MINISTRY OF JUSTICE MINISTRY OF EDUCATION AND TRAINING HANOI LAW UNIVERSITY CHU BICH NGOC 452038 GRADUATION’S THESIS MINISTRY OF JUSTICE MINISTRY OF EDUCATION AND TRAINING HANOI LAW UNIVERSITY CHU BICH NGOC 452038 LEGAL ISSUES IN THE IMPLEMENTATION OF GLOBAL MINIMUM TAX ON FDI ENTERPRISES NHUNG VAN DE PHÁP LÝ DOI VOI DOANH NGHIỆP FDI TRƯỚC YÊU Major: Financial and Banking Law GRADUATION’S THESIS Supervisor Assoc. Pham Thi Giang Thu Hanoi, 2024 Declarations Thereby declare that this thesis is my own work all remarks and information provided in the thesis is valid and reliable. Signature of Stwervisor Stgnatare of Author w Abbreviations Cee country-by- country CE constituent entity CFC controlled foreign corporation CIT corporate income tax DTT domestic top-up tax ETR effective tax rate FDI foreign direct investment GIoBE global anti-base erosion GMT global minimum tax MNE multinational enterprise MPI Ministry of Planning and Investment MoF Ministry of Finance OECD Organization for Economic Co-operation and Development QDMTT qualified domestic minimum top-up tax R&D research and development VAT value-added tax Declarations. Table of Contents bes CHAPTER 1.
FUNDAMENTAL ISSUES OF CORPORATE INCOME TAX AND 11. Corporate iCĐINRCEAX::.202 022cc 016 -66Ct c0 061016 6sc01t060/21 0ssegxcbilP: 1. Purpose or The rights of nations fo lãN.14 BEPS methods and Tax competifiơn. DHÍDGH-:GGiacgittirssitsniibcbiisitiagstuioiciaitsaibdisspiogttissssessssaasal5 MDESS, BUG OSG cgyitaifS0SNGBRNEESIIGBIRSOBSRUNGONHRERuSbitayiua 1.24 Assessment of impact on BEPS methods and Tax competition CHAPTER 2.
LEGAL ISSUES IN THE IMPLEMENTATION OF GLOBAL 2. Group of main FDI outflows. Rationale for the implementation of GMT. 28 3:12: Legal frameworle for the GMTS.
Group of main FDI inflows. Rationale for the implementation of GMT.E8001fiamaiWorifor [gi MT. so s-sansssassisstiauasissdaaasgasaooao OP 2. PRACTICAL RE VIEW OF VIETNAM REGULATIONS ON CORPORATE INCOME TAX ON FDI ENTERPRISES FOR THE IMPLEMENTATION OF GLOBAL MINIMUM TAX AND PROPOSALS.
Vietnam reguhtions on CIT on FDI enterprises for the implementation of GMT 44 3. Achievements of cunrent regulations on CIT on FDI enterprises. Opporhurties and Challenges for the implementation of GMT. Proposals on the implementation of GMT for FDI enterprises in Vietnam 54 3.
Incorporation of the GMT into internal laws. Compensation for FDI enterprises affected by the GMT. Complementary FDIattraction siralegies. Rationale The GMT (also knownas the Pillar 2 solution) has become a “hot” topic discussed by the business community and Governments ever since the term is first coined by the OECD in 2019, and further explored within its Inclusive Framework members to stop the “race to the bottom”? in corporate taxation.
Set to be implemented at the start of 2024, the GMT has led to great changes in investment strategies of large corporations as well as the investment attraction policies of many countries. A minimum effective rate of 15% basically means MNEs are to pay the same required amount of tax liabilities even whenlocated in tax havens. Developing countries once made use of tax incentives to increase competitive advantages can no longer achieve the same purpose and therefore need to resort to other measures to retain their investors. Up until now, the Vietnamese government has got results in constructing an investment environment with unique features compared to other nations in order to draw in FDI enterprises.
This includes not only favourable labor conditions, reduction in operational fees, but also a good number of adopted policies on preferential CIT rates, some even as low as 5% for a period of 37 years’. As a result, Vietnam has to date welcomed foreign investment from 142 countries and territories around the world. Out of the 21 national economic sectors, 18 industries have received external fundings. By September 20, 2023, there are 38,379 valid FDI projects in the whole country of Vietnam Ì “The OFCD/G20 Èxhune Framework on BEPS which groups 137 contries and jiwisdictions on an equcl Sooting for multilateral ne gotiation of international tan rules, agreed chaing its 8-9 October meeting that the two- pillar approach they have been developing since 2019 provides a solid foioxdation for fimnae a agreement.” See more : OECD (2020), Jiternational commuanty renews commitment to address tan challenges from digitaiicationof the economy, têtps:(Wrivw.oecd orgtax/intemational-conmamity-renews-commaitment-to-nuiltilateral-efforts-to- address-tax-challenges-from- digitalisation-of-the- economy hina/#:~ text=3 1% 2FD 1% 2F2020% 20% 2D% 20 The Inc hasive % 20Framevrork% 200n% 20BEPS% 20re ea sed, Accessed 19/02/2024.
` “Race to the bottom” is 2 socio-economx phrase to describe either goverment deregulation of the business envionment or reduction in corporate tax rates, m order to attract or retam economx activity n ther prisdictions See Chapter 1. 29/2021/QD- TTg dated October 6, 2021, on Special hwestment Incentives, Article 5G). we with a total registered capital of 455 06 billion. The FDI sector has on that account been recognized as an integral part of the economy, attracting FDI a key part of Vietnam’s external economic affairs.
However, in the face of the inevitable trends of GMT, some of Vietnam’s present tax measures are not meant to last. The GMT cancels out corporate effort to slash the CIT bills and grants extensive tax incentives by the governments old-fashioned. To rely only on available investment policies such as The 2020 Law on Investment without tailoring native solutions will not be much help in adapting appropriately to the new challenge. If there is appropriate mechanism for the GMT, Vietnam shall be assured to not lose out on domestic taxing rights and the amount of CIT duely collected to other countries.
Experience from international tex mechanisms, along with the inherent advantages of Vietnam such as political and economic stability, good inflation control, and a market of 100 million people shall act as great opportunities to improve on the current investment environment and gain an edge on appealing foreign fundings. This paper examines the function ofGMT, its effect on global corporate operation and administration, with a focus on the immediate situation in Vietnam. On such grounds the author humbly proposes a number of recommendations to the Vietnam Government in adjusting their FDI attraction strategies to align with the emergence of GMT. Literature review On the rules and functions of GMT, there are various documents introduced by the OECD aswell as independent research by researchers or institutes of lays as well as economics, including: - OECD documents and guides, in particular “Jax Challenges Arising from the Digitalisation of the Economy —Global Anti-Base Erosion Model Rules (Pillar Two) Examples” in 2022.
“The economics of the Global minimum tax” by Guttorm Schjelderup and Frank Stahler in 2023, which shows that Pillar Two dampens tax-motivated transfer pricing, but changes the employment, investment and import incen- tives, and that for a sufficiently large cost share of labor and/or capital, the SBIE is equivalent to a production subsidy. “International tax competition and Coordination with a Global minimuon tax” by Michael P. Devereux in 2023, which investigates the incentives for countries to implement and maintain the global minimum tax introduced by the G20/OECD’s Inclusive Framework 2021 agreement: Pillar 2. It argues that the agreement has sufficient elements to create incentives for large headquarters countries to implem ent it.
C onditional on them doing so, there is an incentive for host countries to follow suit. The agreement would put a significant floor on tax competition. However, there are caveats to this argument in terms of complexity and the incentive to maintain some provisions that are likely to raise little revenue. On the implementation of GMT in Vietnam, accessments of impact are mainly produced by economics journal and data collected by the MoF.
A number of researchers have composed proposal articles on the implementation of GMT in Vietnam. Primary sources for this study includes: “Global minimum tex — Global experiences on application, Evaluations of impact and Policy proposals” on MoF 2023 conference on Global minimian tax Handbook. In particular, “Floidamental rules and stipulations of Pillar 2 of BEPS and its impact” by Le Xuan Truong. “Global minimum tax: Opportunities and challenges for Vietnam”, Journal of Finance no, 802 in 2023.
Inparticular, “Jmpact of the global minimum tax on FDI enterprises in Viemam”TM by Nguyen Van Phung “Global minimum tax implementation: Vietnam’s policy recommendations” on Pancasila and Law Review by Le Thi Thao in 2021. The article discusses and analyzes the various challenges that countries are facing when imposing a GMT on the following aspects: (i) neutralization of tax incentive policies; (ii) the taxing rights of the investing country, (11) competitiveness in attracting investm ent, (iv) recommend solutions for the Vietnamese government in law- making and effective enforcement in the coming time. Scope Object under study: The implementation of the GMT Period under study: 2023— present Space under study: jurisdictions around the world including: - European jurisdictions: The United Kingdom, Germany, France, Switzerland, - American jurisdictions: The United States ofAmerica, Canada; - Asian jurisdictions: China, Japan, Korea, Phillipines, Singapore, Thailand, Vietnam. Methodology A systematic search was conducted across multiple academic databases using relevant keywords such as “GMT”, “CIT”, “tex competition” and “tax cooperation”.
Peer-reviewed articles published within the last five years were included in the review. The study uses normative juridicial, qualitative research methods on the basis of secondary literature inform ation. With an aim of achieving the objectives and tasks of the thesis, evaluations in this paper are based on its dialectical method and materialistic view of Marxism —Leninism. There is also a combination of research methods: analytical, synthetic, and the methodology of Comparative Laws, (i) Analytical and synthetic methods are used in Chapter 1 to clarify the general issues of CIT and GMT, (ii) Analytical and synthetic methods are also used in Chapter 2 to analyze the manifestations of the rules of GMT in legal systems worldwide, (iif) In Chapter 3; the author uses methods of interpretation, analytical and synthetic methods and Comparative methods to analyze the manifestations (introduced and or prospectively introduced) of GMT in the legal system of Vietnam and highlight a number of possible application from the similar (socio- economically) countries to Vietnam on the main issue of the thesis.
As a result, the author commented and proposed a course of actions for Vietnam from the global experiences in terms of adapting to current tax ation trends. Purpose The study determines why GMT (despite some integral provisions remains under construction) is an inevitable trend that create both challenges and opportunities for developing countries originally dependent on FDI to boost home economic growth. The study seek to prove why it is highly recommended for Vietnam to take action immediately to counter the effect ofGMT andkeep competitive advantages. At the same time, the findings of the study further explain why tax incentives are not preferable for longterm development, and eventually Vietnam will need to employ a new course of action envisioning a more sustainable economy.
In order to achieve the abovementioned purpose, the study seek to achieve the following objectives: - Provide a comprehensive and historical overview of GMT, - Demonstrate how FDI in Vietnam is to be directly and notably affected by the implementation of GMT around the world, - Provide insights and appropriate solutions gained from real-time countermeasures taken by other countries in similar circumstances and Vietnam’s actual conditions. Structure Aside from Table of C ontents, Abbreviations, Appendices, C onclusion, the study consists of three chapters, mainly organized as follows: Chapter 1. Fundamental issues of Corporate Income Tax and The Global Minimum Tax This Chapter first raises theoretical issues regarding CIT, based on the fact that the GMT is a redistribution of CIT in principal. In order to properly understand the Whys and the Hows of the GMT, and consequentially access its pros and cons, one should first fully grasp the nature of where an CIT duty originates, or who should be its rightful receiver, etc.
Chapter | also introduced two important concepts: BEPS— measures taken by MNEs to shift profit to low-tax havens, and “race to the boftom”—m easures taken by governments to reduce the effective tax rate to attract FDI. On such foundation shall Chapter 1.2 provide overall picture of GMT: its definition, its backgrounds, the functionalities, etc. as a corrective for the overinfluence of above measures.