Column: Looking beyond the picture Author: Dr Thitima Chucherd, Director of Macroeconomic Research Economic and Business Research Center (SCB EIC)
Making international business taxation fairer It’s a problem the world has been trying to find a solution to for decades. In the past, multinational businesses allocated profits and distributed investments abroad. One important incentive is corporate income tax benefits.
In addition, the digital world allows international businesses to conveniently sell products and services in different countries online. Without having to open a company and establish an office in that country, the destination country loses the opportunity to collect income tax from foreign businesses that generate income from selling goods in their own country.
This is an important tax loophole in the world because international businesses see a way to avoid paying income tax in countries that are taxed at a higher rate through 2 strategies: 1) Base Erosion is the allocation of financial statements in country subsidiaries in subject to low tax rates. with high deductible expenses So that the income base that must be used to calculate income tax is lower and 2) Profit Shifting is the transfer of profits obtained from doing business in one country to invest in countries that pay income tax at a rate lower
The Organization for Economic Co-operation and Development (OECD) has proposed reforming the international tax system by introducing a Global Minimum Tax of 15%, based on a two-pillar approach to tackling the tax challenges and faced by the Birth of the digital economy under the OECD /G20 Inclusive Framework on base erosion and profit shifting (Inclusive Framework for BEPS)
It includes Pillar 1, a fairer allocation of profits and taxation rights of large multinationals, and Pillar 2, a minimum corporate income tax rate of 15% on large multinationals. To reduce international tax competition
The Global Minimum Tax will be forced to collect income tax on large multinational companies with an annual gross income of more than EUR 750 million (or about 28 billion baht), with more than 140 member countries having joined the Pillar agreement 2 from October 2021
The OECD intends to start using the Global Minimum Tax this year for countries that are ready, with the latest 55 countries already starting to implement it, such as the United Kingdom. Switzerland, Australia, South Korea
The OECD estimates the impact of setting the Global Minimum Tax on multinational companies as follows:
1) Business profits that were previously under-taxed will drop to 80% from the previous 36% of global business profits. This will only be 7% as a result of less relocation of profits to other countries and more taxation on the difference.
2) Transfer of profits abroad will be cut in half. As a result, the profits of international companies will stay in that country for countries that are investment centers. The evaluation found that the transfer of profits from other countries to investment had fallen. It will cause the country’s tax revenue to disappear by around 30%.
3) The difference in business income tax rates between countries will be reduced by 30%, especially the difference between countries that are and are not investment bases Therefore, non-tax factors will increasingly be taken into account when deciding on the transfer of investment between countries Helps to better distribute the allocation of capital resources in the world.
4) Net global business income taxes will increase by 6.5-8.1% due to lower tax collections and profit shifting to other countries. or the equivalent of 155-192 billion US dollars per year.
Singapore announced the start of the Global Minimum Tax from 1 January 2025 and introduced a new Refundable Investment Credit measure in order to maintain the country’s attractiveness to foreign investment. Pass tax credits on investment expenditure. Human resource development and skills development
This new policy is in line with the Global anti-base erosion rules for qualified refundable tax credits (QRTCs), which will be a new option for providing tax benefits in a post-BEPS world because tax credits are considered income. Rather than considering tax relief (Tax Relief) as before, which results in a lower actual tax collection rate of multinational companies.
As for Thailand, it is one of the 10 countries piloting the OECD’s Global Minimum Tax which is also expected to be published early next year. Thailand is at the stage where the Department of Revenue is preparing to propose a Global Minimum Tax Act to the Cabinet (Cabinet) within the first half of this year. and will require large multinational companies to pay income tax at an effective tax rate of no less than 15%.
In terms of supporting measures to make Thailand still attractive to attract foreign investment capital, The Cabinet has decided to approve the proposal of the Office of the Board of Investment (BOI) from March 7, 2023, for the government to allocate 50-70% of the revenue from collecting additional tax according to Column 2 Progress to the country’s competitiveness fund for target industries so that the BOI can use it to design investment benefits for foreign companies that may lose the benefit of this new criterion.
The Global Minimum Tax is a major reform of the international tax system. Countries that are ready Being able to announce clarity in the game plan for the new tax system and the corresponding investment benefits policy first will be an advantage when deciding to invest by international companies. In the middle of a world where competition for attracting foreign investment is intense like this.
#Global #Minimum #Tax #starts #year #Thailand #play #game
