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10 September 2024

Taiwan announces proposal increasing AMT rate for certain MNEs from 12% to 15%

  • The Ministry of Finance of Taiwan has proposed an increase, from 12% to 15%, to the alternative minimum tax (AMT) rate for multinational enterprises (MNEs) with annual consolidated revenue of more than €750m (in at least two of the prior four years) in Taiwan.
  • The AMT regime for enterprises in Taiwan is not equivalent to the Global Anti-Base Erosion (GloBE) Rules and thus it should not be considered as Qualified Domestic Minimum Top-up Tax (QDMTT) for Pillar Two purpose.
 

Executive summary

On 28 August 2024, in response to the trend toward Pillar Two adoption, the Ministry of Finance in Taiwan proposed an increase to the AMT rate for large MNEs in Taiwan from 12% to 15%, effective from 1 January 2025, if they meet the global revenue threshold for the Organisation for Economic Co-operation and Development (OECD) Pillar Two global minimum tax. Nevertheless, the current AMT regime is not equivalent to the GloBE Rules. The government can implement the rate increase without having an amendment passed by the Legislative Yuan.1

Detailed discussion

The calculation of the AMT in Taiwan requires adding certain tax-exempt income back to the regular taxable income to reach alternative minimum taxable income (AMTI). AMTI is then multiplied 12% to obtain tentative minimum tax. Taiwan AMT is due only if the tentative minimum tax for the year is greater than the regular corporate income tax for that year.

The increase in the AMT rate from 12% to 15% aims to increase the effective tax rate (ETR) for GloBE purposes, bringing it closer to or equal to 15%, thereby minimizing or eliminating any additional top-up tax. The revised AMT rate applies exclusively to MNEs with group annual revenues of €750m or more, as reported in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately preceding the year under review. Furthermore, according to the current AMT regulations, the Executive Yuan2 has the authority to adjust the AMT rate as necessary to respond to economic conditions, negating the need for separate legislative procedures

The AMT should not be considered a QDMTT for Pillar Two purpose, as the AMTI calculation is different from GloBE income or loss computation. It is also important to note that the deferred taxes are not taken into account in the AMT calculation. Nevertheless, the AMT potentially could be regarded as a covered tax for income inclusion rule (IIR) and undertaxed tax profits rule (UTPR) calculations in other jurisdictions. Currently, neither the IIR nor QDMTT has been introduced in Taiwan.

Implications

MNEs that exceed Pillar Two revenue threshold should review their current income tax rate for their member in Taiwan. If their current income tax rate is below 15%, MNEs should perform further analysis to understand whether they will be required to pay AMT, GloBE top-up tax, or even both. For further details, affected parties should contact their tax advisor.

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Endnotes

1 The Legislative Yuan is a unicameral legislature in Taiwan. A revised regulation or amendment should be passed by the Legislative Yuan before it becomes effective. However, local tax law in Taiwan expressly provides that the AMT rate is not less than 12% and not more than 15%; the Executive Yuan (see Note 2, below) can adjust the AMT rate within this range depending on economic situations. Thus, the government can implement the AMT rate discussed in this Tax Alert without an amendment passed by the Legislative Yuan.

2 The Executive Yuan is the executive branch of government in Taiwan. The Executive Yuan Council evaluates statutory and budgetary bills, peace deals and treaties, and other important affairs, in addition to matters of common concern to various ministries and commissions, all of which are to be submitted to the Legislature.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Taiwan), Taipei

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2024-1664

 

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