That is the opinion of Dr. Can Van Luc, Chief Economist at the Bank for Investment and Development of Vietnam (BIDV) who appeared at a recent workshop on "Solutions to maintain and improve the competitiveness of the investment environment amid the global minimum tax".
The global minimum tax was introduced on October 8, 2021 at the Global Collaborative Forum on the Domestic Tax Base Erosion and Profit Shifting Program (BEPS). In particular, Pillar 2, which regulates the global minimum tax rate (15%), is scheduled for application in 2024, and has attracted special attention.
This principle allows the investing country to levy a minimum tax of 15% on income that is exempt or reduced from tax in the host country. This has many impacts on developing countries like Vietnam, especially in attracting FDI.
Applying the 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 at Deloitte Vietnam, said that the impact of the global minimum tax policy on Vietnam has been very clear and urgent, showing in two fields.
The first is about taxation, in the case that Vietnam does not take immediate action or delays in implementing the global minimum tax, Vietnam will miss the opportunity to win the right to tax. Because then, investing countries from the European Union (EU), Japan, Korea and others will collect the Additional Tax under the Pillar 2 principle, most likely starting in 2024.
In addition, Vietnam may also not be able to collect additional taxes, if incurred, from Vietnamese corporations that invest overseas.
Next, the global minimum tax will also affect the effectiveness of foreign investment attraction of Vietnam's current tax incentives for multinational corporations under the scope of application.
"If Vietnam does not take reasonable and timely reforms on tax incentives, in the case that competitors who are countries attracting and receiving foreign investment, consider measures and policies with favorable investment incentives to accommodate the global minimum tax, Vietnam may be left behind in attracting foreign investment," warned Thomas McClelland.
Mr. Son Won Sik, representative of the Korean Business Association in Vietnam (Kocham), analyzed: The Vietnamese government is offering many attractive tax incentives to lure FDI. However, when the global minimum tax is implemented, tax incentives are no longer attractive. In other words, this policy will nullify the effect of tax incentives.
Therefore, Kocham's representative recommended: Vietnam needs to improve the investment environment and protect its taxing rights, which is very urgent.
Some solutions proposed by the Kocham representative are incentives based on investment costs in accordance with the current situation of Vietnam. This policy will help prevent transfer pricing, transfer profits, encourage substantive investment in Vietnam, and help foreign investors come up with long-term investment plans in Vietnam.
"Incentives based on investment costs are being applied by many countries. If Vietnam joins the international playground, it should apply the common rules of the game," the Kocham's representative suggested.
Expert Can Van Luc said that Vietnam needs to review and change its policies to attract FDI in the direction of focusing on improving competitiveness from factors such as business investment environment, skilled labor, infrastructure, the system of satellite and ancillary businesses... These are the basic factors for making business investment decisions, instead of applying tax incentives.