PwC Thailand warns that business owners will face increasing legal and tax challenges in 2025 as Thailand progresses towards becoming an OECD member. Regulators are working to update tax laws to align with international standards.
With rolling implementation across many jurisdictions, Thai businesses are advised to monitor the implementation of Pillar Two tax measures for multinational companies. This could impact tax costs, and businesses should strategise their legal and tax approaches to align with the evolving tax landscape.
Niphan Srisukhumbowornchai, Tax and Legal Lead Partner at PwC Thailand, shared his thoughts on the challenges of navigating the tax landscape at the 'Maximising Shareholder Value' seminar, a key event of the annual 'PwC Thailand Symposium 2024', under the theme 'Beyond Boundaries: Shaping Tomorrow's Innovations'.
In 2025, Thai business owners will face more legal and tax challenges than ever before. This follows Thailand's Ministry of Foreign Affairs submitting a letter of intent to apply for membership in the Organisation for Economic Co-operation and Development (OECD) on 12 February.
Thailand must adapt to the evolving global tax landscape to gain acceptance from the OECD and its member countries. Currently, the Thai Revenue Department is aligning the law with the ever-changing global tax regulations. Businesses need to prepare for and swiftly adapt to these incoming changes.
"OECD membership offers numerous benefits for Thailand, such as enhanced competitiveness with member countries, access to global economic data, and technical consultation and assistance from OECD experts. Moreover, OECD affiliation will bolster Thailand's image on the international stage.
"Nonetheless, to gain acceptance into the OECD by its member states, Thailand must undergo an assessment to ensure it meets the criteria. Thailand must fully comply with these criteria, which is why many government agencies are working to align their operations with OECD standards. Updating laws and tax regulations to meet international standards is one of these criteria," Niphan said.
Niphan also commented that after Thailand signed the Multilateral Instrument, the Revenue Department is in the process of issuing detailed guidelines for monitoring, reporting, and tax auditing concerning double taxation avoidance agreements to prevent base erosion and profit shifting (BEPS), transfer pricing policies and the new tax framework for large multinational companies (Pillar Two).
In addition to tax collection by the Revenue Department, the Customs Department and the Excise Department have also issued policies to enhance clarity in tax collection and audits. Previously, the Customs Department may have focused primarily on royalty issues but, going forward, customs authorities will conduct more stringent inspections of transactions between related entities. Furthermore, the role of audits has expanded from issues related to certificates of origin to more detailed examinations in issuing these certificates.
"It's critical for businesses to stay updated on tax laws, regulations, interpretations and common pitfalls that could lead to non-compliance. They can leverage this information to promptly adjust their tax strategies in line with the regulatory practices of the governing authorities," he said.
Monitoring Pillar Two measures set for 2025 implementation
Niphan continued that Thai businesses are monitoring the implementation of Pillar Two measures by relevant regulators. There is a push to enact laws to impose a minimum corporate income tax on large multinational companies to reduce tax competition between countries.
According to the OECD guidelines, multinational companies with consolidated revenues exceeding EUR750m would be subject to a global minimum tax rate of at least 15% in each country where they operate. This measure is expected to come into effect in Thailand in 2025. Implementing this tax law is anticipated to significantly impact corporate tax structures.
"Currently, Thai businesses are closely monitoring the clear guidelines of Pillar Two from relevant authorities, as these tax regulations are set to significantly increase tax expenses and increase tax compliance costs.
"Businesses will need to put in more effort to plan for potential top-up taxes, manage compliance burdens and align their practices with international standards and the evolving domestic tax landscape. This includes adopting new reporting processes and mechanisms. Therefore, business owners need to plan their legal and tax strategies to align with and appropriately address these measures," he said.
Businesses must align tax and legal strategies with Thailand's evolving tax landscape
In addition to the legal and tax challenges arising from Thailand's pursuit of OECD membership, Niphan stated that Thai tax authorities are preparing to adopt advanced technologies, including in-depth tax audits.
Therefore, businesses should stay updated on tax laws while leveraging emerging technologies, such as implementing artificial intelligence (AI), to enhance tax compliance efficiency and modernise tax operations. This will ultimately boost business competitiveness.
Additionally, businesses should develop strategies to cope with rigorous tax audits as the Revenue Department restructures its tax collection procedures and integrates new technologies such as big data and AI into tax audits. This could increase the risk of taxpayers being audited. Therefore, entrepreneurs should plan their tax strategies comprehensively, including strategic preparation, document management, tax refund management, and proactive approaches to regulatory challenges.
"Adapting to Thailand's evolving tax landscape requires caution, adaptability, and a commitment to innovation. This involves continuously staying informed, incorporating technology, and developing comprehensive tax strategies. These efforts will enable businesses to operate smoothly amidst multifaceted regulatory changes and thrive in the current challenging economic environment," Niphan said.