Global Minimum Tax (GMT) is coming to town.
The Global Minimum Tax (GMT) represents a significant reform in international taxation under the framework of the Organization for Economic Co-operation and Development (OECD).
Its objective is to align tax systems with global standards by requiring large multinational corporations (MNCs) to pay a minimum tax of 15% (Effective Tax Rate or ETR) in every country where they operate, even in jurisdictions with low tax rates, no tax liability, or special tax incentives. This measure is designed to prevent tax avoidance, address unfair tax competition, and curb profit shifting to low-tax jurisdictions while promoting a sustainable, transparent, and fair global economy.
GMT applies to large MNCs operating in at least two countries with annual consolidated group revenues of at least €750 million in at least two out of the four prior accounting periods.
MNCs impacted by GMT can be divided into two main groups: those headquartered in Thailand with overseas operations and those headquartered overseas with operations in Thailand.
GMT in Thailand Effective January 1, 2025
Thailand officially promulgated the Emergency Decree on Top-Up Tax B.E. 2567 (2024) in the Royal Gazette on December 26, 2024, with enforcement starting from January 1, 2025. The key preliminary criteria for imposing the minimum tax are as follows:
1) Qualified Domestic Minimum Top-Up Tax (QDMTT): MNCs operating in Thailand with an ETR below 15% must pay the top-up tax in Thailand before other jurisdictions claim the additional tax.
2) Income Inclusion Rule (IIR): this rule requires the ultimate parent entity, intermediate parent entity, and partially owned parent entity to pay top-up taxes on the income of group companies operating in jurisdictions where the ETR is below 15%. The objective is to bridge tax gaps arising from activities in low-tax countries.
3) Undertaxed Payment Rule (UTPR): Thai companies must pay the top-up tax, serving as a backstop rule, if low-tax jurisdictions fail to collect the minimum 15% tax under the first two rules.
In addition to the three aforementioned rules, Thailand has signed a letter of intent to join the Multilateral Instrument (MLI) for facilitating the implementation of the Subject to Tax Rule (STTR) on September 19, 2024, as part of the OECD Pillar Two Framework. This STTR MLI allows source countries to impose additional taxes on certain intra-group payments, such as interest, royalties, and service fees, that are taxed in the recipient country at a rate below 9%. The STTR MLI represents a significant step for Thailand, enabling the integration of the STTR into existing bilateral tax treaties without the need for renegotiation with individual countries.
MNCs and Preparation Strategies for a Pivotal Taxation Shift
Large MNCs impacted by these significant tax changes must thoroughly assess the implications and take proactive measures to prepare. Key considerations include:
• Analyze and assess the impact of new regulations on the organization, including evaluating ETRs in each country to develop effective and systematic response plans.
• Prepare to comply with GMT requirements by auditing and updating accounting systems to support the collection and processing of necessary data. Early preparation, coupled with a clear understanding of GMT’s impacts, will enhance internal systems, streamline reporting and filing processes, and minimize potential future issues.
• Assess Group Companies’ Readiness and Financial Impacts: evaluate the readiness of group companies that may be subject to top-up taxes and analyze potential impacts on business cash flow for operation as well as impact for dividend distributions to shareholders.
• Align Tax Strategies with New Regulations: adapt tax strategies to comply with the new regulations, carefully plan risk management, and develop approaches to capitalize on potential business opportunities.
• Analyze Global Responses to GMT Implementation: study how different countries are adopting top-up tax rules, including variations in enforcement timelines and adjustments to tax incentives. This analysis will help estimate potential impacts arising from the implementation of GMT.
GMT is not merely a regulatory change in taxation; it also presents a significant opportunity for large businesses to enhance their financial and tax strategies in alignment with international standards. This transformation helps reduce risks, improve transparency, strengthen competitiveness, and foster sustainable and efficient long-term growth.
Niorn Yukolthong
Director | Tax & Legal Services
Deloitte Thailand
