Vietnam should proactively implement Global Minimum Tax: official

Although the Global Minimum Tax is not mandatory, Vietnam should implement it proactively because it can increase tax revenues, further international integration and create new opportunities, a senior tax official says.

Dang Ngoc Minh, deputy general Director of the country's General Department of Taxation, affirmed this Tuesday at an international workshop on "Pillar 2 Global Minimum Tax Implementation in Vietnam," joinly hosted by the Vietnam's Association of Foreign Invested Enterprises (VAFIE) and the Washington D.C.-based International Tax and Investment Center (ITIC).

The GMT can also help Vietnam prevent transfer pricing and tax evasion/avoidance, he said. If Vietnam does not implement it, other countries can gain additional tax revenue that Vietnam can levy, especially on foreign businesses, Minh said.

Based on 2022 data, GMT application would fetch Vietnam additional tax revenues of VND14.6 trillion ($574.4 million) from 122 foreign multinational enterprises with investments in the country.

From Vietnamese enterprises with outbound investments, the additional tax revenues could reach VND73 billion ($2.9 million), Minh said.

Critical mass

Jonathan Pemberton, senior advisor with the International Tax and Investment Center, said 35 economies were implementing the GMT in 2024.

Although different jurisdictions can have differences in GMT implementation, the common goal is to ensure fair tax collection, he added.

“Once we reach a critical mass of number of countries implementing the GMT," other nations will end up following the initiatives and "we're probably there already," said Pemberton, former senior official of the Organization for Economic Co-operation and Development (OECD) and His Majesty's Revenue and Customs (HMRC) of the United Kingdom.

He said the ratio of global profits subject to low taxes can fall soon from 36% to 7% and nations can gain additional taxes of $155-192 billion.

Given current economic growth and inflation trends, the ratio of “in-scope” multinational enterprises paying more taxes in line with the GMT can go up from 60% in 2024 to 90% in 2025 and beyond, he added.

On November 29, 2023, Vietnam's National Assembly, the country's highest legislative body, passed a resolution on levying additional corporate income tax as per Global Anti-base Erosion (GloBE) Rules; applying a tax rate of 15% to taxpayers who are constituent entities of multinational enterprises with turnover in the Consolidated Financial Statements of the Ultimate Parent Entity (UPE) for at least two of the four years immediately preceding the fiscal year reaching €750 million or more.

The exceptions are government organizations, international organizations, non-profit organizations, pension funds, investment funds that are UPEs, real estate investment entities that are UPEs, entities with at least 85% of the asset value owned directly or indirectly through organizations specified in points ‘a’ to ‘e’ of this clause.

The resolution takes effect on January 1, 2024, applicable from fiscal year 2024. To make regulations on corporate income tax consistent, the parliament requested the Government to urgently complete the dossier of the (amended) Law on Corporate Income Tax project and submit it to the Standing Committee of the National Assembly. The National Assembly will consider adding it to the 2024 lawmaking agenda.

The international workshop on "Pillar 2 Global Minimum Tax Implementation in Vietnam" is the third workshop on GMT that the VAFIE and the association's publications The Investor (www.theinvestor.vn) and Nha dau tu (www.nhadautu.vn) have organized.