The Global Minimum Tax (GMT) is part of a Two-Pillar solution introduced by the Organization for Economic Co-operation and Development (OECD) to address major issues of tax competition or so-called “race to bottom” that leads to profit shifting of multinational enterprises (MNEs). With the Philippines joining the Inclusive Framework in 2023, its membership signals its commitment to participate in this global effort. But there are arguments that this decision will make the country’s tax incentives less attractive to foreign investments as any tax benefit below 15% will be recaptured. Under the Global Anti-Base Erosion Model Rule, MNEs will still have to pay whatever the difference to reach the 15% global minimum tax. The Global Minimum Tax (GMT) is part of a Two-Pillar solution introduced by the Organization for Economic Co-operation and Development (OECD) to address major issues of tax competition or so-called “race to bottom” that leads to profit shifting of multinational enterprises (MNEs). With the Philippines joining the Inclusive Framework in 2023, its membership signals its commitment to participate in this global effort. But there are arguments that this decision will make the country’s tax incentives less attractive to foreign investments as any tax benefit below 15% will be recaptured. Under the Global Anti-Base Erosion Model Rule, MNEs will still have to pay whatever the difference to reach the 15% global minimum tax.
The paper shows that the distribution of effective tax rates (ETRs) among the largest corporations in the Philippines from 2020 to 2022 appears to have ETRs already below the proposed global minimum tax rate of 15%. This suggests that these MNEs may need to pay a top-up tax to the relevant tax jurisdiction, which could be outside the Philippines. Due to the limited presence of ultimate parent entities of MNEs in the Philippines, the government may prioritize implementing the Qualified Domestic Minimum Top-Up Tax (QDMTT) as part of its GMT implementation strategy. This would ensure that the country will be the one to collect the top-up tax on any profits that fall below the global minimum rate. On the other hand, the government may also explore shifting its focus toward non-tax investment drivers or alternative tax incentives that are grounded on substance or expenditure-based rather than income-based.