Vietnam Proposes Exemption from Global Minimum Tax for BOT Power Projects

The Ministry of Finance has proposed exempting electricity Build-Operate-Transfer (BOT) projects with government guarantees from the application of the global minimum corporate tax. This move aims to ensure Vietnam fulfills its commitments to investors and avoids potential international disputes and electricity price hikes. The proposal is part of a draft amendment to Resolution 107/2023 of the National Assembly, currently undergoing public consultation. Specifically, the Ministry suggests that the top-up tax amount for these government-guaranteed BOT power projects would be determined as zero. According to the Ministry, this solution aligns with the guidance of the Organisation for Economic Co-operation and Development (OECD), which allows countries flexibility in handling specific cases while upholding the policy's overall objective. Multinational corporations with multiple member companies in Vietnam will still be subject to the domestic minimum corporate tax according to general regulations. However, the portion of the tax allocated to BOT power projects will be set at zero. If a BOT enterprise is a sole legal entity, the entire amount of the domestic minimum corporate tax incurred will also be zero. Between 2005 and 2015, Vietnam attracted several large-scale BOT power projects from foreign investors to ensure energy security when domestic supply was limited. Among these, the Mong Duong 2 project was the first BOT contract signed in 2011, followed by Vung Ang 2 in 2020. These projects were all developed based on a series of legal commitments, including BOT contracts, Power Purchase Agreements (PPAs), and government guarantees. The government committed to maintaining stable policies or implementing compensation mechanisms if changes affected investor rights. Vietnam has been implementing the global minimum tax since 2024 for multinational corporations with revenues of EUR 750 million or more, mandating a minimum tax rate of 15%. The Ministry of Finance acknowledges that some BOT power projects might incur additional tax obligations. However, these were not anticipated at the time the BOT contracts were signed. The Ministry argues that the emergence of these tax obligations could affect project return on investment and debt repayment capabilities. Furthermore, it could trigger clauses in BOT contracts requiring the government to provide financial compensation to investors. This could lead to adjustments in PPAs and project operation periods, increasing production and business costs and impacting the macroeconomy. Currently, seven BOT power projects are identified as potentially affected. Six of these are subject to the top-up tax in 2024, with five having already completed their declarations and tax payments. If the global minimum tax continues to be applied to these projects, the Ministry estimates the potential tax amount to be nearly USD 426 million (approximately VND 11 trillion). These projects are characterized by significant scale and investment, with approximately 75-80% of their capital sourced from international credit institutions. For instance, the Nghi Son 2 project is expected to incur the largest tax amount, around USD 189.5 million by 2047, followed by Vĩnh Tân 1 with USD 65 million, Vũng Áng 2 with USD 52.9 million, Mong Duong 2 with USD 14.4 million, and Van Phong with USD 10 million. The Duyen Hai 2 project's data is still being assessed. Phuong Dung