitive advantage in attracting investment, Su said. This rule, moreover, affected the management of existing foreign-invested enterprises.
This fact required Viet Nam to raise solutions to adapt to the global minimum tax and develop new investment promotion policies.
According to Takeo Nakajima, Chief Representative of the Japan External Trade Organisation (JETRO) Ha Noi, when investing in a country, an investor would consider a number of factors, especially tax incentives.
The implementation of the global minimum tax rate would have a direct impact on the business operation, thus, it was important for Viet Nam to early raise policies to maintain the attractiveness and adapt to the global minimum tax.
Besides, the investment environment and market growth potential were among other factors.
He cited findings of a survey by JETRO that 24 per cent of participant enterprises found Viet Nam’s investment environment attractive in terms of tax but around 60 per cent said, like some countries in ASEAN, the implementation of tax policies in Viet Nam was not really effective.
Predicting that the capital flow from small and medium-sized enterprises would increase, he said Viet Nam should maintain the tax incentives for those who were not subject to the global minimum tax.
While corporate income tax incentives were no longer an advantage, Viet Nam could not delay the formulation of other policies to attract foreign investment.
Yasuhisa Taninaka, from the Japanese Chamber of Commerce and Industry in Viet Nam, said that enterprises would see the total cost when investing in Viet Nam, not only corporate income tax.
He proposed reductions in personal income tax rates would be put into consideration as the rates remained high in Viet Nam.
A representative from the European Chamber of Commerce in Viet Nam (Eurocham) said that enterprises were aware that the global minimum tax was a global game, but enterprises wanted to know how countries, including Viet Nam, changed their policies so that they could distribute their tax payable.
He cited Eurocham’s 2022-23 Whitebook that 70 per cent said Viet Nam could increase foreign investment by reducing roadblocks in terms of administrative procedures, 53 per cent suggested improving infrastructure, 35 per cent suggested improving human resources and 47 per cent suggested easing visa barriers for foreign experts.
Deputy Minister of Planning and Investment Nguyen Thi Bich Ngoc said that Viet Nam would amend the investment attraction policies to ensure the compatibility to the global minimum tax and minimise the impacts on enterprises, pledging a harmonisation of benefits and a favourable environment to encourage investment in Viet Nam in line with the country’s socio-economic development.
At the Viet Nam Business Forum on Sunday, Prime Minister Pham Minh Chinh said that the Vietnamese Government was consulting other countries to develop an appropriate policy on the global minimum tax and striving to issue it this year to create opportunities for foreign companies to operate and contribute more in Viet Nam without affecting interests of investors.
Previously, the Government asked relevant ministries to submit a comprehensive report about the global minimum tax within March.
A working group in charge of studying the tax was established in August 2022.
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