That is the assertion of Minister of Finance Ho Duc Phuoc at the Workshop “Global Minimum Tax Rules: Experiences of other countries, expected impacts and recommendations for solutions for Vietnam” which has just been held by the Institute. Financial Strategy and Policy (Ministry of Finance) held on the morning of April 18. Deputy General Director of the General Department of Taxation Dang Ngoc Minh attended and spoke at the seminar.
- Vietnam has 1,015 FDI enterprises that are subject to the global minimum tax
Speaking at the workshop, Minister Ho Duc Phuc said that the development of the digital economy and globalization has had a great impact on the socio-economic development of countries. Many new business types based on information technology were born, bringing new conveniences to customers; but at the same time, it also poses new challenges for the authorities, especially the appropriate tax collection management measures to prevent acts of eroding the tax base and shifting profits.
Against this backdrop, the Initiative Against Tax Base Erosion and Profit Shift (BEPS) was initiated by the OECD and adopted by the G20.
Implementing the actions of BEPS, in July 2021, the Finance Ministers and Central Bank Governors of the G20 agreed on the principle of a two-pillar solution to address tax challenges arising in the process of tax reform, digitalization of the economy (referred to as the Global Minimum Tax Agreement), including:
First, pillar 1 is tax allocation for digital-based businesses;
Second, pillar 2 sets a global minimum corporate tax rate of 15% for multinational companies to prevent these companies from relocating profits to low-tax countries to avoid taxes.
The two-pillar solution framework has received the consensus of 142/142 member countries, including Vietnam. According to the principles of the application of the global minimum tax published by the OECD/G20, member countries are not required to apply the provisions of the global minimum tax, but if they choose to apply these provisions, the water will have to follow the guidelines consistently. In the event that a country does not apply, the global minimum tax regulations applied by other members must still be accepted.
To date, most countries of the European Union and some countries and territories have confirmed to apply the 15% minimum tax rate rule, starting in 2024. South Korea, Singapore, Japan, etc. are countries with a large amount of foreign investment in Vietnam and are countries with many enterprises that are subject to the global minimum tax.
Currently, in Vietnam, there are 1,015 foreign-invested enterprises whose parent companies are subject to the global minimum tax. Which, more than 70 businesses are likely to be affected by the global minimum tax when it is applied from 2024.
If the countries with the parent companies all enforce the global minimum tax, these countries will receive an additional tax difference in 2024, estimated at more than 12 trillion VND. Thus, tax incentives will no longer be effective, thereby posing a significant challenge to maintaining the competitiveness of Vietnam’s investment environment.
- Need for direct or indirect financial support solutions
Speaking at the seminar, Deputy Director General of the General Department of Taxation Dang Ngoc Minh said that tax incentives in attracting investment in Vietnam (incentives on corporate income tax (CIT); exemption from import tax; exemption or reduction of land use levy, land rent, and land use tax; rapid depreciation, increased deductible expenses when calculating taxable income) is considered attractive compared to other countries in the region.
Foreign investment flows into Vietnam have steadily expanded over the years as a result of competitive tax advantages, as well as qualities such as a stable political economy, sufficient labor resources, and so on.
In 2020, Vietnam is for the first time in the group of 20 leading FDI-attracting countries in the world, while global foreign investment tends to decrease. By 2021, FDI in Vietnam will continue to remain stable and exceed the 31 billion USD mark, an increase of 9.2% compared to 2020. In 2022, Vietnam has also attracted nearly 30 billion USD, although a decrease. compared to 2021 but showed a positive signal during the pandemic.
However, if Vietnam applies a global minimum tax, it will directly affect global FDI flows, so Vietnam will face many difficulties in attracting FDI through tax incentives.
Deputy General Director Dang Ngoc Minh shared that, according to statistics, there are currently about 335 projects with registered investment capital of over 100 million USD, operating in the field of processing and manufacturing industries in various industries. economic zones, industrial parks and are enjoying CIT incentives lower than 15%, in which, they are usually high-tech enterprises (such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, Pegatron). …). Accordingly, the total registered investment capital of these types of projects accounts for nearly 30% of the total FDI capital in Vietnam (about 131.3 billion USD).
“These are projects that are likely to be affected by the global minimum tax. If the global minimum tax is applied and Vietnam does not have timely response solutions, the benefits from the CIT incentives that projects in Vietnam enjoy will no longer affect the project. The attractiveness leads to the loss of competitive advantage of the Vietnamese market in attracting foreign investment and affects the investment expansion plan of the projects” – Deputy Director General Dang Ngoc Minh assessed.
In order to limit the negative impact of the global minimum tax on investment attraction in Vietnam, according to Deputy Director General Dang Ngoc Minh, it is necessary to have direct or indirect financial support solutions but must ensure no violation of global minimum tax rules, in line with international commitments and practices, publicity and transparency, and minimize adverse impacts on the investment environment.
Support solutions that need to be researched and issued may include supporting businesses in the process of investing in basic infrastructure for production, investing in the formation of fixed assets for industrial production, and maintaining environmental protection, housing support for workers, social insurance support, health care for employees, support for research and development, high technology application, environment-friendly technology. In order to implement the state support program, it is also necessary to allocate financial resources, land, and train human resources to maintain the attractiveness and stability of the investment environment.
“In order to limit the negative impact of the global minimum tax on investment attraction in Vietnam, it is necessary to have direct or indirect financial support solutions but must ensure that the minimum tax rules are not violated. global mitigation, in line with international commitments and practices, publicity and transparency, minimizing adverse impacts on the investment environment.” – Deputy Director General Dang Ngoc Minh noted.
- Vietnam is committed to always accompanying FDI enterprises
Speaking directly at the seminar, representatives of leaders of ministries and branches, and domestic and international experts gave many opinions, focusing on clarifying a number of key contents, such as the main of the global minimum tax rule; The situation of preparation and implementation of Pillar 2 application in source countries as well as investment-receiving countries, especially those with similar circumstances and conditions as Vietnam; Fully and comprehensively assess the impacts of the global minimum tax on Vietnam, focusing on assessing the impact on the state budget, investors and attracting foreign investment of Vietnam.
Among them, a speaker gave timely and appropriate response solutions, ensuring Vietnam’s tax collection rights as well as the attractiveness of the investment environment. In addition, some experts said that, in the context of the economic downturn, at the same time the new rules on minimum tax are applied, it will have a double impact on businesses. Therefore, the Government’s companionship with investors is an especially important factor more than ever to retain and attract “eagles”.
Speaking at the conference, Minister Ho Duc Phuoc affirmed that the Government of Vietnam always accompanies investors for the development interests of the country and investors, accordingly for the issue of minimum tax on the whole country. In order to urgently continue researching and proposing solutions to respond to Vietnam, in August 2022, the Prime Minister established a special working group on researching and proposing solutions. related to the global minimum tax rate of the OECD led by Deputy Prime Minister Le Minh Khai.
Then, in February 2023, in order to implement the Government’s direction, the Ministry of Finance established the Prime Minister’s Special Working Group to study and propose relevant solutions. to the OECD’s global minimum tax rate.
“Because the global minimum tax is a new, important, and technical issue, today, the Ministry of Finance organized a scientific conference to consult with scientists, regulators, foreign-invested enterprises in Vietnam, and international organizations, thereby adding a channel of information about countries’ experience in applying the global minimum tax so that Vietnam can evaluate the impact and provide solutions for Vietnam in the coming time.” – Minister Ho Duc Phuc emphasized.
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