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New levy raises effective tax rate paid by large

multinationals

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Industrial hub faces corporate pressure to offer cash

handouts

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In meeting with officials, firms voiced concerns, source

says

By Francesco Guarascio

HANOI, March 7 (Reuters) - Large foreign multinationals

said they may freeze new investment plans in Vietnam in the

absence of subsidies to help offset the cost of a new top-up

tax, said a person involved in talks on the matter between

investors and the government.

The investment-reliant manufacturing hub has been one of the

main beneficiaries of companies relocating activity from China

to minimise the impact of Sino-U.S. tension. But a tax hike

alongside power supply problems, regulatory hurdles and wage

increases may dent its competitiveness, analysts have said.

Vietnam this year introduced the 15% Global Minimum Tax on

large multinationals, an initiative shepherded by the

Organisation for Economic Cooperation and Development (OECD). In

accordance, incentives that lowered tax rates to as little as 5%

will no longer be available, meaning some multinationals will

effectively have to pay a top-up tax to meet the 15% rate.

Some U.S. multinationals have called on the government to

honour low-tax commitments it made to attract existing

investment, adding that new investment would be difficult

without measures to offset the top-up, the person said.

The government pledged new subsidies in the first half of

last year but has been slow to introduce any.

In December, it released a draft decree outlining new

subsidies and conditions for eligibility, such as being classed

as a high-technology company. But many key aspects remain

undefined, such as the size of a new incentives fund, and there

is no clear timetable for approval of the measures.

Representatives of multinationals on Tuesday raised concerns

with officials of the Ministry of Planning and Investment about

the size, scope and accessibility of the planned incentives, the

person, who attended the meeting, told Reuters on condition of

anonymity as the meeting was not public.

A representative for Lego Group, which is investing over $1

billion to build a new factory in Vietnam, asked whether firms

not classed as high-tech such as Lego would be eligible for any

of the subsidies outlined under the draft decree, to which a

ministry official replied they would not, the person said.

The Danish toy maker confirmed to Reuters that one of its

representatives asked a question on the matter in the meeting.

A representative for U.S. firm Amkor Technology ( AMKR ),

which is building in Vietnam a $1.6 billion plant to assemble,

test and package semiconductors, said it has struggled to obtain

classification as a high-tech company, the person said.

Representatives for Samsung Electronics ( SSNLF ), the

largest foreign investor, did not intervene in the meeting, the

person said. The South Korean company has been among the most

vocal about measures to offset the increased tax burden.

Amkor Technology ( AMKR ) and the Ministry of Planning and Investment

did not respond to requests for comment. Samsung declined to

comment.

Through the top-up tax, the government has estimated

additional annual tax revenue of 14.6 trillion dong ($591

million) from 122 foreign companies. It has said it intends to

use this windfall to give cash handouts to investing companies.

Still, new subsidies would not offer direct compensation for

the increased tax burden, in line with the Global Minimum Tax

initiative, government officials told the corporate

representatives on Tuesday, according to the person.

A direct link would breach the international agreement

behind the initiative and could lead to the transfer of the

additional revenue to multinationals' home countries, OECD

officials have said, though enforcement measures remain unclear.

However, for some companies, the new subsidies could cover a

large part - if not all - of the top-up tax costs, experts

familiar with discussions on the incentives have said.

($1 = 24,700.0000 dong)