Understanding the Global Minimum Tax
Based on the new Global Minimum Tax introduced by the OECD, a taxpayer in scope of Pillar 2 (where the consolidated group revenue is at least EUR 750 million in two of last four years) are required to pay a top-up tax on the difference between their effective tax rate in the jurisdiction where they operate and the 15% minimum tax rate.
Any resulting top-up tax is generally charged in the jurisdiction of the ultimate parent of the multinational enterprise; however, it could also be charged in Thailand.
Thailand on impacts from Pillar 2
In 2023, the Thailand Board of Investment (“BOI”) took significant steps to ensure Thailand’s compliance with the Global Minimum Tax. These measures, applicable to both existing BOI-promoted and new BOI applicants, provide reassurance about the country’s commitment.
On 1 March 2024, The Thai Revenue Department (“TRD”) held a public hearing on the draft legislation on Pillar 2. A public hearing is a process where the draft Top-Up Tax Act is made available to the public for review and comment. In brief, the draft legislation explains the following key points.
The draft legislation will be applied to the constituent entities in Thailand, where they are members of the Multinational Enterprise (“MNE”) group with consolidated revenue of at least EUR 750 million.
- The draft legislation introduces the top-up tax measure, where the top-up tax will be assessed on the jurisdictional excess profit. The Effective Tax Rate (“ETR”) based on the determination under the draft legislation shall be calculated.
- The draft legislation proposes three tax collection mechanisms, which are i) Domestic Minimum Top-up Tax (“DMTT”), ii) Income Inclusion Rule (“IRR”), and iii) Undertaxed Payments Rule (“UTPR”). Each mechanism will be considered differently based on the company’s group structure.
- Regarding the tax administration, based on the draft legislation, taxpayers within the scope are required to submit the notification that provides detailed information on the MNE group and relevant returns together with the top-up tax payment to the TRD within 15 months from the end of the fiscal year.
- As per the draft act, the companies eligible for tax privileges and benefits from the BOI under the Investment Promotion Act remain unchanged.
Our observations
This draft act proposes that the top-up tax be governed separately from the Thai Revenue Code. The draft act is silent on the effective date of the new rule, however, the TRD will likely attempt to implement such legislation by the beginning of 2025. It is crucial to closely monitor the developments of the tax measurement issued by the TRD and the BOI. Companies should consider these changes from the perspective of the entire group, as Pillar 2 will have significant tax impacts on the group. Being proactive in understanding and adapting to these changes is key.
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