Impact Of Pillar Two Rules On Related Party Transactions In Multinational Enterprises

IMPACT OF PILLAR TWO RULES ON RELATED PARTY TRANSACTIONS IN MULTINATIONAL ENTERPRISES

1. Legal Framework in Vietnam

• Resolution 107/2023/QH15: From January 1, 2024, Vietnam applies a global minimum tax rate of 15% for MNEs with consolidated revenue ≥ EUR 750 million in at least 2 of the last 4 years.

Key mechanisms: Qualified Domestic Minimum Top-up Tax (QDMTT) & Income Inclusion Rule (IIR).

• Draft Decree 20/2025/ND-CP: Expands the definition of related parties, updates provisions on interest deductibility, and revises disclosure templates.

2. Key Impacts on Related Party Transactions

• Reduced incentive for profit shifting: Transactions in low-tax jurisdictions (<15%) will be closely scrutinized and may trigger top-up tax.
• Increased compliance costs: Companies must upgrade systems, digitize transfer pricing files, and monitor Effective Tax Rates (ETR
• Strategic shift: From tax optimization to operational compliance and efficiency.

3. Opportunities & Challenges for Vietnam

• Opportunities: Greater transparency, better alignment with international standards, and more sustainable investment strategies
• Challenges: Reduced FDI appeal based on tax incentives, higher compliance burden for MNEs, and pressure to modernize tax administration.

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