In more detail

Who will be impacted by the Decree?

Only Thai entities that are members of a large MNE Group ("Constituent Entities" or CEs) will be affected. This means that an entity that is not part of a large MNE (for example, the total annual revenue of the group does not exceed EUR 750 million or all companies in the group are incorporated under Thai laws) will not be affected by this Decree. In addition, certain types of entities are excluded from this Decree (e.g., a government entity, an international organization, a non-profit organization, a pension fund, an investment fund that is an Ultimate Parent Entity (UPE), and a real estate investment vehicle that is a UPE). It is expected that there would be approximately 100 entities in Thailand that are part of a large MNE.

What are the types of Top-up Tax imposed under the Decree?

There are two main types of Top-up Tax imposed under the Decree. The first type is Domestic Top-up Tax, imposed under the Qualified Domestic Minimum Top-up Tax Rule (QDMTT) and the other type is Foreign Top-up Tax, imposed under the Income Inclusion Rule (IIR) and Under-taxed Payments Rule (UTPR). These rules align with the Organization for Economic Cooperation and Development (OECD)'s framework on Pillar Two of the Base Erosion and Profit Shifting (BEPS) project.

• If you are a CE located in Thailand, you may be required to pay Domestic Top-up Tax if the ETR of all CEs in Thailand is below 15%. The Decree also allows Thai CEs to appoint designated CE(s) to be responsible for and pay Domestic Top-up Tax incurred in Thailand.
• If you are a CE located in Thailand and are classified as a UPE, a Partially-Owned Parent Entity (POPE), an Intermediate Parent Entity (IPE), or a member of the MNE Group that has CE in any foreign country, you may be required to pay Foreign Top-up Tax if your MNE Group has a member CE located in a low-tax jurisdiction (i.e., where the jurisdictional ETR is less than 15% and is not subject to domestic top-up tax in that jurisdiction).

Once Domestic Top-up Tax and/or Foreign Top-up Tax are determined, these taxes will be allocated and charged to each relevant CE according to the Decree's rules and conditions.

How to apply and calculate Domestic Top-up Tax under the Decree?

If you are a CE located in Thailand, you need to calculate the ETR of all CEs located in Thailand in order to verify whether the ETR of all CEs located in Thailand reaches the minimum tax rate of 15%. The ETR is the amount of total income tax paid by all CEs in Thailand ("Adjusted Covered Taxes"), divided by the total revenues of all CEs in Thailand ("Net GloBE Income"). The calculation of the Adjusted Covered Taxes and Net GloBE Income are made under the rules and conditions as prescribed under the Decree.

If the ETR is 15% or higher, Domestic Top-up Tax will not apply. On the other hand, if the ETR is lower than 15%, each of the CEs located in Thailand would be subject to Domestic Top-up Tax on the difference, which is calculated and allocated to each CE according to the QDMTT prescribed under the Decree. The Decree also allows Thai CEs to appoint designated CE(s) to be responsible and pay Domestic Top-up Tax that has arisen in Thailand.

How to apply and calculate Foreign Top-up Tax under the Decree?

If you are a CE located in Thailand, and are regarded as a UPE, a POPE, or a member of the MNE Group, you need to consider whether the ETR of other CEs in your MNE Group located in other jurisdictions is lower than 15%.

If the jurisdictional ETR of those CEs is 15% or higher, Foreign Top-up Tax will not apply. On the other hand, if the jurisdictional ETR of those CEs is lower than 15% and such CEs are not subject to domestic top-up tax under their domestic tax laws, the CE located in Thailand would be subject to Foreign Top-up Tax on the difference, which is calculated and allocated according to the IIR and/or UTPR as prescribed under the Decree.

What is the key obligation of the CEs that are subject to Top-up Tax?

Thai CEs that are subject to Top-up Tax under the Decree are required to file GloBE Information Return and pay Top-up Tax to the Revenue Department within 15 months after the last day of the UPE's fiscal year. The deadline is extended to 18 months for the first fiscal year (i.e., fiscal year beginning on or after 1 January 2025), resulting in the first collection of Top-up Tax in 2027. The designated CE responsible for paying the Top-up Tax may opt to pay in installments over three years to the Revenue Department. Overpaid Top-up Tax may be refunded within three years from the last day of the filing deadline.

Are there any sanctions under this Decree?

Failure to file GloBE Information Return and pay Top-up Tax by the deadline in full may result in additional penalties (100% or 200% of the Top-up Tax shortfall depending on the case), a 1.5% monthly surcharge (capped at the Top-up Tax shortfall amount), and criminal sanctions, including fines and imprisonment. The Revenue Department has the power to assess Top-up Tax on an MNE Group within 10 years from the last day of the filing deadline. The taxpayer can file an appeal against the assessment within 30 days from the date the assessment notice is received. It is expected that the Revenue Department may form a special audit unit to handle the in-scope MNE Group under this Decree.

What to expect?

• Members of the in-scope MNE Groups should evaluate the impacts of this Decree on their groups and prepare for tax compliance with regard to the GloBE Information Return.
• Implementation of future M&A transactions, corporate restructurings, and holdings structures (e.g., mergers, demergers, and dispositions of ownership interests) may be impacted by this Decree. Therefore, the evaluation of Top-up Tax should be conducted at an early stage (i.e., during the due diligence process) to ensure that Top-up Tax issues are fully addressed during the negotiation process (e.g., adjustment of tax indemnity and warranty clauses to reflect Top-up Tax implications).
• Impacted CEs should monitor:
  • Further guidance on transitional rules, which are expected to be announced by the Revenue Department in the near future.
  • Forthcoming changes to the National Competitiveness Enhancement Act, which are anticipated to allocate 50% to 70% of the collected Top-up Tax to qualified investors as subsidies or cash grants. It is expected that the changes will be designed as Qualified Refundable Tax Credit (QRTC) to mitigate the impacts of Pillar Two.

For more information or advice, please contact Baker McKenzie.