Cost-based incentives should offset global minimum tax-related preference losses: EuroCham, AmCham

EuroCham and AmCham have recommended the Vietnamese government introduce cost-based incentives to offset losses of corporate income tax (CIT) preferences due to the adoption of the Global Minimum Tax (GMT).

In October 2021, the G7, G20 and 136 countries and jurisdictions participating in negotiations organized by the OECD agreed to a Two-Pillar Tax Reform Solution, including Pillar Two on the GMT of 15%. Countries that are members of the OECD as well as members of the Inclusive Framework have been in the process of developing and changing their domestic laws to cope with the implementation of Pillar Two from 2024.

Currently, Vietnam's CIT incentive policy mostly includes profit-based incentives, meaning only when enterprises are in a profitable position and generate taxable income, these enterprises can enjoy the benefits from tax incentives (10%, 15%, 17%, compared with the common 20%). Besides, the country provides import duty exemptions and incentives for land and water surface leases.

EuroCham recommended the government supplement more cost-based incentives, such as expenses spent on infrastructure, research & development (R&D), and technology transfer to encourage projects in selective investment sectors.

"The projects could be those with large investment capital with significant spending on infrastructure, or those with significant expenses incurred on technology and R&D, such as in the fields of high tech, R&D and manufacturing electric vehicles," Gabor Fluit, newly-elected chairman of EuroCham Vietnam, told the Vietnam Business Forum (VBF) last Sunday.

Similarly, AmCham recommended suggested the government integrate more cost-based incentives to encourage new projects in selective investment sectors, such as support on expenses for renewable energy, employee benefits, infrastructure, R&D, and technology transfer.

Under the GMT, companies with a global turnover of 750 million euro ($794 million) or more will be subject to a minimum global tax rate of 15%. If their subsidiaries enjoy an “effective” tax rate of less than 15% in countries they are investing in, the countries where their parent companies are headquartered will be subject to a top-up tax on the difference between the GMT rate of 15% and the effective tax rate in the recipient countries.

Besides, EuroCham and AmCham urged the Vietnamese government to offer CIT incentives to the electric vehicle sector, similar to those for environmental protection projects, including a low tax rate of 10% over 15 years, tax exemption for four years, and a 50% tax reduction for the next nine years.

"Current incentives do not include the manufacturing of electric vehicles. Given their importance to Vietnam's green development strategy and its COP26 commitments, the production of EVs should enjoy preferential CIT incentives, similar to those available for environmental protection projects," said Gregory Testerman, chairman of AmCham Vietnam in Ho Chi Minh City, in his presentation at the VBF.

In an interview with The Investor, Prof. Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises (VAFIE), said if the government can submit to the National Assembly amendments to current laws like the Enterprise Law, Investment Law and Law on Tax Administration this October, then it could begin in 2024. Otherwise, the National Assembly is likely to issue a resolution for the government to issue regulations to implement the GMT.

Prof. Mai is a member of Prime Minister Pham Minh Chinh's special working group on GMT in Vietnam, which was established last August. He is former Vice Chairman of State Committee for Cooperation and Investment, now Ministry of Planning and Investment.