Thailand Issues Emergency Decree for for IIR, UTPR and Domestic Top-Up Tax

Legislation

On December 26, 2024, the Emergency Decree on Top-Up Tax B.E. 2567 (‘the Decree’)  was published in the Government Gazette to implement the Pillar 2 GloBE rules from January 1, 2025.

The Decree includes an Income Inclusion Rule (IIR), Under-Taxed Profits Rule (UTPR)  and a domestic minimum tax (DMTT) (intended to be a Qualified Domestic Minimum Top-Up Tax) from January 1, 2025.

General

Section 26 of the Decree provides that it will apply to constituent entities in Thailand that are members of an MNE group with a UPE that has consolidated revenues in Thai Baht equivalent to 750m euros or more in at least two of the four preceding fiscal years.

Whilst the Decree includes the basic outline of Pillar 2 GloBE rules in Thailand, Section 3 of the Decree provides that Ministerial Regulations. It is expected that these Regulations will provide the detail operation of the GloBE rules. 

The current Decree does not, for instance, provide any details on GloBE income adjustments, Adjusted covered taxes or relevant Safe Harbours. As such no aspects of the OECD Administrative Guidance are included and it focuses on key aspects of the OECD Model Rules, as related to the IIR, UTPR and DMTT, as well as various administrative provisions. 

Definitions

Sections 4 and 24 of the Decree includes a number of definitions that tie into the OECD Model Rules. This includes definitions for:

-UPE

-Intermediate Parent Entity 

-Partially-Owned Parent Entity

-Group

-Constituent Entity

-Multinational Group

-Permanent Establishment

-Minimum Tax Rate

-Investment Entities

-Authorised and Approved Accounting Standards

-Material Distortion of Competition

-Covered Taxes as defined in Article 4.2 of the OECD Model Rules, including taxes that are included and excluded

-Qualified Domestic Minimum Top-Up Tax

Section 25 of the Decree includes broad rules for determining the location of entities and permanent establishments, which is important to determine whether the application of the IIR/UTPR/DMTT.

Excluded Entities

Section 27 of the Decree does track (at a very high level) Article 1.5.1 of the OECD Model Rules for Excluded Entities.

It provides that the following entities, are excluded from the IIR/UTPR/DMTT:

-Government entities

-Non-profit organizations

-International organizations

-Pension funds

-Investment funds that are the ultimate parent entity

-A real estate investment vehicle that is an ultimate parent entity

Key Aspects of the Decree

Sections 28-41 of the Decree includes the basic top-up tax calculation which follows the approach taken in the OECD Model Rules, including provisions for Additional Tax and the Substance-Based Income Exclusion.

Part 3 provides general rules for the application of taxing rights under the IIR and UTPR including the rule order, IIR offset and UTPR allocation. 

Part 4 applies the Joint Venture rules. The Regulations will provide detailed rules for investment entities and minority-owned constituent entities. 

Part 5 of the Decree applies rules for Multi-Parented MNE Groups which ties into Article 6.5 of the OECD Model Rules. 

Part 6 of the Decree applies the DMTT in Thailand. However, the Decree does not contain detailed provisions for the operation of the DMTT.

As such there are none of the mandatory or optional deviations for the design of the DMTT rules as provided by the OECD Administrative Guidance (eg no provisions on push down taxes or the accounting standard to be used). As such, it is not possible to determine whether the DMTT will be a QDMTT under the OECD Model Rules.

Filing

The Decree includes 3 filing obligations: 

Notification of the in-scope MNE

Section 54 of the Decree requires an in-scope MNE to submit a notification within 15 months of the end of the reporting period (18 months in the transitional year). This will include information on the UPE, including the country where it is located  and the designated CE responsible for filing the GloBE Information Return.

An exemption applies if the CEs appoint a designated filing entity to file the notification on their behalf. 

GloBE Information Return (GIR)

Section 55 of the Decree requires the submission of a GIR by Thai CEs within 15 months of the end of the reporting period (18 months in the transitional year). As provided in the OECD Model Rules a Thai CE will not be required to file a GIR  if the return has already been filed by 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/top-up tax payments 

Section 57 of the Decree requires the submission of a Top-Up Tax Return within 15 months of the end of the reporting period (18 months in the transitional year). This is also the deadline for making top-up tax payments. 

Section 13 provides that payment of top-up tax under the Decree shall be made in the Thai currency, irrespective of the currency used for accounting purposes.