Global Minimum Tax (GMT): A Turning Point Reshaping The Rules Of International Investment

For decades, multinational corporations have optimized their tax burden by locating profit centers in low-tax jurisdictions. However, the introduction of the Global Minimum Tax (GMT) under OECD Pillar Two has officially brought this era to an end, ushering in a new phase of competition: competition based on real substance and value creation.

I. The Nature of GMT: The Gradual Disappearance of “Tax Havens”

The Global Minimum Tax is not a new tax that changes a country’s statutory corporate income tax rate. Instead, it is a top-up tax mechanism.

Core principle: If a multinational group’s Effective Tax Rate (ETR) in a jurisdiction is below 15%, the difference will be subject to a top-up tax.

Scope of application: Multinational enterprise (MNE) groups with consolidated revenue of at least EUR 750 million in at least two of the four most recent fiscal years.

This means that small and medium-sized enterprises (SMEs) are largely unaffected directly, while large FDI enterprises must fundamentally reassess their overall cost and tax strategies.

Comparison: Statutory Tax Rate vs. Effective Tax Rate (ETR)

In essence, GMT directly targets the ETR. Any attempt by jurisdictions to compete via tax incentives becomes ineffective if the final ETR falls below the 15% threshold.

II. Three “Gates” of Tax Collection – No Room for Tax Avoidance

To ensure that all profits are taxed at the minimum level, the OECD has established three protective mechanisms:

1. QDMTT (Qualified Domestic Minimum Top-Up Tax): The jurisdiction where profits are generated (e.g. Vietnam) has the first right to collect the top-up tax. This acts as a “self-defense mechanism” to preserve domestic tax revenues.
2. IIR (Income Inclusion Rule): If the source country does not collect sufficient tax, the ultimate parent entity must pay the top-up tax in its home jurisdiction.
3. UTPR (Undertaxed Payments Rule): Considered the “last safety net,” allowing other jurisdictions within the group to allocate and collect the remaining top-up tax if neither QDMTT nor IIR is applied.

III. Vietnam and the Challenge of Attracting Next-Generation FDI

Vietnam has officially implemented GMT from the 2024 tax year. This shift presents both challenges and opportunities:

• Traditional tax incentives lose effectiveness: Incentives such as “4-year tax exemption followed by 50% reduction for the next 9 years” no longer create real tax advantages if the enterprise must still top up to 15%.
• Shift in focus: Instead of competing on tax rates, Vietnam is moving toward investment cost support, infrastructure development, supply chain enhancement, and high-quality workforce training.

IV. How Should Enterprises Prepare?

Implementing GMT requires rigorous preparation in governance and data management:

• Increased compliance burden: Enterprises must standardize accounting data under OECD rules, calculate ETR using complex formulas, and prepare multi-layered GMT reports.
• Risks of delayed preparation: Waiting until tax finalization may lead to data inconsistencies, additional tax assessments, or exposure to cross-border tax audits.
• Strategic restructuring: MNEs should reassess transfer pricing policies and profit allocation structures to optimize their global tax position.

✅ Conclusion

The Global Minimum Tax marks a decisive turning point, ending the race to the bottom through aggressive tax incentives. In this new environment, correct understanding – early preparation – and accurate implementation are not only compliance requirements, but critical factors in safeguarding the financial strategy and reputation of multinational groups.

For tailored advice specific to your business, please contact TPM’s expert team today.

Quyen Nguyen