The global minimum corporate tax rate of 15% on profits would remove exemptions and reductions that much of Vietnam’s FDI relies on, Ho told a conference Tuesday.
The new tax is slated for 2024 but has not yet been approved in Vietnam. It is still under consideration in the country.
However, the regime was approved by 136 countries in 2021.
It is considered the deepest overhaul of cross-border tax rules in decades. The overhaul aims to ensure that tech giants such as Apple and Google will not have an unfair advantage by booking their profits in low-tax countries such as Ireland.
The tax would apply to multinationals with total revenues of at least EUR750 million ($819 million) in two of the preceding four years.
This means that such a company investing in a foreign country would have to be taxed by that country by at least 15%.
The U.K., Japan, Korea, and the E.U. will impose the tax next year.
Vietnam is considering the policy and Deputy Prime Minister Le Minh Khai has asked the Ministry of Finance to evaluate the situation and decide if Vietnam should collect the tax.
Samsung CEO Choi said the new tax would force foreign companies currently enjoying tax incentives in Vietnam to pay the global minimum tax rate of 15% in the country where the parent company exists.
Thus such profits obtained in Vietnam would be collected by the tax authorities of another country (not Vietnam) through the exercise of the right to tax the profits, he said.
This additional payment of tax would create a financial burden for businesses, affecting financial planning and business strategies, and directly reducing the competitiveness of products made in Vietnam, he said.
“The Vietnamese government needs to make assertive decisions in the process of responding to the global minimum tax,” he said.
Attending the conference, Minister of Finance Ho Duc Phoc acknowledged that tax incentives would no longer have much effect on FDI revenue in Vietnam if the global minimum tax were applied.
According to data from his ministry more than 70 businesses in Vietnam are likely to be negatively affected by the tax if it is applied in 2024.
Dang Ngoc Minh, Deputy Director of the General Department of Taxation, said that in Vietnam, about 335 projects with registered capital of over US$100 million in manufacturing and processing industries are enjoying corporate income tax incentives with rates of lower than 15%.
On the list are Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, and Pegatron, with registered capital accounting for nearly 30% of total FDI in Vietnam, or about US$131.3 billion.
All the above major companies are likely to be negatively affected by the global minimum tax, said Minh.
What to do?
Samsung CEO Ho said that in order to maintain FDI Vietnam needs to develop monetary support mechanisms to supplement incentives for businesses that will lose preferential policies if the new tax rate is applied.
Tang Pham, Deputy General Director of Tax Consulting at EY Vietnam, said many countries such as India and Thailand have directly supported businesses with cash.
“The trend of shifting incentives is being considered by many countries,” she said.
She said that cash support or direct offset against tax obligations that meet Organization for Economic Co-operation and Development (OECD) standards could encourage businesses to increase investment. Such measures could help to maintain investment efficiency when imposing a new tax.
