[Ask The Tax Whiz] FAQs on the global minimum tax

What is the global minimum tax (GMT), and how will it affect Philippine businesses? 

The global minimum tax is an international tax reform initiative developed by the Organization for Economic Co-operation and Development (OECD) and the G20 to ensure multinational corporations with revenues exceeding €750 million pay a minimum effective corporate tax rate of 15%. This aims to curb tax avoidance and ensure fair taxation, particularly in jurisdictions with lower taxes than the MNC’s home country.

For Philippine businesses, local subsidiaries of MNCs can face a Qualifying Domestic Minimum Top-up Tax (QDMTT) in order to align their taxes to the 15% minimum tax rate if local incentives result in a much lower effective tax rate — if your business is not a subsidiary of a MNC, your tax obligations are left unaffected. 

What are the benefits of adopting the GMT for the Philippines?

The Philippines gains significant benefits by adopting the GMT, such as increased revenue for the government, which aims to have a more equitable distribution of tax revenues, as MNCs can no longer be able to exploit lower-tax jurisdictions to get less taxes. 

The GMT is also in alignment with the Bureau of Internal Revenue (BIR)’s efforts to combat tax avoidance, or worse, evasion. In adopting this framework, it also shows the commitment of the Philippines to adopting a more equitable tax system. By leveling the playing field, the GMT supports local businesses and ensures fair competition between domestic firms and foreign MNCs. Moreover, aligning with the global tax standards adopted by over 140 jurisdictions boosts the Philippines’ tax credibility and reputation as a compliant and cooperative tax jurisdiction.

The implementation of the GMT, particularly through the QDMTT, secures domestic taxing rights over top-up taxes. This ensures that revenue from MNCs operating in the country remains within the Philippines, rather than being claimed by other jurisdictions. Collectively, these benefits underscore the GMT’s potential to strengthen the country’s economic foundation and advance tax fairness on a global scale.

If implemented, how will the GMT affect tax incentives in the Philippines?

Previously, under the CREATE and CREATE MORE Act, companies in the Philippines enjoy preferential income tax incentives such as Income Tax Holidays (ITH) and Special Corporate Income Tax (SCIT) or Enhanced Deduction Regime (EDR). The Global Minimum Tax (GMT) will reshape the landscape of tax incentives in the Philippines. If these go below the GMT’s 15% threshold, MNCs and their subsidiaries in the Philippines will be subjected to further taxes either through other jurisdiction under the Income Inclusion Rule or QDMTT. 

This change necessitates a reevaluation of the Philippines’ tax incentive strategies. Incentives tied to reducing tax burdens might need to shift toward performance-based or activity-specific incentives, such as grants for job creation, infrastructure investment, or R&D activities. Such an approach ensures the country remains competitive while complying with global tax standards. 

Moreover, with the goal of reduction in the corporate income tax for business under the EDR, it is expected to make the Philippines more competitive within ASEAN, especially as the country previously had one of the highest CIT rates in the region. With a current CIT rate of  25% in the Philippines, the GMT rate of 15% would affect the way of attracting foreign investors, considering that the country grants tax incentives. – Rappler.com

The content provided in this article above is for general purposes only. If you want to know how these regulations affect your business, CONSULT ACG or email us at consult@acg.ph.