On December 11, 2024, Thailand’s Cabinet approved two key Emergency Decrees related to tax increases for multinational corporations (MNEs)to align with global standards set by the Organisation for Economic Co-operation and Development (“OECD”). The draft laws, forming part of Thailand’s commitment to international tax reforms, include provisions for a global minimum tax (Pillar Two) and a redistribution of tax revenues to enhance Thailand’s competitive capabilities in targeted industries.
The key points of the draft laws are summarized below:
1. Affected Entities
The draft laws apply to legal entities within Thailand that are part of MNE groups with consolidated revenue from their Ultimate Parent Entity (UPE) of no less than EUR 750 million.
2. Key Features of the Draft Laws
The draft laws aim to implement the “Top-up Tax” (a supplementary tax) in accordance with the Global Anti-Base Erosion (GloBE) rules set by the OECD. The main provisions are as follows:
(1) General Information
The proposed tax is classified as an “assessed tax, ” distinct from corporate income tax. The collection of this tax will be under the purview of the Revenue Department.
(2) Scope of Application
As mentioned, the draft laws apply to entities within Thailand that are part of MNE groups with consolidated revenue from their UPE exceeding the threshold of EUR 750 million. This consolidated revenue is to be evaluated over a period of at least two accounting periods within the four fiscal years before the relevant tax period.
However, certain entities are exempt from these provisions, such as state agencies, international organizations, non-profit entities, pension funds, and investment vehicles with specific tax characteristics.
(3) Taxpayer Responsibilities
Each constituent entity within Thailand, part of an MNE group, is responsible for paying the Top-up Tax.
(4) Tax Base and Determination of Low-Tax Jurisdictions
The Top-up Tax is designed to address situations where the profits of an MNE group are taxed in jurisdictions with low “Effective Tax Rates” (ETRs). A jurisdiction is considered a “low-tax jurisdiction” if its ETR is below 15%. The formula to determine the ETR is as follows:
| ETR = Adjusted Covered Taxes / Net GloBE Income | |
|---|---|
| Adjusted Covered Taxes: | This refers to the total amount of taxes paid by each constituent entity of the MNE group, after adjustments, for the relevant accounting period. |
| Net GloBE Income: | This is the total income of the MNE group, as determined by the GloBE rules, for the relevant accounting period. |
If an MNE group operates in a jurisdiction with an ETR below 15%, the Top-up Tax may be levied to ensure the group meets the global minimum tax requirements.
(5) Additional Provisions
The draft laws also outline specific guidelines for various corporate structures, such as corporate restructuring, joint ventures, multi-parent MNEs, flow-through entities, and investment entities. Additionally, provisions for tax elections and how entities may opt to comply or opt out of the provisions under certain circumstances will be included in the subordinated laws.
(6) Top-up Tax Calculation
The amount of Top-up Tax to be paid by an MNE group entity is the sum of domestic Top-up Tax and Global Minimum Tax (GMT), as determined under the Income Inclusion Rules or Undertaxed Payment Rules, depending on specific situation.
3. Appeal Process
Entities disagreeing with the assessment of their Top-up Tax can appeal to the Tax Appeal Committee within 30 days of receiving the assessment notice. If the entities disagree with the decision of the appeal to the Tax Appeal Committee, the entity may file a lawsuit with the Tax Court within 30 days of receiving the decision from the Tax Appeal Committee. Furthermore, the draft law includes provisions for resolving disputes through international agreements potentially suspending the appeal process until the dispute is resolved. However, it is important to note that appealing or utilizing international dispute resolution rights will not suspend the obligation to pay the Top-up Tax.
Conclusion
The introduction of these draft laws mark Thailand’s commitment to international tax reforms. These measures align Thailand with the OECD’s BEPS initiatives, which aim to create fairer, more effective global tax systems for MNEs. The laws could significantly impact large MNEs operating in Thailand, especially regarding the enforcement of the global minimum tax rate and its implementation through domestic tax legislation.
With the global minimum tax set to take effect in early 2025, MNEs must prepare to address these challenges, requiring readiness in inter alia, knowledge, resources, Top-up Tax computation, and compliance with reporting obligations. MNEs planning group restructurings should carefully evaluate how these transactions may impact their Pillar Two profiles. Strategic planning will be crucial to manage risks and ensure alignment with the new tax framework. Consulting with tax professionals is advisable to effectively navigate these changes.
For more information, please get in touch with our tax practice, or alternatively, please contact the author.
