Global minimum tax may blunt Philippine tax incentives for multinationals

By Justine Irish D. Tabile, Senior Reporter

TAX PERKS granted to large multinational enterprises could become less attractive if the Philippines implements the proposed Qualified Domestic Minimum Top-up Tax (QDMTT), an expert warned.

“We provide tax incentives to foreign investors who want to locate in the Philippines. So, some of them are not paying any taxes at all to the Philippines because of the incentives that they are enjoying,” Deloitte Philippines Tax & Legal Leader Carlo Navarro told BusinessWorld.

“But because of the qualified domestic minimum tax rule, the Philippines will now impose a minimum tax of 15% on that income that is incentivized by the old framework,” he added.

Mr. Navarro said this would reduce the benefits of existing tax incentives, which could prompt some investors to reconsider investing in the Philippines.

“Once you reduce the benefits derived from those tax incentives, you can already see that investors might reconsider their investment in the Philippines and look for another jurisdiction that will provide them with better tax rates,” he said.

“And that is the main challenge that will arise because of the implementation of the QDMTT,” he added.

The QDMTT forms part of the Organisation for Economic Co-operation and Development’s  Pillar Two framework, which establishes a global minimum effective tax rate of 15% for large multinational enterprises.

The Philippines has yet to enact a QDMTT law but is targeting to implement the regime in 2027, with collections expected to begin in 2028. The Department of Finance is currently drafting the proposed legislation.

Despite the potential impact on investment incentives, Mr. Navarro said the Philippines should proceed with the QDMTT because it would allow the government to collect taxes that would otherwise go to other jurisdictions.

“If the Philippines does not implement or enact a qualified domestic minimum tax legislation, somebody else will tax the income that arises in the Philippines,” he said.

“With the implementation of the Qualified Domestic Minimum Top-up Tax legislation, it will restore the right of the Philippines to collect these taxes.”

Mr. Navarro said the Philippines has lagged its Southeast Asian neighbors in terms of implementing major and significant regulatory developments.

“That’s where we stand at the moment. We’re really behind in terms of adopting some of these international rules that will help the Philippines protect its tax base,” he added.

Mr. Navarro said the QDMTT would generate additional tax revenue for the government by allowing the Philippines to collect taxes that would otherwise go to other jurisdictions.

“Certainly, it will add additional tax revenue to our government… When we did initial estimates on this, just looking at the data from the Philippine conglomerates, we estimated back then, this was in 2023, around P20 billion of tax revenue,” he said.

“But again, these are only from seven companies. The extent of the amount of lost revenue, we don’t know. We don’t have the estimates. But I think the DoF has estimated the amount of revenue lost from the non-implementation of Pillar 2 legislation and that could run in trillions,” he added.

To remain competitive under Pillar Two, Mr. Navarro said the government should review its current incentive framework.

“There are incentives that will still work within the context of Pillar 2, except that probably we will need to enhance the benefit derived from those existing incentives. That one is the enhanced deduction regime,” he said.

Meanwhile, the Deloitte Philippines executive said the country could also look at incentive schemes being adopted by neighboring countries.

“For instance, you have Singapore adopting the qualified refundable investment credit or the qualified refundable tax credit. So, our government can probably adopt some of the features of those qualified refundable tax credit mechanisms adopted by Singapore,” Mr. Navarro said.

However, Mr. Navarro said the Philippines should not simply replicate the incentive schemes adopted by neighboring countries, as doing so would not give the country a comparative advantage.