1. On 1 March 2024, the Thai Revenue Department released a draft legislation for an adoption of the Global Anti-Base Erosion Rules (GloBE rules) in Thailand, aligning with the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two project. The draft legislation was open for a public consultation from 1 March 2024 to 15 March 2024.
2. This draft legislation is a response to the Cabinet's resolution on 7 March 2023 to collect the Top-up Tax in Thailand for in-scope multinational enterprises (MNEs). The Cabinet assigned the Thai Revenue Department with drafting the associated regulations and guidelines. (For background, see EY Global Tax Alert, Thailand plans to implement global minimum tax rules under OECD BEPS 2.0 Pillar Two, 10 March 2023.)
KEY HIGHLIGHTS
1. In-scope MNEs - The draft legislation will be applicable to all Constituent Entities in Thailand that are members of an MNE group with an Ultimate Parent Entity (UPE) that has consolidated revenues in Thai Baht equivalent to €750m or more, in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year.
2. Top-up Tax liabilities and charging mechanisms - The determination of jurisdictional Top-up Tax under the draft legislation aligns with the OECD Model Rules. Although a general calculation framework is outlined, specific detailed calculations and adjustments will be addressed in supplementary legislation. Thailand proposes to collect the Top-up Tax through the following mechanisms:
a. Domestic Top-up Tax (DMTT) - All Constituent Entities in Thailand will be subject to the Top-up Tax under the DMTT if Thailand's Effective Tax Rate (ETR) is lower than 15%.
b. Income Inclusion Rule (IIR) - Thai UPEs, Intermediate Parent Entities, or Partially Owned Parent Entities in Thailand (as the case may be) will be subject to the Top-up Tax under the IIR if one or more foreign jurisdictions in which they have direct and indirect ownership are low-taxed jurisdictions (i.e., where the ETR is lower than 15%).
c. Undertaxed Payment Rules (UTPR) - All Constituent Entities in Thailand will be subject to the allocated Top-up Tax under the UTPR if the Top-up Tax in low-taxed foreign jurisdictions has not already been paid, or fully paid, either under qualified DMTT or qualified IIR, in such foreign jurisdictions. The draft legislation notes that Thailand will not employ a denial of deduction approach for the UTPR mechanism. Instead, additional Top-up Tax will be levied on all Constituent Entities in Thailand.
Note: Under the DMTT and UTPR, Top-up Tax liabilities are proposed to be allocated proportionally among all Thai Constituent Entities, based on their GloBE Income. However, an option is available allowing that a written consensus may be reached between all Thai Constituent Entities to designate one Thai Constituent Entity to assume and pay the Top-up Tax to the Thai Revenue Department. All Thai Constituent Entities would nonetheless remain jointly and severally liable for any outstanding Top-up Taxes.
3. Reporting and filing obligations - All Constituent Entities in Thailand are required to electronically submit the following to the Thai Revenue Department within 15 months after the end of the fiscal year:
a. Notification providing information on the in-scope MNE
b. GloBE Information Return
c. Top-up Tax return, along with any Top-up Tax payments
Certain exemptions may apply, relieving certain Constituent Entities from these reporting/filing obligations.
4. Surcharge and penalties - A 1.5% monthly surcharge will be imposed for Top-up Tax shortfalls. Also, incorrectly filed Top-up Tax returns will incur a 100% penalty of the tax shortfall, while a failure to file Top-up Tax returns will result in a 200% penalty.
CONSIDERATIONS AND NEXT STEPS
1. Expected enactment timeline - Once the draft legislation is completed, the Thai Revenue Department will submit the proposal of the draft legislation to the Cabinet for further consideration.
2. Subject to the legislative process, enactment is anticipated to occur in 2025, aligning with the timeline indicated in the Cabinet's resolution on 7 March 2023.
MORE TO COME
1. Top-up Taxes in Thailand will be governed by the Top-up Tax Act, which is separate from the existing Thai Revenue Code. The Draft Top-up Tax Act appears to largely align with the OECD Model Rules, although specific details such as currency conversion, safe harbors and elections remain unknown at this stage. Further specifics are expected to be addressed in subsequent supplementary legislation.
ALTERNATIVES TO CURRENT TAX INCENTIVES
1. Additionally, in-scope MNEs currently enjoying corporate income tax incentives, either from the Thai Revenue Department or the Thai Board of Investment, should closely monitor updates to the existing tax incentive regimes or new relief measures to maintain Thailand's investment attractiveness.
Source:
https://www.ey.com/en_gl/tax-alerts/thailand-releases-draft-top-up-tax-act-to-implement-the-global-m
