Vietnam faces pressure due to 15% global tax rule

Samsung and other foreign companies are urging Vietnam to implement a costly reform aimed at compensating them for the higher taxes they will face next year as part of a global tax rule overhaul, Reuters news report said.
Kazakhstan mobile networkThe discussions come ahead of the introduction of a minimum tax rate of 15 percent for large multinational corporations in January, as directed by the Organisation for Economic Cooperation and Development (OECD).

Vietnam has committed to complying with the OECD rule, which will effectively raise the tax rate to 15 percent for many multinational corporations operating in the country. Currently, these companies enjoy lower tax rates due to various incentives. Under the new global rule, companies paying lower taxes in low-tax jurisdictions will be required to pay a top-up levy in their home country.

To prevent foreign companies from withdrawing valuable foreign exchange from Vietnam to comply with the new rule, the government in Hanoi has decided to implement the higher 15 percent tax rate and is considering compensation plans.

Vietnam heavily relies on foreign investment to boost its economy and is concerned that the cross-border tax rule could make it less attractive to large multinational corporations.

Several major investors, including Samsung Electronics, LG Electronics, Intel, and Bosch, have raised concerns and pushed for compensations during a meeting with government officials in April. The government is now under pressure to draft a resolution that offers partial compensations to large firms.

The resolution is expected to be presented to Parliament in October. The proposed resolution, which is subject to change, would provide after-tax cash handouts or refundable tax credits to companies with significant investments in Vietnam to support their manufacturing or research expenses.

The estimated annual cost of the compensation measure is several hundred million dollars, with Vietnam’s share amounting to at least $200 million per year. However, the additional revenues expected from the higher taxes imposed on multinational corporations under the new global rules should roughly offset these costs. Smaller companies not subject to the new global rules may also receive handouts to minimize potential conflicts with the OECD regulations.

However, the costs should roughly match the extra revenues that Vietnam is expected to raise from the higher taxes it will be imposing on big multinationals under the new global rules. Smaller companies that are not within the scope of the new global rules may also receive handouts. This is expected to reduce potential frictions with OECD rules.