Global minimum tax and recommendations for Vietnam

Ms. Vu Thu Nga – Tax Partner of Deloitte Vietnam

Finding solution to effectively adapt to Pillar 2 while attracting investment is a difficult problem not only for Vietnam but also for many countries around the world. Enternews had an interview with Ms. Vu Thu Nga – Tax Partner of Deloitte Vietnam about this issue.

- As an expert on tax incentive consulting for large corporations that have been investing in Vietnam, could you please share about the concerns of businesses on the issue of global minimum tax rate as well as investors' expectations for the action of Vietnamese Government?

According to the results of the Global Tax Survey 2022 conducted and recently published by Deloitte, the global minimum tax rate is assessed as one of the outstanding tax topics in 2022 by multinational corporations. All corporations believe that a large number of countries will implement the Pillar 2 solution by 2024 and up to 55% of the surveyed corporations have actively consulted to implement the OECD's Pillar 2 solution.

Concerning the impact of Pillar 2, business community in Vietnam also express their expectation that the Government would reform certain policies on general incentives and tax incentives to adapt to the global tax environment. This desire requires the Government to have comprehensive studies and assessments of the impact of Pillar 2 on Vietnam on the one hand, and also observe and learn from methodologies and progresses of other countries’ reactions to Pillar 2 so that the proposed solutions shall be practical and suitable for Vietnamese conditions but still stay in the trend of the world.

- Could you please share more about the reactions of other countries to the OECD's Pillar 2 solution, especially the timing of this solution and the possibility of changing their internal laws?

According to the latest report of OECD General Secretary to G20 Finance Ministers and Central Bank Governors in July 2022, most countries are planning to adopt Pillar 2 by 2024 – one year behind the OECD's proposition of 2023. The implementation of Pillar 2 from 2024 will also give the OECD more time to develop the Pillar 2 Implementation Framework, and better facilitate the coordination among tax management authorities in countries impacted by the Pillar 2.

The implementation of Pillar 2 requires each country to consider comprehensively changing tax regulations and others related to investment, industry, trade, science and technology, etc.

Many countries such as Singapore, Hong Kong, Malaysia, UK, etc. have high probability of implementing a domestic minimum tax mechanism to protect their tax base. This is also a measure to help countries to eliminate tax incentives that do not really work as well as limit    the profit shifting of multinational corporations. For some countries with undeveloped investment incentive systems, Pillar 2 can be seen as a "boost" to accelerate the transition toward new policies issuance. This will help effectively closing the policy gap between the local law and international practice, hence speed-up the process of global economy development and integration.

- There are proposed ideas to compensate investors affected by Pillar 2 to ensure their rights in the investment receiving country. In your observations, would this proposed measure be considered to apply by many countries?

For developing countries, the prevailing tax incentives are definitely affected by Pillar 2, thus it would be impossible to retain investors and preserve attractive investment environment as before. Currently, compensatory measures such as monetary subsidies are being discussed but still need time for assessment because of considering the impact of other factors such as investment guarantees, conformity with OECD principles in the Pillar 2 solutions, use of national budget,...

In contrast, for developed countries such as Japan, South Korea, US, European countries, etc., up to now no country has had any official announcement of compensation measures for the investors affected by Pillar 2.

- Upon observing certain reactions of countries in the region and the world, do you have any recommendation for the Government as well as foreign investors in Vietnam?

For foreign investors, they should actively follow up the process of changing policies and impact assessment to make reasonable strategic adjustments to optimize incentive policies in Vietnam, particularly:

Foreign investors need to closely follow the development process of the OECD Pillar 2 Solution Framework, policy reform orientation of Vietnam and their home countries to update and have the appropriate understanding. On that basis they can actively share and recommend to the Vietnamese Government from the perspective of international experience for appropriate changes in policy to guarantee the investors’ interest.

In the process of finalizing the Pillar 2 Solution Framework, differences in impact assessment perspectives between investors and governments may arise because this is a newly complicated policy. Therefore, each business should proactively assess the impact of Pillar 2 at corporation level to prepare for changes in policy in the upcoming time.

For Vietnamese Government, the strategy should focus on 02 aspects:

Regarding policy changes: tax and non-tax incentive policy solutions should be studied early to amend, supplement or replace in order to promptly take effect along with the time of Pillar 2 application in 2024. Vietnam could consider applying technical solutions such as domestic minimum tax rate, 15% preferential tax rate in a suitable period or monetary subsidy as some other countries to mitigate the impacts of Pillar 2. The process of changing incentive policies related to Pillar 2 of other countries should also be closely followed in order to react appropriately.

Regarding business management: to prepare for building financial databases, tools to determine effective tax rate using information technology application to support and facilitate for businesses in calculating and declaring obligations when applying Pillar 2 solution. The Government should also continue promoting and strengthening dialogue channels, consult the business community and professional tax consulting firms in the process of developing legal framework on policies and management scheme so that solutions when implemented would be practical and be able to gain positive consensus from businesses.

Thank you!