Global Minimum Tax: Who Pays, Transition Relief and Reporting

Who is obliged to pay tax under the global anti-base-erosion rules?

Under Article 2 of Resolution 107/2023/QH15, the persons obliged to pay tax under the global anti-base-erosion rules are:

Constituent entities of multinational groups with revenue in the consolidated financial statements of the ultimate parent entity of at least 02 years in the 04 consecutive years preceding the fiscal year equivalent to EUR 750 million or more, except for the following cases:

– Government entities;

– International organisations;

– Non-profit organisations;

– Pension funds;

– Investment funds that are ultimate parent entities;

– Real estate investment organisations that are ultimate parent entities;

– Organisations with at least 85% of asset value owned directly or indirectly through the organisations prescribed from point a to point e of this clause.

In which, under Clause 7, Article 3 of Resolution 107/2023/QH15, a constituent entity of a multinational group is any company or organisation in the group and any permanent establishment of a company or organisation in the group, including:

– The ultimate parent entity;

– Intermediate parent entities (if any);

– Partially-owned parent entities (if any);

– Other companies, organisations, units, and business establishments in the group.

In addition, the global anti-base-erosion rules are the provisions in Resolution 107/2023/QH15 and Government regulations consistent with the Global Minimum Tax Rules of the Inclusive Framework on Base Erosion and Profit Shifting of which Vietnam is a member (hereinafter referred to as the Global Minimum Tax Rules).

When Vietnam applies the global minimum tax, for how many years at most may enterprises have their liability reduced in the transition period?

Under Clause 6, Article 6 of Resolution 107/2023/QH15 on declaration, payment, and tax administration:

Declaration, payment, and tax administration

…

6. Liability reduction in the transition period for fiscal years on or before 31 December 2026, excluding fiscal years ending after 30 June 2028, is prescribed as follows:

a) During the transition period, the top-up tax in a country for a fiscal year shall be deemed to be 0 (zero) when one of the following criteria is met:

a.1) In the fiscal year, the multinational group has a qualifying Country-by-Country Report with total revenue below EUR 10 million and pre-tax profit below EUR 01 million or a loss in that country;

a.2) In the fiscal year, the multinational group has a simplified effective tax rate in that country of at least 15% for 2023 and 2024; 16% for 2025; and 17% for 2026;

a.3) The pre-tax profit (or loss) of the multinational group in that country is equal to or lower than the substance-based income exclusion calculated under the Global Minimum Tax Rules for constituent entities resident in that country under the Country-by-Country Report;

b) During the transition period, no administrative tax penalties shall be imposed for violations in declaring and submitting the Global Minimum Tax Information Return and the Top-up Corporate Income Tax Return accompanied by the Explanatory Note on differences due to differences between financial accounting standards.

At the same time, under Clause 1, Article 8 of Resolution 107/2023/QH15, implementation provisions:

Implementation provisions

1. This Resolution takes effect from 01 January 2024 and applies from fiscal year 2024.

The Government shall urgently complete the dossier of the draft Law on Corporate Income Tax (amended) in accordance with the Law on Promulgation of Legal Instruments, and submit it to the Standing Committee of the National Assembly and the National Assembly for consideration to add to the 2024 law and ordinance building programme.

Accordingly, when Vietnam applies the global minimum tax, enterprises — taxpayers under the global anti-base-erosion rules — may have their liability reduced in the transition period for a maximum of 03 years.

When the Inclusive Framework on Base Erosion and Profit Shifting issues guidance on the Global Minimum Tax Rules, must it be reported to the National Assembly?

Under Clause 2, Article 8 of Resolution 107/2023/QH15, implementation provisions:

Implementation provisions

…

2. Where this Resolution and a law or another resolution of the National Assembly prescribe differently on the same issue, this Resolution shall prevail.

3. Where, after this Resolution takes effect, the Inclusive Framework on Base Erosion and Profit Shifting issues, amends, or supplements guidance on the Global Minimum Tax Rules, the Government shall prescribe specific contents for implementation; where any content contradicts this Resolution, it shall be reported to the National Assembly for consideration and decision; in urgent cases while the National Assembly is not in session, it shall be submitted to the Standing Committee of the National Assembly for consideration and decision and reported to the National Assembly at the nearest session./.

Accordingly, when the Inclusive Framework on Base Erosion and Profit Shifting issues guidance on the Global Minimum Tax Rules, the Government shall prescribe specific contents for implementation, except in the following cases:

Where any content contradicts Resolution 107/2023/QH15, it shall be reported to the National Assembly for consideration and decision;

In urgent cases while the National Assembly is not in session, it shall be submitted to the Standing Committee of the National Assembly for consideration and decision and reported to the National Assembly at the nearest session.