A multinational group enjoys a deep corporate income tax incentive in Vietnam — profits that were supposed to be taxed very lightly for years. When the global minimum tax (Pillar Two) switches on, that “saving” is neutralised: Vietnam collects a domestic top-up tax under the QDMTT mechanism, or the group’s home country collects the difference under the IIR. The dispute question follows immediately: the incentive was committed in the investment certificate, and an international tax mechanism has now emptied it of value — can the investor sue anyone, and through which door?
Legal framework: Resolution 107/2023 and Vietnam’s top-up tax machinery
Vietnam applies the global minimum tax under National Assembly Resolution No. 107/2023/QH15, through two mechanisms: the qualified domestic minimum top-up tax (QDMTT) — Vietnam itself collects the top-up on Vietnamese profits of in-scope groups — and the income inclusion rule (IIR) for Vietnam-based parent companies investing abroad. The Resolution applies from 1 January 2024 and is guided by Decree No. 236/2025/ND-CP. The scope threshold follows the OECD/G20 BEPS framework: multinational groups with consolidated revenue of EUR 750 million or more.
The core economic consequence: where incentives pull the group’s effective tax rate in Vietnam below the 15 per cent minimum, the shortfall is no longer a real benefit — it is topped up, in Vietnam through the QDMTT or in the parent’s home country through the IIR. Vietnam collecting its own QDMTT actually protects domestic revenue: if Vietnam did not collect, the investor’s home country would collect instead. But for an investor that priced its deal on full incentives, project cash flows change materially — and that is the seed of dispute.
Where disputes break out: three distinct fronts
The first front is domestic tax dispute: the enterprise and the tax authority disagree on whether the group is in scope, how the effective tax rate is computed, adjustments, or the top-up amount payable. This is a pure tax administration dispute, following the complaint and administrative litigation track of Vietnamese tax law — currently the Law on Tax Administration 108/2025/QH15 (in force from 1 July 2026, replacing Law 38/2019). No international arbitration lives on this front.
The second front is contract and commitment dispute: many large projects carry written commitments from state authorities or stabilisation language in project approval documents. When incentives are neutralised, the investor can argue the commitment is undermined and seek non-tax compensation mechanisms — budget support, land rent adjustments, project term extension — depending on the commitment’s actual wording. This is structured legal negotiation, not a default lawsuit.
The third front, the most asked about, is international investment arbitration under an investment protection treaty. In principle, a tax measure can be alleged to breach fair and equitable treatment where it defeats legitimate expectations created by specific state commitments. But the barriers are high: most treaties reserve wide tax regulatory space to the state, many exclude or limit tax disputes from arbitration, and applying a near-universally agreed international standard such as Pillar Two is very hard to characterise as arbitrary or discriminatory. The realistic order of play is fronts one and two; front three only where a specific tax stabilisation commitment exists in clear writing and the loss is large enough.
Compensation and the practical strategy
The most realistic compensation path is rarely an arbitral award. It lies in quantifying precisely the QDMTT impact on the project’s financial model, mapping every incentive commitment in the investment registration certificate and approval documents, and negotiating a non-tax compensation package with the competent authority. In parallel, the group’s tax function should restructure so that remaining incentives — non-rate-based support such as training assistance, infrastructure and land rent — are preserved and correctly recognised, because Pillar Two neutralises tax benefits only, not non-tax support. Every exchange with state authorities in this phase should be carefully documented: that file serves today’s negotiation and, if the dispute ever escalates, becomes the evidence of legitimate expectations.
Frequently Asked Questions
Does Pillar Two neutralising an incentive create a dispute?
Yes, on three fronts: domestic tax disputes over scope and top-up computation under Resolution No. 107/2023/QH15 and Decree No. 236/2025/ND-CP; negotiation over project incentive commitments; and, in principle, investment treaty analysis — the hardest and least practical front.
If a committed incentive is neutralised, whom does the investor sue?
Distinguish first: Pillar Two does not “revoke” the incentive administratively — the incentive still exists but its benefit is neutralised by the QDMTT/IIR top-up. The first counterparties are the tax authority in any specific tax dispute and the committing authority in compensation negotiation; there is no default defendant for a general Pillar Two lawsuit.
Can the investor go to international arbitration?
It can be examined where the applicable investment treaty does not carve out tax disputes and the investor can prove a specific commitment whose defeat harmed legitimate expectations. But barriers are high: state tax regulatory space is widely respected, and Pillar Two is a consensus international standard, hard to frame as arbitrary or discriminatory.
How can compensation actually be obtained?
The practical route: quantify the QDMTT impact on the project model, map commitments in the investment certificate, negotiate a non-tax compensation package (budget support, land rent, project term), and preserve non-tax incentives that Pillar Two does not touch. Arbitration is the last resort, not the first.
This article has been quality-reviewed by the FLAW AI Legal Council
