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Investment Promotion Measures to alleviate impacts from the New Tax Collection Framework

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Investment Promotion Measures to alleviate impacts from the New Tax Collection Framework

The existence of tax erosion resulting from international tax planning by multinational companies has been a topic of global concern recently. Over the past few years, multinational companies often engage in profit shifting between related entities, where profits are transferred from one company within the same group to another located in a jurisdiction with lower tax rates and tax exemptions, or in a tax haven country. In order to promote transparency and fairness in tax collection, the Organisation for Economic Cooperation and Development (“OECD”), which consists of over 100 member countries worldwide, has introduced the Global Minimum Tax (“GMT”) framework. This framework applies to Multinational Enterprises (MNEs) with a consolidated group revenue of at least Euro 750 million or approximately Baht 28 billion, and requires them to pay a minimum tax rate of 15 percent. Furthermore, tax authorities of member countries around the world have continued to exchange information regarding multinational companies whose income base has reached the reporting threshold. In addition to these measures, in the near future, Thailand is expected to implement tax measures concerning the collection of “Top-up Tax” for large multinational companies with consolidated revenues of Euro 750 million or more. A draft law is anticipated to be proposed within 2023, with enforcement scheduled for 2025¹.

As for Thailand itself, it has been a member of the OECD and has commenced the exchange of tax information between countries² since the beginning of 2017, which is a significant turning point. The Thai Revenue Department (“RD”) has been exchanging information on Country-by-Country Reports (“CbCR”) since June 2023.

Therefore, in order for Thailand to have measures in place to support implementation of the new GMT framework while still attracting investment and maintaining the presence of large multinational industrial manufacturers, Thailand continues to grant incentives to companies that have received previous investment promotion privileges. However, there are alternatives given to entrepreneurs who are conglomerates of multinational companies to alleviate the tax burden that may arise from the collection of Top-up Tax in the country where the parent company is located.

The Ministry of Finance, the Revenue Department and the Board of Investment jointly considered the establishment of guidelines, as announced in Announcement No. 1/2566, regarding investment promotion measures to mitigate the impact of the new tax collection framework, effective as of 16 May 2023 (B.E. 2566). This serves as an option for affiliated companies of multinational companies, which have received previous investment promotion privileges or are going to apply for investment promotion privileges, giving them the choice to pay a portion of taxes in Thailand at a reduced rate of half of the normal tax rate under the Thai Revenue Code. This means that if affiliated companies of multinational companies wish to continue enjoying tax exemptions, they can do so or they may request to change the benefits from exemption to pay half of the tax rate instead.

We summarise the differences in conditions and criteria for adjusting the rights and benefits of investment promotion between the case of existing projects that have already received investment promotion and the case of applying for new investment promotion according to the aforementioned measures, as follows:

Existing projects that have already received investment promotion

Conditions	Rights and Benefits
1. Falls within the multinational conglomerate with a total consolidated group revenue for the accounting period prior to applying for BOI promotion, as follows: 1.1 Not less than Baht 28 billion 1.2 Not less than an average amount of Baht 28 billion if the accounting period is less than 12 months. 1.3 Falls under the scope of entities required to submit the CbCR as announced by the Director-General of the RD.	1. Eligible for a corporate income tax (“CIT”) reduction for net profits derived from investments at a rate of 50 percent of the normal rate, for a period not exceeding two times the full year of the remaining CIT exemption period, combined with the remaining period of the existing CIT reduction. In total, the cumulative period shall not exceed 10 years.
2. It is a project that has already been granted BOI approval and falls under the category of businesses the BOI has announced to be eligible for BOI promotion as of the date of submission of the BOI application under this measure.	2. Duration of CIT reduction period: 2.1 In the case of projects that have already been granted investment promotion and have generated income prior to the BOI approval, the period for CIT reduction shall be counted from the day following the date of the first income generated after obtaining the BOI approval (the previous BOI certificate ends on the issuance date of the new BOI certificate) 2.2 In the case of projects that have already been granted investment promotion but have not yet generated income, the period for CIT reduction shall be counted from the day upon which income is first generated.
3. It is not a project that has already received BOI approval under the previous measure, and is currently operational.	3. The remaining rights and benefits shall be granted in accordance with those remaining in the existing investment-promoted projects.
4. Submit an application to amend rights and benefits while maintaining the remaining amount and duration of CIT exemption for not less than one year (once the approval for amending rights and benefits is granted, it cannot be further amended).
5. The recipient of the approval for amending rights and benefits must respond within one month from the date of receiving the notification letter, and must obtain the investment promotion certificate before the expiration of the existing rights and benefits.
6. Projects that have already been granted BOI approval under this measure will not be eligible to apply for additional rights and benefits under other BOI measures in the future.

Projects applying for new investment promotion

Conditions	Rights and Benefits
1. Falls within the multinational conglomerate with a total consolidated group revenue for the accounting period prior to applying for BOI promotion, as follows: 1.1 Not less than Baht 28 billion 1.2 Not less than an average amount of Baht 28 billion if the accounting period is less than 12 months. 1.3 Falls under the scope of entities required to submit the CbCR as announced by the Director-General of the RD.	1. Eligible for a CIT reduction for net profits derived from investments at a rate of 50 percent of the normal rate, with a duration not exceeding twice the tax exemption period under Section 31 (eight years) or Section 31/1 (13 years), combined with the period of CIT reduction under Section 35(1) (five years), calculated based on the rights and benefits specified in the announcements of BOI No. 8/2565 and 9/2565. In total, the cumulative period shall not exceed 10 years.
2. It is a project that has been granted BOI approval and falls under the category of businesses specified in the announcement of the BOI on the date of applying for the promotion.	2. Other rights and benefits shall be granted in accordance with the announcements of the BOI No. 8/2565 and 9/2565.
3. Express the intention to request a CIT exemption or reduction. 3.1 If applying for a CIT exemption, the promoted recipient must later submit an application to amend rights and benefits to the BOI, subject to the same conditions and criteria as the existing promoted project's request for amending rights and benefits. 3.2 If applying for a CIT reduction, the form of CIT rights and benefits cannot be further amended.
4. Projects that have already been granted BOI approval under this measure will not be eligible to apply for additional rights and benefits under other BOI measures in the future.

The amendment of tax benefits for investment projects applying for BOI incentives that are affected by the new tax framework of the OECD is considered a good option. Although the promoted companies will not be exempted from taxes on all investment-related income, nevertheless obtaining a 50 percent tax reduction for an extended maximum period of 10 years can be a beneficial tool in motivating international companies to maintain their production bases in Thailand and pay taxes at a preliminary level, which may be in line with the OECD guidelines; because not all accounting profits appear as taxable profits immediately. Companies or juristic partnerships receiving investment promotion incentives are still obligated to calculate CIT based on the criteria stipulated by the RD. Therefore, it is highly likely that, ultimately, they will have to pay taxes to the RD at rates close to those specified by the OECD.

For tax collection under these new measures, if the RD can effectively communicate the criteria for calculating CIT under the Revenue Code, aligning them with the criteria of the aforementioned BOI, it would foster a fair understanding and cooperation from MNEs to ensure that taxpayers actually pay taxes of no less than the minimum GMT rate of 15 percent on income generated in each country where the group operates. Simultaneously, the measures of the BOI can be a good alternative to alleviate the impact of the aforementioned new tax framework. This can be an effective tool to help Thailand maintain its capability and potential to attract investment, while maintaining the production bases of these large international companies in the country.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of taxation law, please do not hesitate to contact our tax team.

Budhima Kerdsiri
Counsel
Hatairat Sukprasert
Associate
Pairaya Yangpaksi
Associate

¹https://www.prachachat.net/finance/news-1224427

²Thailand has signed a multilateral international agreement to exchange Country-by-Country Reports (“CbCR”), which applies to Multinational Enterprises ("MNEs") with the consolidated group revenue of at least Euro 750 million according to the OECD standard as of 9 December 2022.

Authors

Budhima KERDSIRI

Counsel
Bangkok

Budhima provides advice on tax compliance and a wide variety of tax-related work. In particular, she has extensive experience with accounting transactions and tax planning. Further, she has handled tax counseling and tax controversies and has substantial experience representing and advising individuals and major corporations in tax disputes, including filing appeal letters for tax assessments, which were assessed by the Revenue Department, the Customs Department, the Excise Department, and local tax collection agencies such as those dealing with land and building tax. In addition, she has more than 10 years of experience as a public speaker and columnist for tax magazines, focusing on tax planning and tax compliance for individuals and companies seeking to maximize their tax privileges under Board of Investment (BOI) promotion and accounting adjustments to comply with Thai tax laws.

Budhima was a columnist for the Tax Documentation Journal, the No. 1 public journal related to accounting and taxation published by Dharmniti Press Co., Ltd., and she is also the author of “Differences and similarities between accounting profit and taxable profit,” a book that has been published twice.

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