Philippines gears up for ‘possible’ global top-up tax system

MANILA, Philippines — The Bureau of Internal Revenue (BIR) has begun laying the groundwork for the proposed global top-up tax, a tax mechanism backed by the Department of Finance (DOF) that ensures that large multinational enterprises (MNEs) pay a minimum level of tax on income earned in the Philippines.

Amid pending implementation, BIR Commissioner Charlito Martin Mendoza met with the DOF and the Fiscal Incentives Review Board, which presented the draft framework of the “Qualified Domestic Minimum Top-Up Tax of 2026” bill.

The Qualified Domestic Minimum Top-Up Tax (QDMTT) is a tax mechanism aligned with the Organization for Economic Co-operation and Development’s framework that pushes MNEs to pay a 15-percent global minimum tax (GMT).

The talk centered on tax administration considerations for the QDMTT implementation, including compliance, reporting, audit readiness and institutional capacity.

“As global tax rules evolve, we have to make sure that income earned in the Philippines remains taxable in the Philippines. At this stage, our immediate priority is to build the capability of our personnel and prepare the systems, processes and organizational structures needed to administer the proposed regime effectively,” Mendoza said.

The agency said key action points identified include specialized training for BIR staff, new tax forms and compliance mechanisms and organizational arrangements to support implementation.

Mendoza also vowed to work closely with the DOF in preparing the proposed QDMTT regime as part of the Revenue Collection and Revenue Base Protection agenda under BIR DARES, aimed at protecting the country’s taxing rights amid shifting international tax rules.

Finance Assistant Secretary Euvimil Nina Asuncion said the DOF is pursuing the measure after consultations with multinational companies operating in the Philippines.

“We have been informed that many of our multinationals would rather comply with the GMT domestically rather than comply with unfamiliar rules of other jurisdictions or pay top-up taxes abroad,” Asuncion said.

“The primary considerations are simplifying domestic compliance and ensuring that implementation is strictly in accordance with the international standards,” Asuncion added.

Last year, Finance Undersecretary Karlo Adriano told a House hearing that the agency is pushing for a 15-percent domestic top-up tax for MNEs with a global revenue exceeding €750 million in two of the four preceding fiscal years.

Adriano said that since the country has no domestic top-up tax in place yet, it is accumulating foregone potential tax revenues that are rather collected by other jurisdictions.

According to Adriano, the government could have raised P54.3 billion annually by imposing a 15-percent domestic top-up tax.

Adriano noted that the Philippines could have raised P48.3 billion in 2021, P60.5 billion in 2022 and P54.1 billion in 2023 if the domestic top-up tax had been put in place.