On 7 March 2023, the Cabinet approved to adopt the 15% global minimum tax under Pilar Two of the Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting, and officially assigned the following agencies to propose the necessary measures supporting the implementation while ensuring protection to the adversely affected investors in Thailand and ensure that the country does not lose its competitiveness:
- Board of Investment (BOI) – Among others, propose needed measures to ensure that the country’s competitiveness is not adversely affected by Pillar Two, and at the same time, support the implementation of Pillar Two. If adverse effects cannot be avoided, minimize the impact, and provide financial support under the Competitiveness Enhancement Fund (the “Fund”) to qualified investors.
- Thai Revenue Department (TRD) – draft the relevant law and guidelines relating to the collection of the top-up tax under the GloBE (Global anti-Base Erosion) Rules.
‘The tax imposed under the GloBE Rules is a “top-up tax” calculated and applied at a jurisdictional level. The GloBE rules use a standardized base and definition of covered taxes to identify those jurisdictions where an MNE is subject to an effective tax rate below 15%. It then imposes a coordinated tax charge that brings the MNE’s effective tax rate on that income up to the minimum 15% rate (after taking into account a substance-based carve-out). The design of the GloBE Rules as a top-up tax facilitates the coordinated application of the GloBE Rules'.
The mandate from the Cabinet is to allocate 50% to 70% of top-up taxes collected under Pillar Two to the above Fund of the BOI.
The rules are expected to be released within 2023 to take effect in 2025.
The Pillar Two Model Rules are designed to ensure large multinational enterprises (MNEs) pay a minimum 15% tax on income arising in each jurisdiction where they operate.
The determination of a top-up tax follows a five-step procedure, as follows:
Step 1 – Identify Groups within Scope and the location of each Constituent Entity (CE) within the Group.
Step 2 - Determine Income of each CE
Step 3 - Determine taxes attributable to Income of a CE
Step 4 – Calculate the Effective Tax Rate (ETR) of all CEs located in the same jurisdiction and determine resulting top-up tax.
Step 5 – Impose top-up tax under the Income Inclusion Rule (IIR) or Under-Taxed Payment Rule (UTPR) pursuant to the agreed rule order.
The MNE Groups that are covered by Pillar Two are those with consolidated revenue of at least EUR 750 million in at least two of the four prior fiscal years, the same revenue threshold used in the CbCR rules.