Thai BOI unveils new measures for companies impacted by Global Minimum Tax under the OECD BEPS - Pillar 2 regime.

On 7 March 2023, the Cabinet approved in principle official plans for implementing Global Minimum Tax under the OECD BEPS – Pillar 2 regime. One of the assignments to the BOI was to provide relieve to the companies impacted by this Pillar 2 in Thailand below:

https://www.grantthornton.co.th/insights/OECD-BEPS-2.0-Pillar-Two-Rules/

The OECD BEPS Pillar 2 regime is being implemented by many countries globally. If a country adopts the Pillar 2 regime, then Multinational Enterprises (“MNE’S”) with their ultimate holding company in that country are covered by Pillar 2. This is provided the MNE’s consolidated group revenue exceeds EUR750million (approx. THB28billion). In essence, if the effective tax rate of the group subsidiaries and permanent establishments in a jurisdiction is less than 15% then a top up tax could be payable in the country of residence of the ultimate holding company of the group.

Whilst the Pillar 2 regime in Thailand will not come into effect until 2025 there are many countries that will implement Pillar 2 in 2024 including Korea, Japan, European Countries and the UK. Many MNE’s have an ultimate holding company in one of these countries and investments in Thailand with BOI tax incentives. For many the Thailand effective tax rate could be less than 15% and the MNE’s could be subject to top up tax in their home jurisdiction.

On 16 May 2023, the Thai BOI has announced new relief measures for the companies impacted. These are aimed at increasing the effective tax rate in Thailand to reduce or eliminate the top up tax. Both existing BOI beneficiaries and new BOI applicants may be eligible for the new relief measures under the condition that they are part of a multinational group of companies and the consolidated group revenue must be no less than THB 28,000 million or approximately EUR 750 million, and they fall under the scope of Country-by-Country reporting. A brief overview of the new relief measures for current BOI beneficiaries is as follows:

1.       It is an option to switch from the current tax exemption regime to a tax reduction regime.
2. The tax reduction regime shall be 50% of the normal rates, resulting in a corporate income tax rate of 10%.
3. The tax reduction regime shall be for a period twice the remaining full-year incentive period but not over ten years. 
4. The new tax benefits shall start when revenue is first generated after receiving the new BOI certificate. The BOI will cancel the original BOI certificate on the issuance date of the new BOI certificate.

As for new BOI applicants, the characteristics of the new relief measures are as follows:

1.  New BOI applicants may choose the standard tax exemption regime with the option to switch to a tax reduction regime later or directly choose the tax reduction regime
2.   The tax reduction regime shall be 50% of the normal rates, resulting in a corporate income tax rate of 10%
3.  The tax reduction regime shall be for a period of twice the standard incentive period but not over ten years.
4.  The start date shall be from the date revenue is first generated.

Other rights and incentives under the BOI benefits shall remain unchanged for both current BOI beneficiaries and new BOI applicants. Once the tax reduction regime has been chosen, it may not be reversed or changed.

Specific conditions for eligibility:

1. The applicant for the new BOI measures must be a part of an international group of companies that fall under the scope of Country-by-Country reporting. They must have a consolidated group revenue of no less than THB 28,000 million or EUR 750 million or no less than the average of THB 28,000 million or EUR 750 million. The revenue is calculated from the number of days in that accounting period if such an accounting period is less than 12 months. 
2.  The applicant must be eligible for or currently utilising BOI incentives. However, currently utilised incentives must preclude special incentives such as economic foundation investment incentives, social and community development investment incentives, etc.
3.         Current BOI beneficiaries must have a remaining period tax exemption benefit of no less than one year.
4. Applicants must follow the BOI’s requirements and procedures in obtaining the new measures.

Our view:

The BOI has presented an option under to alleviate some of the impacts of BEPS – Pillar 2 for MNE’s investing into Thailand. There is an immediate need for MNE’s with an ultimate parent company in a country initiating Pillar 2 measures in 2024 to review and model their Thai tax position. If there is a risk that top up tax may be a problem, then they should model whether an increased tax rate and longer BOI incentive period would be a better option.

 All relevant MNE’s investing into Thailand and Thai MNE’s investing outside Thailand should model their Pillar 2 tax exposures as soon as possible. Even though the final tax law is not available in Thailand or many other countries, the detailed principles of Pillar 2 have been published by the OECD and are sufficient for initial modelling. Some MNE’s may decide that they want to change their corporate or finance structures or even business operations as a result of the Pillar 2 announcements.

We are also of the view that there should be future changes to Thailand’s legislation to cover the following matters:

•            Implementation of the Pillar 2 framework for Thai MNE’s,
•           The introduction of a qualified domestic minimum top up tax to ensure that any top up tax for foreign MNE’s investing in Thailand is paid in Thailand and not in the country of the ultimate holding company, and possibly.
•      The ability to claim a refundable tax credit rather than a tax exemption or reduced tax rate.

How Grant Thornton can help:

Our tax experts can help you perform any relevant studies and provide advice to determine your best course of action under the pressure of BEPS – Pillar 2 implementation and considering the new BOI announcement and the Pillar 2 regime already documented by the OECD. We can model the broad impact of the Pillar 2 announcements by the OECD and the Thai Government and provide advice and support on possible restructuring options, particularly for Thai MNE’s.