April 4, 2024 Thailand releases draft Top-up Tax Act to implement the global minimum tax rules under BEPS 2.0 Pillar Two
Background 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. 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 Key principles of the draft legislation are summarized below.
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.
Considerations and next steps 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. 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 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 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. Are you ready for BEPS 2.0 Pillar Two implementation? The upcoming development presents significant challenges for in-scope MNEs, requiring readiness in terms of knowledge, resources, processes and solutions for efficient data collection management, Top-up Tax computation and compliance with relevant reporting and disclosure requirements. With the introduction of numerous new data points under Pillar Two, conducting a data-gap analysis can help identify the additional data points needed for a seamless transition. During an initial period after Pillar Two implementation in Thailand, an assessment on a Transitional Country-by-Country Reporting Safe Harbour (TCSH) qualification could be crucial for in-scope MNEs to significantly alleviate detailed calculation and Top-up Tax burdens. More details on the TCSH (if adopted by Thailand) are expected from the Thai Revenue Department in the near future. Also, MNEs considering group restructuring, mergers or acquisitions should take into account the potential impact of these transactions on their Pillar Two profiles after Pillar Two takes effect. The public consultation on the Top-up Tax Act marks a crucial milestone for Thailand and provides a clearer picture of Thailand's affirmative position in the implementation of BEPS 2.0 Pillar Two. In-scope MNEs should no longer take a wait-and-see approach, but rather start performing Pillar Two impact assessments so they are ready to address most aspects upon the law's enactment.
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