Image: CN Tower, Toronto — Source: Pexels, by Kamal El Douaihy (Pexels License).
Low-taxed profits in Vietnam can now trigger top-up tax in Canada
A manufacturing group headquartered in Toronto operates a plant in Vietnam that benefits from corporate income tax incentives. The group’s CFO asks: under the global minimum tax, will the tax “saved” through Vietnamese incentives simply be collected again in Canada as top-up tax?
The short answer is: possibly — but the mechanism is not “Canada taxing instead of Vietnam.” Understanding the three pillars of the OECD/G20 Pillar Two system and their ordering is essential to getting the answer right.
What Canada has enacted
Canada’s Global Minimum Tax Act, enacted in June 2024, applies to multinational groups with consolidated revenues of at least EUR 750 million. The goal: a minimum 15% effective tax rate on profits in each jurisdiction, computed jurisdiction by jurisdiction.
Three instruments, on Canada’s published timeline:
1. Qualified Domestic Minimum Top-up Tax (QDMTT). Top-up tax on profits arising in Canada where the Canadian effective rate is below 15%. Effective for fiscal years beginning on or after 31 December 2023.
2. Income Inclusion Rule (IIR). Allows Canada to levy top-up tax on a Canadian parent corresponding to low-taxed profits of foreign subsidiaries — including subsidiaries in Vietnam. Same effective date: fiscal years beginning on or after 31 December 2023.
3. Undertaxed Profits Rule (UTPR). A backstop where neither the IIR nor a QDMTT captures the low-taxed profit, allocating top-up tax across group entities. Under amending proposals (Bill C-31), Canada’s UTPR start is deferred to fiscal years beginning on or after 31 December 2025.
First filings — information returns, notifications, and any tax due — are expected around 30 June 2026. Even with no top-up tax payable, in-scope groups have filing or notification obligations with the Canada Revenue Agency.
Vietnam’s side: the top-up is collected at source
Vietnam domesticated the global minimum tax through National Assembly Resolution No. 107/2023/QH15 (effective 1 January 2024, applying from fiscal year 2024) and Government Decree No. 236/2025/ND-CP (issued 29 August 2025, effective 15 October 2025, applying from fiscal year 2024), which provides detailed rules.
The key point: Vietnam applies a qualified domestic minimum top-up tax. If a Vietnamese subsidiary’s effective rate falls below 15% because of incentives, Vietnam collects the top-up domestically rather than leaving it for Canada to collect via the IIR.
This ordering matters enormously in practice: QDMTT paid in Vietnam reduces the IIR top-up Canada may levy on the same profits. Vietnamese tax incentives no longer translate into global tax savings — the difference to 15% gets collected, just in Vietnam instead of Canada.
What groups should review now
Scope. The EUR 750 million threshold applies to the whole group, not to the Vietnamese subsidiary alone. Mid-sized groups often assume they are “too small” while exceeding the threshold on a consolidated basis.
Effective tax rate in Vietnam. The GloBE effective rate differs from the statutory rate; adjustments (deferred taxes, the substance-based income exclusion for tangible assets and payroll) directly affect the top-up amount.
Transitional safe harbours. The transitional CbCR safe harbour can deem the jurisdictional top-up to be zero where revenue, profit, or simplified-ETR tests are met during the transition period — a valuable compliance lifeline for the early years.
Holding structures. For groups with a Canadian parent and multi-country ownership chains, identify which entity is liable under the IIR to avoid double counting or gaps across jurisdictions.
Data readiness. Computing jurisdictional ETRs demands granular accounting-and-tax data that many groups’ current reporting systems do not produce. With the first filing deadline (30 June 2026) approaching, preparation cannot wait.
Conclusion
Canada’s global minimum tax does not “double-tax” Vietnamese profits, but it closes the era in which an incentive in one country meant global tax savings. For groups with a Canadian parent and Vietnamese subsidiaries, the realistic outcome is: Vietnam collects its qualified domestic top-up first (under Resolution 107/2023/QH15 and Decree 236/2025/ND-CP), and Canada collects any remainder via the IIR. Businesses should recalculate the real value of the incentives they enjoy — and prepare filings, because “no top-up due” does not mean “no filing due.”
Frequently asked questions
Are groups below EUR 750 million in revenue affected?
Not within Pillar Two’s mandatory scope. However, members of a larger group above the threshold can be affected indirectly through the parent.
If Vietnam already collected QDMTT, can Canada still apply the IIR?
In principle, qualified domestic top-up tax paid in Vietnam is credited when computing the Canadian IIR top-up on the same profits, so there is no duplication. Canadian filing obligations remain.
When does Canada’s UTPR apply?
On the current timeline, for fiscal years beginning on or after 31 December 2025 (deferred by one year from the original proposal). Businesses should track official legislation as timelines may move.
Are Vietnamese tax incentives revoked?
No — incentives under Vietnamese law remain valid. The global minimum tax does not cancel them; it collects additional top-up tax bringing the effective rate to at least 15%, which substantially erodes their economic value.
What should be prepared before the 30 June 2026 deadline?
Determine whether the group is in scope; model jurisdictional ETRs under GloBE standards; test transitional safe-harbour eligibility; and build an accounting-and-tax data collection process for the information return.
This article has been quality-reviewed by the FLAW AI Legal Council
