Executive summary

On 26 December 2024, the Thai government enacted the Emergency Decree on Top-up Tax, B.E. 2567 (2024), which was officially published in the Royal Gazette on the same date.

The Thai Revenue Department, through the Ministry of Finance, had proposed the draft Emergency Decree on Top-up Tax to the Cabinet, which approved the Decree on 11 December 2024.

This Decree implements the Global Anti-Base Erosion (GloBE) Rules, part of the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two framework. The new legislation mandates a supplementary tax for in-scope multinational enterprises (MNEs) operating in jurisdictions where the effective tax rate (ETR) of their constituent entities (CEs) falls below the 15% threshold.

In-scope MNEs

The legislation applies to all CEs 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 preceding fiscal years.

Effective Date

The decree is effective for fiscal years beginning on or after 1 January 2025.

Top-up tax charging mechanisms

The Emergency Decree establishes three principal mechanisms for the levy of top-up taxes in accordance with the OECD Model Rules. However, the decree does not furnish specific details, including safe harbors and elections. It is anticipated that supplementary legislation will be issued to elaborate on the details of implementation.

1. Domestic Top-up Tax (DTT): All CEs in Thailand will be liable to pay top-up tax under the DTT if Thailand's ETR is lower than 15%. The DTT is intended to be a Qualified Domestic Minimum Top-Up Tax (QDMTT) under the OECD Model Rules.
2. Income Inclusion Rules (IIR): A Thai UPE, Intermediate Parent Entity, or Partially Owned Parent Entity in Thailand (as the case may be) will be liable for the top-up tax under the IIR if one or more foreign jurisdictions in which it holds direct and indirect ownership are low-taxed jurisdictions (i.e., jurisdictions where the ETR is lower than 15%).
3. Undertaxed Payment Rules (UTPR): All CEs in Thailand will be liable for the allocated top-up tax under the UTPR if the top-up tax in low-taxed foreign jurisdictions has not been fully paid, either under a QDMTT or IIR in those jurisdictions.

Filing obligations

All CEs in Thailand are required to submit the following to the Revenue Department, subject to certain exemptions:

• Notification of the in-scope MNE
  An exemption applies if the CEs designate one Thai CE to file the notification on their behalf with the Revenue Department. The notification must include detailed information about the UPE and the designated CE responsible for filing the GloBE Information Return.
• GloBE Information Return (GIR)
  Thai CEs will not be required to file a GIR with the Revenue Department if the return has already been filed by either the UPE or a designated filing entity located in a jurisdiction that, for the reporting fiscal year, has a qualifying competent authority agreement in effect with Thailand.
• Top-up Tax Return and top-up tax payments (if any)

Filing deadlines

All filings with the Revenue Department must be submitted within 15 months after the last day of the UPE's fiscal year.

For the first fiscal year in which the MNE group is subject to the top-up tax under this decree, there is a three-month extension to 18 months. Thus, the first wave of filings will be due by 30 June 2027 for in-scope MNE groups with a fiscal year ending on 31 December 2025.

Responsible entity for paying top-up taxes

For DTT and UTPR, top-up tax liabilities will be proportionally allocated among all Thai CEs based on their GloBE Income. Subject to specific conditions, the Thai CEs may agree in writing to designate one Thai CE to assume and pay the top-up tax to the Revenue Department. In such cases, the Revenue Department must be notified within 15 months after the last day of the UPE's fiscal year. However, all Thai CEs will remain jointly liable for any outstanding top-up taxes.

For IIR, a Thai UPE, Intermediate Parent Entity or Partially Owned Parent Entity in Thailand that files the Top-Up Tax Return will be responsible for paying the top-up tax.

Surcharge and penalties

Certain surcharges and penalties apply, including:

• Incorrectly filed GIR/Top-up Tax Returns will result in a 100% penalty on the tax shortfall.
• Failure to file GIR/Top-up Tax Returns will incur a 200% penalty on the tax shortfall.
• A 1.5% monthly surcharge will be imposed on any top-up tax shortfalls (capped at 100% of tax shortfall).

Next steps

Actions for in-scope MNEs to consider include:

• Evaluate the impact of the Top-Up Tax Emergency Decree on their groups, including DTT and/or IIR for Thai-based in-scope MNEs, and DTT for foreign-based in-scope MNEs with a Thai subsidiary.
• Consider an assessment of qualification for a Transitional Country-by-Country Reporting Safe Harbor (TCSH), as it could help significantly reduce the complexity of ETR calculation and release top-up tax burdens. Further guidance on the TCSH is expected from the Revenue Department soon.
• Prepare for top-up tax compliance obligations and closely monitor further guidance as it becomes available.
• Consider top-up tax provisioning (if any) and comply with the relevant financial reporting obligation (e.g., disclosure requirements).
• Monitor the upcoming amendments to the National Competitiveness Enhancement Act, which are expected to provide cash grants and/or various incentives to eligible investors. The amendments are aimed at maintaining Thailand's competitiveness and attracting foreign direct investment to the country.
• Companies liable for DTT should revisit existing tax incentive regimes and observe new relief measures (e.g., cash grants) for future investment planning. An incentive feasibility study in light of the Pillar Two implementation should also be conducted.
• MNEs considering group restructuring, mergers or acquisitions should account for the potential impact of these transactions on their Pillar Two profiles.