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April 4, 2024

Thailand releases draft Top-up Tax Act to implement the global minimum tax rules under BEPS 2.0 Pillar Two

  • Draft legislation to adopt the Global Anti-Base Erosion Rules in Thailand was published recently and was subject to a two-week public consultation period.
  • The Thai Revenue Department is charged with drafting pertinent regulations and guidelines.
  • In-scope multinational entities should begin performing impact assessments so they are ready for applicable changes once enacted.


On 1 March 2024, the Thai Revenue Department released a draft legislation for an adoption of the Global Anti-Base Erosion Rules (GloBE rules) in Thailand, aligning with the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two project. The draft legislation was open for a public consultation from 1 March 2024 to 15 March 2024.

This draft legislation is a response to the Cabinet's resolution on 7 March 2023 to collect the Top-up Tax in Thailand for in-scope multinational enterprises (MNEs). The Cabinet assigned the Thai Revenue Department with drafting the associated regulations and guidelines. (For background, see EY Global Tax Alert, Thailand plans to implement global minimum tax rules under OECD BEPS 2.0 Pillar Two, 10 March 2023.)

Key highlights

Key principles of the draft legislation are summarized below.

  1. In-scope MNEs
    The draft legislation will be applicable to all Constituent Entities in Thailand that are members of an MNE group with an Ultimate Parent Entity (UPE) that has consolidated revenues in Thai Baht equivalent to €750m or more, in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year.
  1. Top-up Tax liabilities and charging mechanisms
    The determination of jurisdictional Top-up Tax under the draft legislation aligns with the OECD Model Rules. Although a general calculation framework is outlined, specific detailed calculations and adjustments will be addressed in supplementary legislation. Thailand proposes to collect the Top-up Tax through the following mechanisms:
    1. Domestic Top-up Tax (DMTT)
      All Constituent Entities in Thailand will be subject to the Top-up Tax under the DMTT if Thailand's Effective Tax Rate (ETR) is lower than 15%.
    2. Income Inclusion Rule (IIR)
      Thai UPEs, Intermediate Parent Entities, or Partially Owned Parent Entities in Thailand (as the case may be) will be subject to the Top-up Tax under the IIR if one or more foreign jurisdictions in which they have direct and indirect ownership are low-taxed jurisdictions (i.e., where the ETR is lower than 15%).
    3. Undertaxed Payment Rules (UTPR)
      All Constituent Entities in Thailand will be subject to the allocated Top-up Tax under the UTPR if the Top-up Tax in low-taxed foreign jurisdictions has not already been paid, or fully paid, either under qualified DMTT or qualified IIR, in such foreign jurisdictions. The draft legislation notes that Thailand will not employ a denial of deduction approach for the UTPR mechanism. Instead, additional Top-up Tax will be levied on all Constituent Entities in Thailand.

Under the DMTT and UTPR, Top-up Tax liabilities are proposed to be allocated proportionally among all Thai Constituent Entities, based on their GloBE Income. However, an option is available allowing that a written consensus may be reached between all Thai Constituent Entities to designate one Thai Constituent Entity to assume and pay the Top-up Tax to the Thai Revenue Department. All Thai Constituent Entities would nonetheless remain jointly and severally liable for any outstanding Top-up Taxes.

  1. Reporting and filing obligations
    All Constituent Entities in Thailand are required to electronically submit the following to the Thai Revenue Department within 15 months after the end of the fiscal year:
    1. Notification providing information on the in-scope MNE
    2. GloBE Information Return
    3. Top-up Tax return, along with any Top-up Tax payments

      Certain exemptions may apply, relieving certain Constituent Entities from these reporting/filing obligations.
  1. Surcharge and penalties
    A 1.5% monthly surcharge will be imposed for Top-up Tax shortfalls. Also, incorrectly filed Top-up Tax returns will incur a 100% penalty of the tax shortfall, while a failure to file Top-up Tax returns will result in a 200% penalty.

Considerations and next steps

Expected enactment timeline

Once the draft legislation is completed, the Thai Revenue Department will submit the proposal of the draft legislation to the Cabinet for further consideration. Subject to the legislative process, enactment is anticipated to occur in 2025, aligning with the timeline indicated in the Cabinet's resolution on 7 March 2023.

More to come

Top-up Taxes in Thailand will be governed by the Top-up Tax Act, which is separate from the existing Thai Revenue Code. The Draft Top-up Tax Act appears to largely align with the OECD Model Rules, although specific details such as currency conversion, safe harbors and elections remain unknown at this stage. Further specifics are expected to be addressed in subsequent supplementary legislation.

Alternatives to current tax incentives

Additionally, in-scope MNEs currently enjoying corporate income tax incentives, either from the Thai Revenue Department or the Thai Board of Investment, should closely monitor updates to the existing tax incentive regimes or new relief measures to maintain Thailand's investment attractiveness.

Are you ready for BEPS 2.0 Pillar Two implementation?

The upcoming development presents significant challenges for in-scope MNEs, requiring readiness in terms of knowledge, resources, processes and solutions for efficient data collection management, Top-up Tax computation and compliance with relevant reporting and disclosure requirements. With the introduction of numerous new data points under Pillar Two, conducting a data-gap analysis can help identify the additional data points needed for a seamless transition.

During an initial period after Pillar Two implementation in Thailand, an assessment on a Transitional Country-by-Country Reporting Safe Harbour (TCSH) qualification could be crucial for in-scope MNEs to significantly alleviate detailed calculation and Top-up Tax burdens. More details on the TCSH (if adopted by Thailand) are expected from the Thai Revenue Department in the near future.

Also, MNEs considering group restructuring, mergers or acquisitions should take into account the potential impact of these transactions on their Pillar Two profiles after Pillar Two takes effect.

The public consultation on the Top-up Tax Act marks a crucial milestone for Thailand and provides a clearer picture of Thailand's affirmative position in the implementation of BEPS 2.0 Pillar Two. In-scope MNEs should no longer take a wait-and-see approach, but rather start performing Pillar Two impact assessments so they are ready to address most aspects upon the law's enactment.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

EY Corporate Services Limited, Tax Services, Thailand

Ernst & Young LLP (United States), Thailand Desk, New York

Ernst & Young LLP (United States), ASEAN Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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