The Ministry of Finance is currently soliciting feedback on a draft amendment to Resolution 107/2023 of the National Assembly, which concerns the application of additional corporate income tax under global anti-base erosion rules.

Under the proposal, this tax rate for BOT power projects with government guarantees would be set at 0 dong. This aims to ensure Vietnam fulfills its commitments to investors, avoids potential international disputes, and prevents electricity price increases that would trigger compensation mechanisms under BOT contracts.

The Ministry of Finance also considers this solution consistent with guidance from the Organization for Economic Cooperation and Development (OECD). The global minimum tax allows countries flexibility in handling specific cases while ensuring the policy's overall objectives.

Foreign exchange transaction at a bank. Photo: Giang Huy

According to the Ministry of Finance, multinational corporations with multiple member enterprises in Vietnam will still apply the domestic minimum top-up tax under general regulations. However, the tax allocated to BOT power projects will be set at 0 dong. If a BOT enterprise is the sole legal entity, the entire domestic minimum top-up tax incurred will also be 0.

Between 2005 and 2015, Vietnam attracted several large-scale BOT power projects from foreign investors to ensure energy security amidst limited domestic supply. Mong Duong 2 was the first BOT contract signed in 2011, followed by Vung Ang 2 in 2020.

These projects were implemented based on a series of legal commitments, including BOT contracts, power purchase agreements (PPAs), and government guarantees. The government committed to maintaining policy stability or providing mechanisms to address changes affecting investor interests.

Vietnam applied the global minimum tax from 2024 to companies with revenue exceeding 750 million EUR, at a minimum rate of 15%. The Ministry of Finance states that some BOT power projects may incur additional tax obligations. However, at the time of signing the BOT contracts, the parties did not anticipate the emergence of this tax mechanism.

The Ministry believes that incurring this tax obligation would affect project return on investment and debt repayment capacity. It could also trigger clauses in BOT contracts requiring the government to financially compensate investors. Consequently, PPA contracts and BOT project operating periods might need adjustments, increasing production and business costs and impacting the macro economy.

Currently, seven BOT power projects are affected. Six projects incurred additional tax in 2024 (five have already completed declarations and paid taxes), while one project was not subject to the tax in the first year. If the global minimum tax continues to apply to these projects, the Ministry of Finance estimates the potential tax liability could reach nearly 426 million USD (almost 11,000 billion dong). These projects are large-scale with substantial investment, with approximately 75-80% of their funding coming from international credit institutions.

For instance, the Nghi Son 2 project has the largest estimated tax, at about 189,5 million USD (until 2047), followed by Vinh Tan 1 with 65 million USD, Vung Ang 2 (52,9 million USD), Mong Duong 2 (14,4 million USD), and Van Phong (10 million USD). Data for the Duyen Hai 2 project is not yet available for assessment.

Phuong Dung