Vietnam - Hanoi Times interviewing Dr. Oliver Massmann on adoption of Global Minimum taxation rate

1. Vietnam - Hanoi Times interviewing Dr. Oliver Massmann
on adoption of Global Minimum taxation rate
1. Vietnam is urged to soon apply the global minimum tax to ensure its benefits of finance and
competitiveness advantages in foreign investment attraction. Do you agree with this view? Would the
global minimum tax rule be a key role to affect Vietnam’s economic prospects and budget revenues
like that of most countries? And why?
DM: Yes, we fully agree with the view that Vietnam must promptly adopt and apply (i) the global
minimum tax and (ii) feasible and legal mechanisms to ensure its benefits of finance and
competitiveness advantages in foreign investment attraction (ideally in Q1 of 2024 or earlier).
In term of your question about “would the global minimum tax rule be a key role to affect Vietnam’s
economic prospects and budget revenues like that of most countries? And why?”: Yes, this must be one
of key policies to affect Vietnam’s economic prospects and budget revenues. According to the latest
report of OECD General Secretary to G20 Finance Ministers and Central Bank Governors in July 2022,
most countries are planning to adopt Pillar 2 by 2024 – one year behind the OECD's proposition of
2023. However, we do note that Vietnam, being a developing country, focuses on attracting foreign
investment and thus is in a different position comparing with the developed countries who would benefit
from this policy. For example, in the developed countries, arguably, the Global Minimum Tax would
lead to investment shifting of the multinational corporations from the developing countries because the
developed countries investment and business environment inherently have many advantages such as
simplified administrative procedures, innovation capabilities, technology potentials, non-tax incentives,
etc. For developing countries such as Vietnam, currently, compensatory measures, such as monetary
subsidies, are being discussed. However, final decisions on compensatory measure to be applied is not
an easy task, considering the impact of many factors such as investment guarantees, fairness among
investors as well as the conformity with international commitments, risks of violating OECD principles
in the Pillar 2 solution, national budget utilization, etc. Of course, without sufficient finance resources
and mechanisms to address promptly those disadvantages, Vietnam could face the negative
consequence of foreign investment in the medium term as multinational corporations must take time to
shift their businesses. To put it another way, in case Vietnam fails to properly adopt the global
minimum tax and mechanism as soon as possible in 2024, the foreign investors enjoying tax incentives
in Vietnam will be obliged to carry its tax obligation in its host country, making it a lose-lose situation
for both Vietnam and such investors.
Notwithstanding above, compared to most countries, in the short period, the application of the global
minimum tax rate should not negatively affect Vietnam’s budget revenues since Vietnam, has currently
implemented many tax incentives for foreign investors and utilized it as an instrument for investment
attraction. Of note, as regulated, the typical CIT in Vietnam is 20% which is higher than the Global
Minimum Tax (15%).
2. Many said Vietnam should proactively gain the right to tax, so what should Vietnam’s policy
makers respond to the impact from the global minimum corporate tax?

2. DM: Yes, as analyzed above, to avoid a lose-lose situation for both Vietnam and multinational foreign
investors currently enjoying tax incentives, Vietnam's policy makers should quickly adapt to the current
circumstance and issue appropriate policies to ensure Vietnam's right to tax in relation to multinational
companies so that it could have the financial resources for adopting compensation mechanisms. It is
advisable that all of the relevant legal documents (Law on Investment, Law on Corporate Income Tax,
Law on Land, etc.) be appropriately amended but pilot policy to share the difficulties of multinational
companies should be adopted within 2023 (such as land related costs, environmental costs, social and
insurance related costs, etc.).
3. The application of the global minimum tax rate would make Vietnam adjust current investment
regulations which takes a long time. What are your suggestions about the big adjustments to meet
Vietnam’s dual goals of ensuring foreign investors’ interests and international commitments? What
has been done and what has not been urgently done?
DM: As the process for amendments of relevant legal documents can take a long time, it is important
that the process be taken at the soonest possible time to ensure the shift to global minimum tax rate. In
the middle of the process, as suggested, pilot programs from the Government and/ or the Standing
Committee of National Assembly can be taken for consideration to meet the dual goals. As also
mentioned above, the adjustments must meet certain conditions to ensure investment guarantees,
fairness among investors as well as the conformity with international commitments, risks of violating
OECD principles in the Pillar 2 solution, national budget utilization, etc.
As Vietnam is not alone in this tax transition, it is important that we observe and learn from others to
determine the best solutions. It can be seen from the government that discussions and meetings are
being held more often recently to discuss the impacts of the global minimum tax. The government is
also really active in receiving suggestions from different organizations and investors in Vietnam
through seminars and meetings. Recently, a special task force was formed by the Government to study
the impact of global minimum tax and to propose workable solutions to deal with such matter. It is
important that first solutions be concluded soon by the task force for formal discussions to be held
between investors and the State to figure out the best solution. Moreover, experiences from other
countries must be obtained and studied at this stage as well.
4. What should be Vietnam's new policies in attracting foreign investment? such as cash support
or direct offset against tax obligations
DM: It is the fact that, during the recent discussions between the government and the foreign
organizations in Vietnam. The policies involving direct cash support and direct offset against tax
obligations were proposed by organizations. However, it would take time to assess should these cash-
involved policies be accepted by the OECD as a way of getting around the tax rate as the second pillar
has not yet been officially implemented. Also, the risk remains high for Vietnam should cash be
involved in such compensation mechanisms since it can heavily damage the budget in the long term
should the foreign investors with tax incentives refuse to alter their tax obligations in Vietnam to meet
the global minimum tax rate.
Apart from tax incentives, affordable cost is one of Vietnam's advantages in terms of foreign investment
attraction. In the past, we have observed non-cash incentives under the form of on-the-job training and

3. assistance on human resources that can account for a large amount of total investment for one foreign
company. To propose a new policy at this time might be too soon given that we have not yet to observe
and assess other countries' solutions in relation to this matter. Further, new policies can also be
established under the form of innovative administrative procedures, better infrastructure, housing
support for labor, etc.
5. What are your forecasts of Vietnam’s foreign investment outlook next year?
DM: To my perspective, with the newly issuance of the Power Development Plan VIII with the net zero
emission target and the current affordable cost of labor, Vietnam remains an attractive destination for
foreign investors. However, as mentioned, the failure to adopt new policies in relation to the global
minimum tax might heavily affect the Vietnam's position in foreign investment in the medium or long
term period and it is important that actions be taken in the next year.
***
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you
have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris
Vietnam LLC.