The Thai Finance Ministry is taking steps to develop a global minimum tax in order to bolster the country’s tax revenue. This initiative is part of a global effort to ensure that multinational corporations pay a fair share of taxes in the countries where they operate.
Key Takeaways
- The Thai Finance Ministry is working towards the development of the Global Minimum Tax Bill.
- The initiative aligns with the guidelines of the OECD, aiming to prevent corporations from seeking to pay less tax in jurisdictions with lower tax rates.
- The Thai Deputy Finance Minister stated that the new tax is slated to be implemented in 2025, with the necessary approvals aimed to be secured within this year.
The concept of a global minimum tax aims to prevent companies from shifting profits to low-tax jurisdictions and encourages them to contribute to the tax base of the countries where they conduct business activities. By implementing a global minimum tax, Thailand seeks to address tax avoidance and generate additional revenue to support its public services and infrastructure development.
The initiative, pending Cabinet approval, seeks to raise 20 billion baht from multinational corporations. This tax is in accordance with OECD guidelines and is designed to deter companies from minimizing tax liabilities in lower-tax jurisdictions.
The OECD’s global minimum tax concept requires member countries to set a corporate income tax rate of at least 15%. This measure is intended to deter countries from offering lower taxes to attract investments.
Deputy Finance Minister Julapun Amornvivat explained that the new tax will come into effect during 2025, seeking to be approved with the needed requirements during this year.
Thailand has endorsed international tax measures introduced by the OECD/G20, known as Base Erosion and Profit Shifting (BEPS) 2.0. The original BEPS Project identified 15 Action Items, including harmful tax practices and tax treaty abuse, which the Thai Government has addressed by implementing the multilateral Instrument.
Here are the key points:
- Pillar 2 – The Global Minimum Tax Measure:
- Applies to Multinational Enterprises (MNEs) with a turnover above 750 million Euros.
- Allocates a minimum tax rate of 15% for each jurisdiction where an MNE operates, subject to certain de minimis criteria.
- A top-up tax is applied where the rate is below 15%.
- Thai Cabinet’s Approval:
- On March 7, 2023, the Thailand Cabinet approved in principle official plans for collecting the Global Minimum Tax following the BEPS 2.0 Pillar Two rules.
- The Thai Revenue Department (TRD) and the Board of Investment of Thailand (BOI) are responsible for implementing these measures.
- Implementation Timeline:
- Relevant legislation is tentatively set to be considered in 2023 and become effective in 2025.
- The TRD will draft relevant legislation for collecting the top-up payment according to Pillar Two.
- The BOI will amend the National Competitiveness Enhancement Fund Act and promote investment to improve Thailand’s competitiveness.
The OECD’s efforts in establishing a global minimum tax
The OECD has played a crucial role in setting up a global minimum tax, targeting a standard effective corporate tax rate of 15% for large multinational corporations. This measure is a component of a wider strategy designed to tackle the tax challenges that emerge from the digitalization and globalization of the economy.
A significant milestone in this endeavor is the establishment of the Global Minimum Tax (GMT), which is part of the two-pillar solution agreed upon by over 135 member jurisdictions of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
The OECD’s economic impact assessment of the GMT indicates that it will substantially reduce global low-taxed profit—from 36% of all profit globally to about 7%. This reduction is attributed to the curtailment of profit shifting and the application of top-up taxes. The remaining low-taxed profit mainly reflects the impact of the substance-based income exclusion, which considers the real economic activities of MNEs.
The GMT is estimated to generate $150 billion in additional global tax revenues annually, representing a significant step towards more equitable and effective taxation of MNEs. The OECD’s work, including developing model rules and implementation handbooks, provides a framework for governments to align their domestic laws with the GMT provisions, ensuring a coordinated global approach to taxation.
