I. What is the Global Minimum Tax?
The Global Minimum Tax (GMT) represents a transformative approach to international taxation, targeting multinational enterprises (MNEs). Initiated by the Organisation for Economic Co-operation and Development (OECD), the framework aims to enhance fairness, reduce tax competition between countries, and address profit shifting. Thailand is a signatory to this initiative, structured under two key pillars.
Pillar 1: Enhancing Fairness in Global Taxation
Pillar 1 establishes a system where MNEs are taxed in jurisdictions where they generate significant economic activity. This ensures that profits are allocated fairly and taxed in the countries where value is created.
Key criteria under Pillar 1:
1. Applicable to MNEs with global revenues exceeding EUR 200 billion per year.
2. Applies to enterprises generating profits above 10% of annual revenue.
3. Includes a nexus rule that applies to enterprises earning at least EUR 1 million (approximately THB 38 million) annually in a specific country.
For Thailand, Pillar 1 creates new opportunities to tax large companies—particularly digital service providers such as Netflix and Amazon—that generate substantial income locally but previously avoided significant tax obligations.
Pillar 2: Establishing a Global Minimum Tax
Pillar 2 introduces a minimum effective tax rate (ETR) of 15% to address harmful tax practices. This prevents MNEs from shifting profits to jurisdictions with lower or no taxes.
Key criteria under Pillar 2:
✓ MNEs with annual consolidated revenues exceeding EUR 750 million must comply with the 15% ETR.
✓ Jurisdictions with an ETR below 15% will require MNEs to pay a “top-up tax” to meet the threshold.
For Thailand, where the standard corporate income tax rate is 20%, businesses benefitting from Board of Investment (BOI) tax incentives may effectively face an ETR below 15%. Under GMT, these entities must comply by paying the top-up tax. However, Thailand can introduce a Qualified Domestic Minimum Top-Up Tax (QDMTT) to retain such additional revenue domestically.
II. Current Status of Worldwide Income Tax in Thailand
Although Thailand has not yet fully implemented the OECD’s Pillar 2 framework, its principles are already influencing Thai businesses, especially those operating internationally.
Pillar 2 applies to MNEs with consolidated revenues exceeding EUR 750 million annually. Certain entities, such as international and non-profit organizations, are explicitly exempt.
Businesses likely to be affected in Thailand include:
1. Thai-listed companies: Enterprises listed on the Stock Exchange of Thailand that meet the revenue threshold.
2. Financial institutions: Entities with annual consolidated revenues exceeding EUR 750 million.
Thai companies operating in jurisdictions that have implemented Pillar 2 are subject to mechanisms like the Income Inclusion Rule (IIR) and the Under-Taxed Payment Rule (UTPR). Host countries can impose a qualified domestic top-up tax to ensure compliance with the 15% ETR. This means tax revenues from Thai companies abroad may be collected by foreign tax authorities instead of the Thai Revenue Department.
Implications for Thailand:
✓ Increased Revenue: Thailand can collect more tax from MNEs operating locally, particularly in the digital and technology sectors.
✓ Enhanced Foreign Direct Investment (FDI): A standardized tax framework promotes transparency, making Thailand an attractive destination for investment.
✓ Economic Development: Additional revenues can support infrastructure, employment, and innovation.
III. Future of Worldwide Income Tax in Thailand
On December 11, 2024, the Thai Cabinet approved the drafting of legislation to implement the GMT under OECD Pillar 2. Two key laws are being introduced:
1. Decree on Additional Taxes B.E. …
This decree sets a 15% global minimum tax rate effective January 1, 2025. It defines taxable income as “Net GloBE Income” (financial accounting net income adjusted per GloBE rules) and outlines mechanisms for determining the ETR and jurisdictional top-up tax. Key provisions include:
⦾ Coverage of entities with global revenues of at least EUR 750 million in two of the last four financial years.
⦾ Tax filing obligations requiring detailed GloBE returns within 15 months of the parent company’s fiscal year-end.
⦾ Alignment with international tax standards, including the Income Inclusion Rule and the Qualified Domestic Minimum Top-Up Tax.
2. National Competitiveness Enhancement Act for Targeted Industries B.E. …
Administered by the BOI, this act allocates a portion of GMT revenues to a fund designed to enhance competitiveness in key industries, particularly technology and innovation. The draft of this act is under review, and amendments are expected.
IV. Impact on Thailand
The implementation of the GMT presents both opportunities and challenges for Thailand:
Impact on Thai Enterprises:
✓ BOI-Incentivized Companies: Enterprises benefitting from BOI tax incentives may face a top-up tax, especially if their ETR falls below 15%. Substance-based income exclusions and deductions can provide limited relief, but caps on these deductions may reduce their effectiveness.
✓ Tax Deduction Challenges: Thai MNEs may encounter discrepancies between traditional Revenue Code-based tax calculations and the GloBE ETR, requiring adjustments to ensure compliance.
Broader Implications:
✓ Limited Benefits for Thailand: Double taxation treaties tend to favor developed countries. For Thailand, which relies on tax incentives to attract foreign investment, other mechanisms like customs duty exemptions and income tax waivers may become more critical.
✓ Investment Treaties: GMT measures could conflict with protections under bilateral investment treaties, especially stabilization clauses guaranteeing tax benefits.
V. How Businesses Can Prepare
To navigate the new global tax landscape, businesses must proactively assess their tax strategies:
1. Risk Assessment and Compliance:
⦾ Evaluate the impact of Pillar 2 on global operations.
⦾ Disclose potential tax liabilities through detailed documentation and transparent reporting.
⦾ Ensure timely submission of GloBE information returns.
2. Employee Training and Collaboration:
⦾ Train finance, tax, and compliance teams on new tax principles and calculation methods.
⦾ Foster collaboration across departments to consolidate required data for accurate calculations.
3. Strategic M&A Activities:
⦾ Conduct jurisdiction-specific tax studies to account for GMT implications in mergers and acquisitions.
⦾ Mitigate risks by assessing potential top-up tax liabilities for acquired entities.
4. Technology Investments:
⦾ Implement robust systems for data collection, analysis, and compliance with international tax rules.
VI. Conclusion
Thailand’s adoption of the OECD’s Global Minimum Tax framework under Pillar 2 represents a significant shift in its approach to international taxation. While these measures aim to enhance fairness and transparency, they also pose challenges for Thai businesses, particularly those benefitting from BOI incentives. By proactively preparing for compliance, businesses can mitigate risks and capitalize on opportunities in this evolving global tax landscape.