The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting: Tax implications for investment in Thailand

Peerada Kaiyoonrawong
Practice area
Tax DisputesTax PlanningTax CounselingInternational TaxationThailand

In 2021, the 38 member countries of the Organization for Economic Cooperation and Development (OECD) held a meeting relating to the reformation of international taxation rules; an additional 130 countries were also invited. In this regard, said reformation of international taxation was approved by the widely recognized group of 20 countries with large scale economies (“G20”) in order establish a new framework preventing international tax avoidance. The plan consists of two main pillars as follows:

                 Pillar 1: A rule for the allocation of tax revenue of multinational enterprises (MNEs) that provide electronic services (e-Service); and

                 Pillar 2: A rule stipulating the Global Minimum Tax rate (GMT).

                 The details of each pillar are as follows:

                 Pillar 1: This requires an MNE that provide electronic services from a foreign platform to pay income tax. In this regard, the principles of taxation according to international standards shall be applied by collecting tax in accordance with the distribution of profits of the MNE to the country of the source of income - regardless of whether or not the MNE has a permanent establishment in the country where they provide the services to; details of which are as follows:

  • The proportion of profit to be distributed to the country where the user resides shall be determined by a connecting point in economic. In this regard, it is considered based upon the gross income of the source country whether or not MNE earns income exceeding EUR 1 million. Such  income shall be distributed in the proportion of tax collection to the user’s country at the rate of 25% of the profit which exceeds 10% of the income. For the scope of taxation, the MNE must have a gross revenue of more than EUR 20 billion per annum (approximately USD 20.41 billion) and a profit margin of more than 10% of its revenue. In such regard, the details and the impact to Thailand in this case are as follows:

Impact to Thailand

Thailand is expected to gain benefit from this convention because most business operators are not MNEs that fall within the scope of distributing profits to other countries. On the contrary, Thailand will have an opportunity to receive the distribution of profits if MNEs or other digital companies which provide service in Thailand earn income from customers in Thailand of not less than EUR 1 million. If an MNE, as a service provider, does not operate business through a permanent establishment in Thailand but generates revenue from selling goods or providing services to customers in Thailand under the aforementioned criteria, then Thailand will be able to collect tax based on the rule of distribution of profit.

Upon investigation, it is clear to see that, prior to this reformation, a portion of the revenue of digital services generated in Thailand was determined and allocated as income of other countries with a tax rate lower than Thailand. Therefore, if this tax measure is enforced in the future, Thailand will be allocated for tax revenues from MNEs at the rate of 25% of profit before tax if such profit is higher than 10% of the income. Under this new regulation, it will enable Thailand to collect tax at a higher rate than currently. In addition, there is the potential to be able to collect more taxes in the future because digital sales and services are continually and consistently expanding year on year.

                 Pillar 2: This stipulates the GMT proposed a requirement of minimum payment of tax at the rate of 15% on profits from operation of a business if there is a tax planning by shifting income to affiliated companies which located in the country that has a tax rate lower than the minimum tax rate.

  • The GMT is only applied to MNEs with an annual global turnover exceeding EUR 750 million per annum (approximately USD 765 million per annum);
  • A country that engages with the agreement can increasingly collect corporate income tax from an MNE at a minimum rate of 15% if the subsidiary of such MNE is located in a country where the corporate income tax rate is lower than 15% (a country wherein the parent company is located could collect tax from the differentiate amount of tax rates between two countries); and
  • The GMT rule does not accept the special allowances on corporate income tax as a tax incentive to prevent the use of such measure, which brings the effective corporate tax rate to lower than 15%.

This new rule will allow the country wherein the parent company is located with a higher tax rate to collect additional tax from the differentiate tax rate which the affiliated company is subject to pay and the minimum tax rate. For example, Company H is a parent company located in Country T with corporate income tax at the rate of 20%. Company H has an affiliated company, which is Company A located in Country K and is subject to pay corporate income tax at the rate of 3%. In this case, Country T could collect tax from Company H on income generated by Company A at the rate of 12% (15 - 3%).

Details of the GMT process and impact on investment in Thailand are as follows:

Tax Implications for Investment in Thailand

1. It is expected that the investment of Thai business operators will not be greatly affected because the income base which can be taxed is only applied to the company with an annual global turnover exceeding 750 million EUR. Thai business operators who invest overseas may not fall within such scope. On the other hand, the revenue of many foreign companies that operate business in Thailand would likely reach the minimum rate; however, they may not fall within the scope of Thailand being able to collect tax because Thailand is not the base country where the MNE, as a parent company, is located.

2. Currently, Thailand has enacted an investment promotion policy to attract MNEs to invest in Thailand by granting corporate income tax exemption. However, such international tax reformation would cause MNEs to invest less in Thailand regardless of the tax incentives, because they have to pay additional corporate income tax in the country wherein the parent company is located according to this convention. On the contrary, Thailand could attract investors from countries with lower corporate income tax rates than Thailand, such as Singapore and Hong Kong, because these competitor countries of Thailand will be more restrictive in implementing a competitive policy. Due to the mechanism that allows the country wherein the parent company is located to collect taxable income below 15%, it will result in countries with a low tax rate having to raise their corporate income tax rate up to 15% in order to increase taxable income, instead of allowing the country wherein the parent company is located to exploit this benefit.

3. At present, the Board of Investment has approved investment projects by offering tax incentives to various Board of Investment (“BOI”) promoted businesses, such as exemption of Corporate Income Tax up to 13 years according to Section 31/1 of the Investment Promotion Act B.E. 2520 (1977)[1]; or a reduction of corporate income tax of 50% according to Section 35 (1) of the Investment Promotion Act B.E. 2520 (1977)[2]. Therefore, in the future, if the minimum corporate income tax rate is applied worldwide, the corporate income tax incentives granted by the BOI will elapse because this convention will directly affect the investment promotion methods which use allowances or tax exemptions to promote investment in Thailand.  

                 Currently, the Thai Revenue Department is in discussion with the OECD together with other countries. By participating in the reformation of international taxation rules, this results in member countries and other countries around the world having to consider their current legal framework, as well as other international conventions that have to be revised, repealed or amended. In this regard, for the next phase, each participating country who engages with the convention is obliged to completely revise the relevant laws in order to be fully prepared when these measures come into force in the near future.


[1] Section 31/1 of the Investment Promotion Act B.E. 2520 (1977) as amended by the Investment Promotion Act (No. 2) B.E. 2534 (1991) and the Investment Promotion Act (No. 3) B.E. 2544 (2001) 

[2] Section 35 of the Investment Promotion Act B.E. 2520 (1977) as amended by Amendment Act (No.3) B.E. 2544 (2001)


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