As published on: businesstimes.com, Wednesday 7 June, 2023.
The Organisation for Economic Cooperation and Development (OECD) told Vietnam last week that handouts to big firms to offset higher levies under a global overhaul of tax rules would be problematic, a person familiar with the discussions said.
Reuters exclusively reported last week that Vietnam was planning subsidies worth hundreds of millions of dollars to partly compensate multinationals with big investments in the country, including Samsung Electronics and Intel, for the higher taxes they will face from next year.
Under the new rules shepherded by the OECD, companies paying less than 15 per cent in a low-tax jurisdiction will face a top-up levy either in that jurisdiction or in their home country from January.
Vietnam’s plan is the first reported attempt worldwide to find a partial workaround to the new global rules. Other countries are considering similar moves, the person familiar with the talks said, noting that the OECD warned of risks these arrangements may pose, potentially “compromising the ultimate purpose” of the reform. The person declined to be named as the information is not public.
The rules were mainly devised to tackle tax planning practices, which have allowed multinationals to pay very low or no tax at all. Usually, this is done by basing their headquarters in tax havens, such as Caribbean islands or small European states, where often they have no production activities.
Vietnam is a major manufacturing hub. It is heavily reliant on foreign investment, which it has been able to attract over the decades partly thanks to tax sweeteners, but also because of its low labour costs, proximity to China, free trade deals and stable government.