Samsung meetings in Vietnam shine spotlight on global tax overhaul

That comes in the wake of an agreement reached by Hanoi and more than 130 other governments to combat a "race to the bottom" in which countries have been vying for investors through ever-lower tax rates. The deal was brokered by the Organization for Economic Cooperation and Development (OECD) and will set a minimum corporate tax rate of 15%, with Group of 20 chair India wanting details to be finalized by July.

The OECD measure was at the top of the agenda when Samsung Electronics, the world's biggest smartphone maker, dispatched its chief financial officer to Vietnam's parliament in late February, and again when the company's country head visited both the central bank and tax department in March.   

Tax issues also have been raised by lobbies for companies from Europe and Japan sharing similar concerns to Samsung, which produces phones and displays as the largest exporter and overseas investor in Vietnam. 

The State Bank of Vietnam said in a web post last month that the country had created a task force to "minimize the negative impact" of the tax floor and suggest "support measures" to keep attracting foreign investment. It added that it had "taken note" of ideas recommended by Samsung, without elaborating.

Vietnam's parliament, in a summary of its meeting with Samsung, said it would "carefully calculate other investment incentives in terms of tax and land in order to have compensation for investors."

Some analysts said the OECD agreement would help emerging economies.

"The OECD minimum tax proposal is particularly beneficial for developing countries like Vietnam, which struggle to collect fair taxes from multinational corporations," said Jack Nguyen, deputy CEO of Vietnamese staffing at the tax advisory firm Talentnet.

"By having a minimum tax rate, the proposal could reduce the incentive for companies to do aggressive tax planning and ensure that developing countries receive a more significant share of the tax revenues generated by multinational companies."

As Vietnam emerged as a manufacturing heavyweight in recent years, it offered incentives to foreign companies such as four years of tax exemptions in priority industries like technology, and nine years of 50% tax cuts. Documents posted on the Vietnamese financial news site CafeF showed Samsung and other electronics players paying duties in the single-digit range before the COVID-19 pandemic. The company did not respond to a request for comment from Nikkei Asia.

But the OECD plan may upend the advantages such arrangements generated for international companies. For example, if a foreign business pays 10% tax in one country, it could be required to pay further levies in its home nation to reach the effective minimum of 15%.

That would mean Vietnamese incentives "may be clawed back in another country," EY Vietnam partner Robert King wrote in an analysis. "It means that the investor will not receive the tax benefit from the incentives -- tax is just paid somewhere else."

As a result, Hanoi may want to consider "its own form of minimum top-up tax" so that "revenue derived in Vietnam is taxed in Vietnam," he continued.

One possible outcome is that companies may wind up paying more taxes but receiving other perks like land fee discounts.

The OECD's global tax rules would apply to businesses making more than 750 million euros ($820 million) a year, and Vietnam's parliament said it aims to update the country's tax laws in 2024 in light of the agreement.

Global corporate taxes have declined for decades, hitting developing countries in particular as they competed to offer lower rates, according to the International Institute for Sustainable Development. The think tank expects the OECD deal to curb the use of tax havens and tax competition in general, forcing countries to find other ways to attract investors.

Vietnam has said it is working to improve skills, infrastructure and legal transparency in a bid to woo investment.

Source: Nikkei Asia