What is BEPS 2.0 and How It Reshapes Vietnam’s Tax Base

The global tax system was built for a different era, long before the digital economy transformed how companies operate. Today, multinational enterprises can shift profits across borders with ease, leaving governments struggling to secure their fair share of revenue. Vietnam faces this challenge acutely. Its growth, particularly in the Mekong Delta with export-driven manufacturing and agriculture, has relied on foreign investment supported by tax incentives. These incentives are now under scrutiny as international rules tighten.

Among the new regulations, the BEPS 2.0 initiative addresses these gaps, aiming to curb base erosion and profit shifting worldwide. In the case of Vietnam, the nation must rethink tax incentives, strengthen transfer pricing oversight, and protect its tax base while remaining attractive to investors.

To understand how this framework will reshape Vietnam’s fiscal landscape, it helps first to understand what BEPS is and why it matters.

What is BEPS? The Base Erosion and Profit Shifting

Base Erosion and Profit Shifting, or BEPS, is one of the most significant challenges facing governments in the digital and globalized economy today.

Definition and mechanism of BEPS

Base Erosion and Profit Shifting (BEPS) are strategies employed by multinational enterprises (MNEs) to exploit tax rules that do not adhere to international standards.

As defined by the Organisation for Economic Co-operation and Development (OECD), BEPS are ways of taking advantage of gaps in tax bases to avoid paying tax in jurisdictions where economic activities generating profits are performed.

By exploiting loopholes in tax laws, companies can artificially shift profits to jurisdictions with minimal or no taxation, creating an artificial disparity between reported profits and actual economic activity.

Global consequences of BEPS

The consequences of these silent violations are significant. In fact, the OECD estimates that BEPS costs governments between USD 100 billion and 240 billion annually, equivalent to 4-10% of global corporate income tax revenues⁽¹⁾.

As a result, the lost revenue limits governments’ ability to fund essential services like education, infrastructure, and healthcare. Additionally, BEPS also distorts competition, giving multinational firms an advantage over domestic companies that cannot use aggressive tax planning. Developing economies are particularly affected, as they often rely heavily on corporate tax revenue to support growth and development.

How did these mistakes emerge, and why did the initial measures fall short? Let’s delve into the origins of BEPS in the next section to find out.

Why BEPS 1.0 couldn’t solve digitalization 

The launch of the BEPS Action Plan in 2015 marked a turning point in global tax reform. However, it quickly became clear that the first package of measures was not enough to keep pace with digitalization.

Review of BEPS 1.0

In 2015, the OECD and G20 introduced the BEPS Action Plan, a comprehensive system of 15 coordinated actions designed to close loopholes and curb base erosion and profit sharing practices⁽¹⁾. These measures targeted issues such as harmful tax practices, treaty abuse, hybrid mismatches, and transfer pricing manipulation.

For the first time, global tax authorities aligned on the need to address profit shifting systematically, fostering integrity, and reinforced the principle that profits should be taxed where economic value is created.

The unresolved issue of digitalization

Despite these advances, there was one crucial problem: the taxation of the digital economy. Known as Action 1⁽²⁾, the area highlighted how international enterprises with highly digitalized business models could generate substantial revenue in a country without establishing a physical presence there.

Under traditional tax rules, the absence of a “permanent establishment” meant no taxable nexus, allowing these companies to legally avoid taxation. This left many governments frustrated, as the most profitable firms in the world could operate globally, but contributed little to none to local tax bases.

Rise of unilateral measures

As the digital economy expanded, several countries (e.g., France, the UK, Italy, India, etc.) began introducing unilateral solutions such as digital service taxes (DSTs) to capture revenue from global tech giants. Although these measures provided temporary relief, they also created new risks. Fragmentation of tax rules increased the likelihood of double taxation, compliance costs, and trade disputes.

The growing patchwork of responses ultimately pressured the OECD and G20 to return to the negotiating table. It became clear that BEPS 1.0 was an important first step but not a complete solution. Both sides demanded one that would balance taxing rights more fairly and reduce the incentives for unilateral action.

This urgency set the stage for the development of BEPS 2.0, which aims to modernize the global tax architecture and provide greater certainty for both governments and expanding enterprises.

What is the two-pillar solution BEPS 2.0?

BEPS 2.0 was launched in 2023 to modernize international taxation in response to digitalization and profit shifting.

As traditional rules built around physical presence and territorial taxation failed to capture the mobility of profits in a global economy, the two-pillar solution solves these gaps by reallocating taxing rights and introducing a global minimum tax to safeguard national revenues.

Pillar One: Updating global taxing rights

Pillar One shifts part of the taxing rights to market jurisdictions where goods and services are consumed, moving beyond traditional transfer pricing rules that rely on physical presence. It consists of two components:

Amount A

Applies to multinational enterprises with global revenues above €20 billion and profitability exceeding 10 percent. A portion of residual profits above that threshold (currently set at 25%) is reallocated to market jurisdictions. It primarily affects large digital and consumer-facing businesses. While its scope is limited, it represents a symbolic step toward addressing profit shifting in the digital economy.

Amount B

Provides a simplified framework for transfer pricing of baseline marketing and distribution activities. The mechanism reduces compliance burdens and enhances tax certainty for standard operations, though it excludes complex manufacturing and intellectual property-driven activities. Guidance on its application is expected to roll out from 2025.

Pillar Two: The global minimum tax

Pillar Two introduces the Global Anti-Base Erosion (GloBE) rules, requiring multinational groups with consolidated revenues above €750 million to pay at least a 15 percent effective tax rate in each jurisdiction where they operate. This closes the door on aggressive BEPS profit shifting strategies that rely on low-tax jurisdictions.

Neutralizing transfer pricing arbitrage

The introduction of a global minimum tax renders many traditional transfer pricing structures ineffective. In the past, multinational enterprises could lower their global tax liability by allocating profits to subsidiaries in jurisdictions with little or no taxation.

Under Pillar Two, any profits taxed below 15 percent will be subject to a top-up tax.

The GloBE waterfall

The rules operate in a defined order, often referred to as a “waterfall,” to guarantee that untaxed or undertaxed profits are captured somewhere within the global system:

1. Qualified Domestic Minimum Top-up Tax (QDMTT): The jurisdiction where the income is earned has the first right to impose a top-up tax, ensuring local revenues are preserved.
2. Income Inclusion Rule (IIR): If the local jurisdiction does not apply a QDMTT, the parent company’s home jurisdiction may collect the top-up.
3. Undertaxed Payments Rule (UTPR): As a final safeguard, if neither of the first two rules applies, other jurisdictions where the group operates can deny deductions or reallocate taxing rights to capture the untaxed income.

The tiered approach guarantees that multinational profits cannot escape taxation, regardless of where they are shifted.

The Subject-to-Tax Rule (STTR)

Complementing the GloBE rules, the STTR applies to certain cross-border payments such as interest, royalties, and service fees, which are used to erode the tax base. The rule ensures that these transactions are subject to a minimum tax rate, generally set at 9 percent in bilateral treaties, further limiting opportunities for base erosion through intra-group payments.

How BEPS 2.0 affects Vietnam’s FDI competitiveness

The implementation of BEPS 2.0 is reshaping how Vietnam competes for FDI as follows.

Erosion of tax incentives

For decades, Vietnam has attracted foreign investors with preferential corporate income tax rates and tax holidays. Under BEPS 2.0, these income-based incentives lose much of their appeal. The 15 percent global minimum effective tax rate effectively neutralizes low statutory rates, as any shortfall will be collected through a top-up.

Traditional tax competition no longer provides a sustainable advantage and leaves Vietnam at risk of base erosion tax incentives becoming obsolete.

Compliance and data challenge

BEPS 2.0 also introduces significant compliance complexity. The Global Anti-Base Erosion rules require multinational enterprises to calculate their effective tax rate using both accounting and tax data, reconciled at the jurisdictional level.

Much of this information overlaps with transfer pricing documentation, such as local files and country-by-country reports, but demands deeper integration and higher accuracy. For the General Department of Taxation (GDT), it represents a considerable administrative shift. Investments in digital systems, advanced analytics, and professional training will be essential to effectively monitor, audit, and enforce compliance under the new system.

The new FDI toolkit

To maintain competitiveness, Vietnam must adapt its investment promotion model. With income-based incentives eroded, the country will need to emphasize non-tax factors such as infrastructure development, skilled labor training, and support for research and innovation. Qualified Refundable Tax Credits (QRTCs) provide one option, as they can encourage desired business activity while still complying with GloBE rules.

For multinational enterprises, transfer pricing documentation will remain critical. It will still serve as the basis for allocating profits to value-creating activities in Vietnam, such as manufacturing upgrades or R&D centers.

Dispute management

Finally, Vietnam must prepare for a rise in tax disputes. The overlap between the Qualified Domestic Minimum Top-up Tax, existing treaty provisions, and transfer pricing adjustments could create areas of uncertainty and the risk of double taxation.

Businesses will need clear legislative guidance and effective dispute resolution mechanisms to minimize conflicts and maintain investor confidence.

Implementation status and the future of tax in Vietnam

Vietnam has formally entered the BEPS 2.0 since 2023.

Firm implementation

On 29 November 2023, the National Assembly passed Resolution 107/2023/QH15⁽³⁾, introducing the Qualified Domestic Minimum Top-up Tax (QDMTT) and the Income Inclusion Rule (IIR), effective from 1 January 2024 and applying to the 2024 fiscal year. This makes Vietnam one of the first emerging economies in Asia to align with the OECD’s Global Anti-Base Erosion framework.

Political significance

The decision to adopt BEPS 2.0 early carries significant political and economic weight. By moving ahead of many regional peers, Vietnam reinforces its commitment to international tax cooperation and fiscal transparency.

This stance strengthens the country’s credibility with global investors, who seek stability and compliance with international laws when selecting investment destinations. It also helps Vietnam retain revenues that might otherwise be shifted abroad through base erosion profit shifting practices.

Moving forward

In September 2025, the government issued Decree 236/2025/ND-CP⁽⁴⁾, which provides detailed guidance on applying the QDMTT and IIR, effective 15 October 2025, but applied retroactively to the fiscal year 2024. The decree clarifies compliance procedures, safe harbors, and alignment with OECD commentary.

Looking forward, Vietnam’s early and decisive steps in adopting BEPS 2.0 establish it as a regional leader in addressing base erosion profit shifting and in shaping a compliant tax environment for global investment.

To conclude

BEPS 2.0 is reshaping the global tax landscape and setting new standards for transparency and fairness. In the case of Vietnam, its early adoption of the framework secures revenues against profit shifting, while also redefining how the country competes for foreign investment. Traditional tax incentives may lose ground, but they create space for a more sustainable model built on infrastructure, skilled labor, and innovation.

By adopting these standards early, Vietnam is enhancing its credibility as a reliable destination for investment. Moreover, BBCIncorp is ready to support businesses with the expertise and practical solutions you need.

Reach out to us at service@bbcincorp.com to explore how we can assist your next stage of expansion.

References:

(1): https://www.oecd.org/en/topics/policy-issues/base-erosion-and-profit-shifting-beps.html

(2): https://www.oecd.org/content/dam/oecd/en/publications/reports/2015/10/addressing-the-tax-challenges-of-the-digital-economy-action-1-2015-final-report_g1g58cdd/9789264241046-en.pdf

(3): https://vanban.chinhphu.vn/?pageid=27160&docid=209231

(4): https://vanban.chinhphu.vn/?pageid=27160&docid=215112

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