When the global minimum tax is applied, preferential policies such as tax exemption and reduction of Vietnam for FDI enterprises are no longer effective, a Samsung representative said.
The global minimum tax is an agreement of the G7 countries reached in June 2021 to combat tax avoidance among multinational corporations, expected to apply in 2024. The minimum tax rate applied is 15% for multinational enterprises with a combined total revenue of 750 million euros (about 800 million USD) or more in 2 years of the 4 most consecutive years.
UK, Japan, Korea, and the EU will tax next year. In Vietnam, this policy is being considered when Deputy Prime Minister Le Minh Khai assigned the Ministry of Finance to continue evaluating to confirm that "Vietnam should or should not participate in imposing this tax".
Speaking at a seminar on the global minimum tax on the morning of April 18, Mr. Choi Joo Ho, General Director of Samsung Complex in Vietnam, said that in the context of this tax being implemented, tax exemption and reduction policies of Vietnam will no longer apply to enterprises with foreign direct investment (FDI). On the contrary, it will bring negative effects to the investment environment here.
The reason, he said, is that companies enjoying incentives must additionally pay the global minimum tax rate of 15% in the country where the parent company exists. That is, the profits obtained in Vietnam will be collected by the tax authorities of another country (but not Vietnam) through the exercise of the right to tax with this profit.
The additional payment of tax will create a financial burden for businesses, affect financial planning, and business strategy and directly reduce the competitiveness of products made in Vietnam, according to Mr. Choi Joo Ho.
"The Vietnamese government needs to make decisive decisions in the process of responding to the global minimum tax," he said.
Finance Minister Ho Duc Phuc also acknowledged that tax incentives will not have much effect on FDI revenue.
According to statistics of this agency, there are currently 1,015 FDI enterprises in Vietnam with parent companies subject to tax. Of these, more than 70 businesses are likely to be affected by this tax when it is applied in 2024. If the countries with the parent companies all enforce the global minimum tax, these countries will collect an additional tax difference. difference of more than 12,000 billion dongs in 2024.
Dang Ngoc Minh, Deputy Director of the General Department of Taxation, also informed that there are about 335 projects with registered investment capital of over 100 million USD in the field of processing and manufacturing industries in economic zones and industrial parks. Enterprises are enjoying corporate income tax incentives lower than 15%.
Enterprises such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, and Pegatron... with registered investment capital account for nearly 30% of total FDI in Vietnam (about 131.3 billion USD). These are projects that are likely to be affected by the global minimum tax.
What should Vietnam do?
As a business that can be affected, the Samsung representative made two proposals to maintain the investment of FDI enterprises and preferential policies. Accordingly, Vietnam needs to develop monetary support mechanisms to supplement the incentives of businesses - depending on the type - when applying the new tax rate. This support is done through registration and paid after the business has paid taxes.
At the same time, Vietnam should apply a standard minimum domestic tax (QDMTT) mechanism to gain the right to additional revenue and have financial resources for monetary support.
DMTT can be understood as a domestic mechanism in which the calculation of residual profit and minimum tax is applied equivalent to that of the Organization for Economic Co-operation and Development (OECD). This is a measure that economies such as Hong Kong, Singapore, and Malaysia are considering and likely to apply.
Speaking to VnExpress, Ms. Trang Pham, Deputy General Director of Tax Consulting of EY Vietnam, many countries such as India and Thailand have directly supported businesses in cash. "The trend of shifting tax incentives based on profits to costs is being considered by many countries," she said.
Ms. Trang said that cash support or direct offset against tax obligations that meet OECD standards will encourage businesses to increase investment in priority areas. This is a preferential measure that does not reduce investment efficiency when imposing a new tax.
With the standard domestic minimum tax regime, the income of the subsidiary in Vietnam will not be subject to any other additional taxes. This mechanism is highly stable when Vietnam can estimate additional budget revenue.
"It also facilitates and reduces compliance costs for businesses because the tax calculated under this mechanism is recognized by countries and deducted from the additional tax amount abroad," added Ms. Trang.
However, the EY representative said that the application of this mechanism requires Vietnam to internalize the policy to adjust the technical factors that are not consistent with the domestic tax policy. At the same time, human resource training also needs to be implemented quickly.
Meanwhile, according to Mr. Dang Ngoc Minh, in order to attract investment, Vietnam needs to proactively introduce tax policies related to the global minimum tax; financial support, infrastructure, worker housing, and social insurance. He noted that these policies need to ensure that they do not violate global minimum tax rules and commitments and international practices.