Global minimum tax, Vietnam’s lawmaking steps

Nguyen Thanh Vinh, Baker & McKenzie Vietnam partner, provides details on Vietnam’s lawmaking steps as the Global Minimum Tax becomes a hot topic worldwide.

The domestic tax base erosion and profit shifting (BEPS) action plans of the OECD deal with these tax problems. Action Plan 1, which includes Pillar Two, is the most important in the BEPS.

A total of 138 countries and territories, which represent about 90% of global GDP, have expressed support for this action plan through a joint statement. With the OECD approving the application guidelines on February 1, 2023, these countries and territories will take more active steps in the near future to soon adopt Pillar Two.

Therefore, when countries with large investment flows into Vietnam apply Pillar Two, Vietnam's taxing rights and national interests will be affected. The top investors in Vietnam like Singapore or South Korea have all developed their own implementation plans: 2024 for South Korea and 2025 for Singapore.

This is really a challenge for Vietnam, a BEPS member that has joined the joint statement on Pillar Two. Vietnam will have to implement the Global Minimum Tax (GMT) mechanism under Pillar Two. As a number of countries will apply GMT in 2024, Vietnam needs to consider legalizing it in 2023 toward application from January 1, 2024.

As for this legalization, I present information about the following issues:

(i) Form of legal documents to regulate the minimum additional tax of Vietnam

(ii) Steps and timeline for issuing regulations on the tax

(iii) Legal provisions on support and issues to be implemented

Form of legal documents

If a country accepts the application of the Global anti-Base Erosion Rules (GloBE), this country will implement the minimum additional tax principles consistent with the OECD guidelines on Pillar Two. Vietnam has accepted GloBE.

Technically, OECD rules and guidelines regarding the minimum additional tax are relatively detailed.

As this is a new tax, this issue falls under the jurisdiction of Vietnam’s National Assembly (NA) and must be decided by the legislative body. Therefore, there must be a GMT law approved by the lawmaking body.

Another form of legal document that also needs to be considered is an NA resolution. According to the Law on Promulgation of Legal Documents, the NA has the authority to issue resolutions in a number of cases, for example, an NA resolution regulating other issues under the competence of the NA. Accordingly, if the joint statement on Pillar Two and related rules are considered an international treaty to which Vietnam has joined, the NA has the authority to issue a resolution to ratify the treaty.

As we know, usually a law document or resolution by the NA will only set out basic policies without details for implementation, in order to avoid amending it many times. After that, the government will issue a decree, and/or the documents under the decree to guide implementation. Thus, after the NA passes a law or resolution, the government and ministerial-level agencies need to issue legal regulations guiding the implementation of the law or resolution.

Steps and timeline

The above options have differences in procedures and deadlines, which sets out the fact that Vietnam must be flexible in selecting which legal documents to use to ensure two factors - legality and time efficiency.

Under a general process for an important law document or resolution of the National Assembly, the first job is to make a request to build a legal document.

In this process, the requesting agency needs to make an impact assessment report, as well as collect comments on the proposal to build it within 30 days. Following that, there is an appraisal process of the relevant ministries and the Ministry of Justice.

Then, the proposal file will be submitted to the government for discussion before being transferred to the National Assembly Standing Committee to decide whether it is on the National Assembly's annual agenda or not. With this process, the preparation of dossiers requesting the formulation of legal documents should be completed before March 1 every year to include it in next year's NA agenda.

Within its competence, the National Assembly Standing Committee may consider adjusting the NA's program of drafting legal documents after March 1 every year. However, even in that case, the preparation of a request for the formulation of legal documents must still be made.

With the above-mentioned workload, the steps of making a proposal to build a legal document require a lot of time.

After being included in the NA lawmaking agenda, the drafting stage will begin. In this step, the application of a shortened process to shorten this drafting is permitted. For example, the time limit for collecting comments from those directly affected by the draft according to the standard process is 60 days along with the requirement to publish the full text of the draft document, but it can be shortened to 20 days under shortened procedures. At the same time, the time limit for relevant ministries and agencies to conduct appraisal and comment will also be shortened.

As for the NA, normally the lawmaking body will meet to consider and approve a draft law in a maximum of three sessions, or a maximum of two for a resolution. In the case of simplified procedures, the approval can be done in the nearest meeting. Considering that the NA only meets once or twice a year, unless there is an extraordinary meeting request, the above-mentioned shortened procedure would theoretically help shorten the promulgation time.

However, it should also be noted that the application of the shortened procedures also needs to be approved by the NA, which means that there is one more step compared to the normal process.

Considering the above factors, it will take a long time for the GMT tax to be legislated and put into effect if Vietnam chooses to follow the normal process.

Therefore, it is necessary to consider other effective solutions to shorten the time to enact GMT legislation. For example, a solution that can harmonize both factors, legality and time efficiency, is to issue an NA resolution on a number of other issues under the jurisdiction of the NA, which includes ratifying international treaties.

This solution does not require the application of legal documents to be prepared. It can be a solution to shorten the time for a GMT mechanism.

Legal provisions on support and issues to be implemented

Another legal issue is how to ensure the stability of the investment environment.

Applying GMT will mean the continued application of investment incentives may have some limitations. Therefore, to maintain the attractiveness of the investment environment in Vietnam, the government needs to create flexibility in encouraging investment to balance national interests and investors' interests through new forms consistent with the standards set by the OECD for Pillar Two.

Vietnam’s Investment Law stipulates several forms of investment support, including:

a) Support the development of technical and social infrastructure systems inside and outside the fence of investment projects

b) Support in training and developing human resources

c) Credit support

d) Support access to production and business premises; support production and business establishments to relocate under decisions of state agencies

e) Support for scientific and technical issues and technology transfer

f) Support market development, provide information

g) Research and development support

However, in practice, these investment support measures have only been implemented in a limited way amid the lack of guiding documents from the government. Therefore, the government needs to review the existing tools, such as the above-mentioned forms of investment support, to find the right implementation direction through the issuance of guiding documents.

The government should also consider developing new investment support policies to retain existing investors and attract new investments. In that case, new forms of investment support may need to be included in the law, through the amendment of the Investment Law in 2023 and the issuance of guiding decrees.