As Pillar Two implementation gathers pace around the world, multinational enterprises are facing a new reality: tax strategies that were once effective may no longer deliver the same benefits under a global minimum tax regime. In Vietnam, the adoption of these rules is prompting businesses to reassess transfer pricing arrangements, cross-border operating models and investment strategies.
For multinational enterprises (MNEs), the implications extend far beyond tax compliance. As governments seek to curb base erosion and profit shifting, the era of relying heavily on low-tax jurisdictions and preferential tax incentives is rapidly coming to an end. In its place, businesses are being pushed towards greater transparency, stronger economic substance and more robust transfer pricing governance.
Against this backdrop, business leaders must evaluate whether their existing structures remain fit for purpose in an environment where value creation, operational substance and tax governance are under increasing scrutiny.
What Is Pillar Two and Why Does It Matter?
Pillar Two is a global tax initiative developed by the Organisation for Economic Co-operation and Development (OECD) to establish a minimum effective corporate tax rate of 15% for large multinational enterprise groups with consolidated revenues of EUR750 million or more in at least two of the four fiscal years immediately preceding the tested year.
In Vietnam, these rules took effect on 1 January 2024 under Resolution 107/2023/QH15 of the National Assembly, through two mechanisms. The Qualified Domestic Minimum Top-up Tax (QDMTT) applies to Vietnamese entities of foreign in-scope groups, so any top-up tax on profits earned in Vietnam is collected in Vietnam rather than in the parent company’s jurisdiction. The Income Inclusion Rule (IIR) applies to Vietnam-headquartered groups in respect of their low-taxed overseas subsidiaries. Together, these measures ensure that profits generated by in-scope multinational groups are subject to a minimum level of taxation, regardless of where those profits are reported.
For multinational businesses operating in Vietnam, the effects of Pillar Two may be felt across multiple areas of the organisation, including:
- Transfer pricing strategies
- Intercompany financing arrangements
- Intellectual property structures
- Supply chain configurations
- Legal entity models
- Tax incentive planning
- Financial reporting and compliance processes
More importantly, Pillar Two may alter the economics of existing group structures. Arrangements that were previously efficient from a tax perspective may no longer deliver the same benefits once top-up taxes are factored in. As a result, multinational groups should assess not only their compliance obligations, but also the financial and strategic impact of Pillar Two on their broader business operations.
“The biggest misconception is that Pillar Two is simply a tax compliance exercise. In reality, it has the potential to influence investment decisions, operating models and the way multinational groups allocate resources across jurisdictions,” said BoardRoom Vietnam’s Country Manager, Brian Nguyen.
The End of Traditional Profit Shifting Strategies
Historically, multinational groups could optimise global tax positions by allocating profits to jurisdictions with lower tax rates. Under Pillar Two, any tax benefits derived from low-tax jurisdictions may ultimately be offset through top-up taxes, significantly reducing the effectiveness of these structures.
This means companies must revisit their transfer pricing policies and ensure related party transactions reflect genuine commercial substance and arm’s length principles. Transactions involving management fees, intercompany loans, shared services and intellectual property licensing are likely to face greater scrutiny from tax authorities worldwide.
Against this backdrop, business leaders must evaluate whether their existing structures remain fit for purpose in an environment where value creation, operational substance and regulatory compliance are under increasing scrutiny.
Why Transfer Pricing Is Back in the Spotlight
Transfer pricing remains one of the most important tax considerations for multinational corporations and Pillar Two has only heightened its significance.
Vietnam’s evolving regulatory environment places greater emphasis on related party transaction monitoring and transfer pricing oversight. Recent regulatory developments, including Decree 20/2025/ND-CP amending Decree 132/2020/ND-CP, have refined and broadened the definition of related parties (for example, to cover independent-accounting branches and credit institutions with their subsidiaries and affiliates) and strengthened information sharing between the tax authorities and the State Bank of Vietnam on cross-border loans.
For businesses, this raises several important questions:
- Are current transfer pricing models sustainable under Pillar Two?
- Could year-end transfer pricing adjustments trigger unintended tax consequences?
- Are intercompany arrangements appropriately documented?
- Do current structures accurately align profits with economic substance?
Organisations that fail to address these questions may face increased audit scrutiny, potential double taxation risks and higher compliance costs.
From Tax Optimisation to Tax Governance
Perhaps the biggest change brought by Pillar Two is the shift in mindset required from multinational businesses.
Rather than focusing primarily on reducing tax rates, companies must now prioritise:
- Tax risk management
- Regulatory compliance
- Data accuracy
- Operational substance
- Governance and transparency
Businesses may need to reassess supply chains, operating models and group structures to ensure they remain commercially viable while meeting the requirements of the new global tax environment.
Increasingly, competitive advantage will come not from aggressive tax structuring, but from efficient business operations supported by strong tax governance.
Technology and Data Are Becoming Critical
Pillar Two introduces new reporting and calculation requirements that many organisations are not currently equipped to manage. To determine effective tax rates across multiple jurisdictions, businesses need reliable financial data, consistent reporting methodologies and robust compliance processes. This is driving greater investment in tax technology, data analytics and digital transfer pricing documentation.
For many multinational groups, achieving Pillar Two readiness may require collaboration across tax, finance, legal and operational teams.
What This Means for Vietnam's Investment Landscape
The implementation of the global minimum tax regime presents both opportunities and challenges for Vietnam.
On one hand, alignment with international tax standards can strengthen investor confidence, improve transparency and support a more sustainable investment environment. It also encourages businesses to focus on genuine economic activity rather than purely tax-driven structures.
On the other hand, traditional tax incentives that have historically attracted foreign direct investment may become less influential in investment decisions. Companies evaluating expansion into Vietnam will increasingly assess factors such as workforce quality, infrastructure, supply chain resilience, market access and operational efficiency alongside tax considerations.
“Many organisations are still assessing their exposure to Pillar Two. Those that act early will be better positioned to identify potential risks, assess the impact on transfer pricing arrangements and make informed decisions before compliance requirements become more complex,” Brian advised.
Preparing for the Next Phase of Global Tax Reform
As Pillar Two implementation continues to evolve globally, multinational enterprises cannot afford a wait-and-see approach.
The interaction between global minimum tax rules, transfer pricing regulations, related party transactions and corporate tax compliance presents a complex challenge for finance, tax and business leaders. Organisations that proactively review their structures, assess potential exposure and strengthen governance frameworks will be better positioned to navigate the changing landscape.
For businesses operating across multiple jurisdictions, the key question is no longer whether Pillar Two will have an impact. The question is how significant that impact will be on your tax position, transfer pricing arrangements and long-term investment strategy.
Need Guidance on the Impact of Pillar Two on Your Business?
Whether you are assessing Pillar Two readiness, reviewing transfer pricing arrangements, evaluating the impact of top-up taxes or navigating Vietnam’s evolving tax landscape, our team can help you understand the implications and develop an effective response strategy.
Contact BoardRoom today to discuss how Pillar Two could affect your organisation and the steps you should be taking now to stay compliant, mitigate risk and support sustainable growth.