Applying global minimum tax: Will Vietnam lose its advantage in attracting FDI?

That is the opinion of Dr. Can Van Luc - Chief Economist of BIDV at the Scientific Workshop "Solutions to maintain and enhance the competitiveness of the investment environment in the context of implementing global minimum tax" held last weekend.

The global minimum tax was launched on October 8, 2021 at the Global Partnership on Base Erosion and Profit Shifting (BEPS) Programme. Of which, Pillar 2, which stipulates the global minimum tax rate (15%) expected to apply from 2024, is receiving special attention.

This principle allows the investing country to impose a minimum tax of 15% on income that is exempted or reduced from tax in the receiving country. This has many impacts on developing countries like Vietnam, especially in attracting foreign direct investment (FDI).

Applying a global minimum tax will have a strong impact on Vietnam's FDI attraction policy. Photo: Samsung

Mr. Thomas McClelland - Deputy General Director in charge of Tax Advisory Services, Deloitte Vietnam, said that the impact of the global minimum tax policy on Vietnam is very clear and urgent, most clearly demonstrated in 2 areas.

First, on tax, if Vietnam does not take immediate or delayed action to implement the global minimum tax, it will miss out on the opportunity to gain taxing rights, as EU, Japan, Korea and other investing countries will then implement additional taxation under Pillar 2 principles, most likely starting in 2024.

In addition, Vietnam may also not be able to collect additional taxes, if any, from Vietnamese corporations investing abroad.

Next, the global minimum tax will also affect the foreign investment attraction effectiveness of Vietnam's current tax incentive policies for multinational corporations within the scope of application.

"If Vietnam does not have timely and appropriate reforms in tax incentive policies, in case its competitors are countries that are attracting and receiving foreign investment, considering favorable investment incentive measures and policies to adapt to global minimum tax, Vietnam may be left behind in attracting foreign investment," Mr. Thomas McClelland warned.

Mr. Son Won Sik - representative of the Korean Business Association in Vietnam (Kocham) analyzed: The Vietnamese government is offering many attractive tax incentives to attract foreign investment. However, when the global minimum tax is implemented, these tax incentives will no longer be attractive. In other words, this policy will neutralize the effectiveness of tax incentives.

Therefore, Kocham representative recommended: Vietnam needs to improve the investment environment and protect its tax rights, this is very urgent.

Some solutions proposed by Kocham representatives are incentives based on investment costs that are suitable for the current situation in Vietnam. The strength of this policy will prevent transfer pricing and profit transfer, help encourage real investment in Vietnam, and help businesses come up with long-term investment plans in Vietnam.

"Incentives based on investment costs are being applied by many countries. Vietnam should apply common rules when joining the international playground," suggested a Kocham representative.

Mr. Can Van Luc said: Vietnam needs to review and change its FDI attraction policy towards focusing on improving competitiveness from factors such as business investment environment, skilled labor, infrastructure, satellite and supporting business systems... These are basic factors when making business investment decisions, instead of applying tax incentives.