Tax System Reform: Thailand Adopts Pillar 2 in New Draft Emergency Decrees

Introduction

Thailand is actively pursuing membership in the Organisation for Economic Co-Operation and Development (“OECD”) to foster economic and social development and enhance its global standing. As part of this effort, Thailand is aligning its tax system with OECD standards by adopting Pillar 2. Pillar 2 comprises tax rules implemented by the OECD to prevent Multinational Enterprises (“MNEs”) from avoiding higher tax rates by shifting profits to low-tax jurisdictions.

Pillar 2 applies to MNEs whose consolidated financial statements show annual profits of €750 million (approximately THB 28 billion) or more. It imposes a 15% global minimum tax rate on MNEs’ profits, known as the “Top-up Tax.”

Two New Drafts for the Implementation of Pillar 2

To implement these rules, Thailand must enact domestic legislation to create a concrete legal framework for public compliance. Due to time constraints, Thailand is expediting the implementation process through emergency decrees rather than regular legislative acts. On 11 December 2024, the Cabinet approved two draft emergency decrees which are:

1. The Draft Emergency Decree on Top-up Tax B.E. …. proposed by the Ministry of Finance: This draft outlines the rules and procedures for collecting top-up tax from legal entities within MNE groups whose consolidated financial statements show total revenue of at least €750 million (approximately THB 28 billion).
2. The Draft Emergency Decree Amending the National Competitiveness Enhancement for Targeted Industries Act (No. ..) B.E. …. proposed by the Board of Investment: This draft amends existing law to address Pillar 2 by introducing measures to regulate the utilization of both tax and non-tax benefits.

Both drafts will be submitted to the Office of the Council of State for detailed review. Upon approval, they will be proposed to the Cabinet again and then to the House of Representatives. The public will be notified of the final versions before they become effective, with enforcement projected for 2025. These changes are expected to generate additional government revenue, ensure fair competition, and provide clearer guidelines for investors regarding their tax responsibilities.

Conclusion

Thailand is taking a significant step toward aligning its tax system with global standards. By adopting the OECD’s Pillar 2, Thailand aims to create a more equitable tax environment. The implementation through draft royal decrees introduces top-up tax and measures to regulate tax and non-tax incentives for targeted industries. These changes will contribute to a more level playing field for businesses, attract foreign investment, and ensure MNEs pay their fair share of taxes. The implementation is expected to strengthen Thailand’s economic competitiveness and sustainable development. Stakeholders should closely monitor the draft emergency decrees to prepare for the new laws taking effect in 2025.

Key Takeaways

• Thailand is implementing the OECD’s Pillar 2 through 2 emergency decrees as part of its accession for OECD membership.
• The new tax framework applies to MNEs with annual consolidated revenues of €750 million or more.
• Key measures include:
  • Introduction of a 15% global minimum tax rate
  • New regulations for tax and non-tax benefits of Board of Investment’s targeted industries
  • Enhanced monitoring of tax compliance for large MNEs
• Timeline for Implementation:
  • Cabinet’s approval was obtained on 11 December 2024
  • Currently under review by the Office of the Council of State
  • Expected enforcement to begin in 2025
• Business Impact:
  • Affected companies will need to reassess their tax planning strategies
  • Increased tax transparency requirements
  • Potential adjustments to investment structures and corporate operations
• For companies operating in Thailand, it is crucial to:
  • Monitor regulatory updates
  • Review current tax structures and benefits
  • Prepare internal systems for compliance with the new requirements
  • Consider seeking professional advice for tax planning under the new regime

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