Global Anti-Base Erosion Model Rules (Pillar Two) Taiwan - Pillar Two implementation updates
In the context of global economic globalization and digitalization trends, multinational enterprises (MNEs) have been using low-tax jurisdictions or unconventional transactions involving related entities for excessive tax avoidance, which leads to tax base erosion and tax revenue issues, attracting international attention. From 2013 to 2015, the OECD and the G20 launched the Base Erosion and Profit Shifting (BEPS 1.0) project, and in 2016, an inclusive framework was established to promote the conclusions of the final reports. Among the key issues, "Addressing the Tax Challenges of the Digital Economy" has become an ongoing initiative. Since 2019, two pillars have been actively promoted to address these challenges.
The second pillar, the Global Minimum Tax (GMT), mandates that multinational enterprise groups must ensure that the effective tax rate in each of their member jurisdictions is at least 15%. This rule is supported by 142 out of 147 members of the OECD inclusive framework, and 60 countries (or regions) have publicly announced measures to implement the GMT. Neighboring countries such as Japan, South Korea, Singapore, and Hong Kong, as well as major trading partners such as EU member states and Canada, have implemented the GMT in 2024, and other countries are expected to follow suit. The GMT has become an irreversible and overwhelming wave of international tax reform, and the 15% minimum effective tax rate has become a global consensus.
According to the Ministry of Finance, Taiwan's current corporate income tax rate is 20%, and the Alternative Minimum Tax (AMT) rate is 12%. If a multinational enterprise group enjoys significant tax benefits, resulting in an effective tax rate below 15% for its Taiwanese subsidiaries, the GMT top-up tax may apply. If countries or regions with which Taiwan has close trade and investment relations implement GMT measures and Taiwan does not have corresponding measures, the top-up tax that Taiwan should have levied may be taxed by those countries, leading to a situation where Taiwan's tax revenue is diverted to other countries.
To align with international tax trends and protect Taiwan's tax rights, the Ministry of Finance, after consulting OECD's second pillar regulations and external opinions, proposes the following draft of the AMT rate:
- Starting from 2025, multinational enterprise groups meeting the GMT applicability threshold will be subject to an AMT rate of 15% on their subsidiaries in Taiwan.
The GMT applicability threshold is generally that the combined annual revenue of the group’s consolidated financial statements in two out of the last four fiscal years must exceed 750 million euros.
- For businesses not covered by the above rule, the AMT rate remains at 12%.
The Ministry of Finance further explained that the proposed increase in the AMT rate is in response to international tax reforms to address excessive tax benefits and ensure that large enterprises do not enjoy excessively low effective tax rates. This adjustment will not affect small- and medium-sized enterprises or large enterprises that already meet the 15% effective tax rate. The increased AMT tax will be included in the calculation of the group's effective tax rate in Taiwan, thus reducing the risk of paying top-up tax to other countries.