MNEs taxed to curb profit sharing, 12 billion baht revenue expected

The Revenue Department anticipates the implementation of draft legislation aimed at taxing multinational enterprises (MNEs) to curb profit shifting to low-tax jurisdictions by 2025. This move is expected to enhance tax revenue by 12 billion baht annually.

Director-General Kulaya Tantitemit revealed that the draft legislation incorporates the Top-up Tax Act, which aligns with the Organisation for Economic Co-operation and Development’s (OECD) Pillar 2 principles, along with subordinate laws.

The draft has been submitted to the Office of the Secretariat of the Cabinet and is awaiting its inclusion in the Cabinet meeting agenda.

The department is currently drafting subordinate laws, which are expected to be completed before the Top-up Tax Act is enacted in 2025.

Kulaya stated that the draft of the Top-up Tax Act aligns with resolutions from the OECD and G20, which include measures to prevent tax base erosion and profit shifting, known as the Pillar 2 Global Anti-Base Erosion Rules.

These rules also aim to prevent tax competition by setting a global minimum corporate income tax rate of 15%.

No way out

Under this framework, if the effective tax rate for all companies within an MNE in Thailand is less than 15%, the MNE is liable to pay a top-up tax to reach 15%.

The Cabinet approved the Board of Investment’s (BoI) proposal regarding the principles of this legislation in March 2023, following which the Revenue Department was tasked with drafting the legislation.

Kulaya noted that the draft legislation has undergone public hearings as required by the constitution. These hearings indicated that MNEs subject to Pillar 2 are prepared to comply with the rules, as they form a common standard among countries.

Comments during the hearings focused on practical questions, such as differences between Thai accounting standards and those used to calculate the Top-up Tax.

Discussions were also held with the Federation of Accounting Professions regarding the format of documents required for compliance with the tax law.

Kulaya mentioned that companies entitled to tax privileges and benefits from the BoI under the Investment Promotion Act remain unchanged from the draft.

New tax principle

The OECD plans to propose a new tax principle for Thailand and member countries. A tax on the allocation of profits of large MNEs that must be distributed to various countries is known as Pillar 1.

Pillar 1 introduces a new international tax framework by taxing MNEs with global income exceeding €20 billion (786 billion baht) and a combined profit rate exceeding 10% of income.

Profits exceeding 10% of income must be allocated tax-proportionally to countries where the MNEs generate income at 25% of excess profits beyond 10% of income.

Economic nexus points must consider revenue generated in market jurisdictions of at least 1 million euros (39.3 million baht), according to the OECD.

The implementation of Pillar 1 still requires clarification on issues such as establishing clear tax certainty between countries and details of profit allocation taxes, reported Bangkok Post.

A sufficient number of countries, including the US, need to sign the agreement for it to be effective. The US Congress is currently considering related draft legislation, said Kulaya.