By Francesco Guarascio and Khanh Vu
HANOI (Reuters) – Samsung and other foreign companies are pushing Vietnam to introduce a multimillion-dollar reform that would compensate them for the higher levies they will face from next year as part of an overhaul global tax rules, said a source involved in the talks.
The talks come ahead of the introduction from January of a minimum tax rate of 15% for large multinationals as part of a landmark global reform led by the Organization for Economic Co-operation and Development (OECD).
Vietnam has pledged to comply with the OECD rule, increasing the tax rate to 15% for many multinationals operating in the country who are currently taxed at a much lower rate thanks to various sweeteners .
The global rule forces companies that pay less in a low-tax jurisdiction to face a top-up levy in their home country.
An additional levy means foreign companies could withdraw valuable foreign currency from Vietnam to comply with the rule, and Hanoi’s decision to apply the higher 15% tax rate and compensation plans aim to prevent this from happening. not happen.
The Southeast Asian nation, which relies heavily on foreign investment to revive its economy, fears the cross-border rule will make it less attractive to large multinationals.
“If this is not fully resolved, Vietnam’s competitiveness will fade,” said Hong Sun, president of the Korean Chamber of Commerce in Vietnam, noting that South Korean investors were particularly sensitive to these changes.
In a meeting with government officials in April, Korean tech giants Samsung Electronics and LG Electronics, U.S. chipmaker Intel and Germany’s Bosch were among half a dozen big investors who demanded compensation, a said the source who attended the meeting.
Under pressure, the government is preparing a draft resolution that could be approved by parliament in October offering partial compensation to big companies, the source said, speaking on condition of anonymity because the discussions were internal.
None of the companies responded to requests for comment.
Companies have invested tens of billions of dollars in the country and are major employers. Samsung, for example, is the largest foreign investor in Vietnam, employs 160,000 people and produces half of its smartphones in the country, accounting for almost a fifth of the country’s total exports.
Samsung’s tax rate varies by district and ranged between 5.1% and 6.2% in 2019 in the two northern provinces where it produces smartphones, according to government data cited by local media.
Under the proposed compensation resolution, still subject to change, companies with large investments in Vietnam would be allowed to receive after-tax cash payments or refundable tax credits to support their manufacturing or research expenses. .
The total cost of the planned measure is estimated at several hundred million dollars a year, the source said, noting that Vietnam’s bill would amount to at least 200 million dollars a year.
However, the costs are expected to roughly match the additional revenue Vietnam is expected to derive from the higher taxes it will impose on large multinationals under the new global rules, the source said.
Small businesses not covered by the new global rules can also receive aid, the source said. This should reduce potential friction with OECD rules.
Vietnam’s Ministry of Planning and Investment and the OECD did not respond to requests for comment.
(Reporting by Francesco Guarascio @fraguarascio; Additional reporting by Khanh Vu and Phuong Nguyen in Hanoi and Leight Thomas in Paris; Editing by Miyoung Kim and Shri Navaratnam)