1 effective tax planning and compliance in treasury management prepared by picharn sukparangsee at...

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““Effective Tax Planning and Effective Tax Planning and Compliance in Treasury Compliance in Treasury Management”Management”

Prepared byPrepared byPicharn SukparangseePicharn Sukparangsee

at the Conference on at the Conference on “Integrated Financial Risk Management”“Integrated Financial Risk Management”

arranged by arranged by the Asia Business Forumthe Asia Business Forumon September 7-8, 2010 on September 7-8, 2010

at the Land Mark, Bangkok at the Land Mark, Bangkok

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TREASURY DUTIES WITH REGARD TO TREASURY DUTIES WITH REGARD TO TAX PLANNING AND COMPLIANCETAX PLANNING AND COMPLIANCEI.I.

LATEST UPDATES ON RELATED TAX LATEST UPDATES ON RELATED TAX AND COMPLIANCEAND COMPLIANCEII.II.

HOW TO REVISE TREASURY TRANSACTIONS HOW TO REVISE TREASURY TRANSACTIONS FOR MORE FAVOURABLE TAX SAVINGS FOR MORE FAVOURABLE TAX SAVINGS III.III.

EFFECTIVE PRACTICES TO EFFECTIVE PRACTICES TO ENHANCE TAX COMPLIANCE ENHANCE TAX COMPLIANCE IV.IV.

HOW TO MEASURE AND IMPROVE THE HOW TO MEASURE AND IMPROVE THE EFFECTIVENESS OF TAX PLANNING AND EFFECTIVENESS OF TAX PLANNING AND COMPLIANCE IN THE CURRENT TIME COMPLIANCE IN THE CURRENT TIME

V.V.

Effective Tax Planning and Effective Tax Planning and Compliance in Treasury ManagementCompliance in Treasury Management

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TREASURY DUTIES WITH REGARD TO TREASURY DUTIES WITH REGARD TO TAX PLANNING AND COMPLIANCETAX PLANNING AND COMPLIANCEI.

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Understand basic principles of taxation law.Understand basic principles of taxation law.Review transactions and structure of a Review transactions and structure of a company for tax efficiencycompany for tax efficiencyRegularly update important tax rules, Regularly update important tax rules, regulations , cases and rulingsregulations , cases and rulings

Principles of taxation Principles of taxation •Equality of taxationEquality of taxation•Certainty of taxation Certainty of taxation •FairnessFairness•Efficiency Efficiency

I.I. TREASURY DUTIES WITH REGARD TOTREASURY DUTIES WITH REGARD TOTAX PLANNING AND COMPLIANCETAX PLANNING AND COMPLIANCE

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Ideal tax policiesIdeal tax policies1. 1. Tax policies should be less complex.Tax policies should be less complex.2. 2. Tax policies should be simple and certain.Tax policies should be simple and certain.3. 3. Structure and provisions of taxation law should be Structure and provisions of taxation law should be

straightforward, unambiguous, consistent and straightforward, unambiguous, consistent and coherent.coherent.

4.4. the rules of the tax structure should be clear, the rules of the tax structure should be clear, reliable and foreseeable.reliable and foreseeable.

In reality, tax laws and regulations become In reality, tax laws and regulations become increasing complicated and highly difficult for increasing complicated and highly difficult for ordinary people to understand.ordinary people to understand.


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Revenue Code of ThailandRevenue Code of ThailandPersonal income taxPersonal income tax• source doctrine and resident doctrinesource doctrine and resident doctrine• total incometotal income• expenses and allowancesexpenses and allowances• new tax exemptions or reductionsnew tax exemptions or reductions

Corporate income taxCorporate income tax• recognition of revenues and expenses on accrual basisrecognition of revenues and expenses on accrual basis• requirements for computation of net profits or lossesrequirements for computation of net profits or losses• expenses prohibited for computation of the net profitsexpenses prohibited for computation of the net profits


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Thai income tax law is based upon the worldwide Thai income tax law is based upon the worldwide income basis, not territorial basis. income basis, not territorial basis.

Personal income tax is chargeable on a source basis Personal income tax is chargeable on a source basis and a resident basis.and a resident basis.

Corporate income tax is collectible on the principle Corporate income tax is collectible on the principle of incorporation and the principle of doing business of incorporation and the principle of doing business in a jurisdiction.in a jurisdiction.

Capital gain tax is part of income tax under Thai Capital gain tax is part of income tax under Thai taxation law. taxation law.


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Value added taxValue added tax• sale of goods, provision of service• import of goods and service• export of good and services

Specific business taxSpecific business tax• specific businesses such as banking,

insurance and real estate businesses

Stamp dutiesStamp duties• Instruments


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Double taxation agreements between Thailand and Double taxation agreements between Thailand and its counterpartiesits counterparties

• cover only income tax and petroleum tax, not value cover only income tax and petroleum tax, not value added tax and specific business taxadded tax and specific business tax

• Benefit to residents of the contacting states onlyBenefit to residents of the contacting states only• allocation of income and capital gainsallocation of income and capital gains• Specific income and other incomeSpecific income and other income• Relief from double taxation- exemption method and Relief from double taxation- exemption method and

credit methodcredit method• Exchange of informationExchange of information


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Important issues Important issues • Exemption, a waiver or reduction of tax should be looked at.Exemption, a waiver or reduction of tax should be looked at.• Corporate structure should be tax efficient.Corporate structure should be tax efficient.• More companies will have more expenses for computation of More companies will have more expenses for computation of

the corporate income tax.the corporate income tax.• Corporate shareholding should be compared with individual Corporate shareholding should be compared with individual

shareholding.shareholding.• Contents of agreements should be reviewed to have proper tax Contents of agreements should be reviewed to have proper tax

benefits.benefits.• Tax managers of a large company should be employed to take Tax managers of a large company should be employed to take

care of tax matters.care of tax matters.• Unilateral tax relief is useful for corporate shareholding in a Unilateral tax relief is useful for corporate shareholding in a

foreign country.foreign country.• Overseas transactions should take into consideration the tax Overseas transactions should take into consideration the tax

issues.issues.


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Forms of doing business and tax liabilities Forms of doing business and tax liabilities 1. 1. SubsidiarySubsidiary2. 2. BranchBranch3. 3. Agency Agency 4. 4. DistributorshipDistributorship


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SubsidiarySubsidiaryA subsidiary is separated from its parent company.A subsidiary is separated from its parent company.

A subsidiary shall pay corporate income tax on the net A subsidiary shall pay corporate income tax on the net profits arising in and out of Thailand.profits arising in and out of Thailand.

If the subsidiary pays dividend to its parent company, If the subsidiary pays dividend to its parent company, withholding tax shall be chargeable on the dividend paid withholding tax shall be chargeable on the dividend paid by the subsidiary to its parent company.by the subsidiary to its parent company.

For VAT, authorized directors of the company shall file an For VAT, authorized directors of the company shall file an application for registration of VAT and pays VAT.application for registration of VAT and pays VAT.


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BranchBranchA branch is nor regarded as a separate entity from A branch is nor regarded as a separate entity from its head office. The head office and its branch shall its head office. The head office and its branch shall be deemed to be the same entity. be deemed to be the same entity. The branch shall pay tax on its profits arising from The branch shall pay tax on its profits arising from the business operation in Thailand only.the business operation in Thailand only.If the branch remits profits to the head office, the If the branch remits profits to the head office, the profits shall be subject to withholding tax.profits shall be subject to withholding tax.An employee or a representative of the branch shall An employee or a representative of the branch shall file an application for VAT and pay VAT.file an application for VAT and pay VAT.


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Sale Agency or Exclusive AgencySale Agency or Exclusive Agency• an independent agent shall act as a general an independent agent shall act as a general

agent.agent.• an dependent agent has a different tax an dependent agent has a different tax

implications from an independent agent.implications from an independent agent.


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An independent agent under the tax ruling of the tax appealAn independent agent under the tax ruling of the tax appealcommittee shall have the following:committee shall have the following:1. 1. An agent in Thailand shall act as an agent of companies in An agent in Thailand shall act as an agent of companies in

foreign countries in general, not act as one company in a foreign countries in general, not act as one company in a foreign country only.foreign country only.

2. 2. no agreement is made between the agent in Thailand and no agreement is made between the agent in Thailand and a company in a foreign country which limits the right of a company in a foreign country which limits the right of the agent to act as the agent of other companies in a the agent to act as the agent of other companies in a foreign country. No practice on limit of the right of the foreign country. No practice on limit of the right of the agent occurs.agent occurs.

3. 3. The agent in Thailand receives no other benefits other The agent in Thailand receives no other benefits other than the commission for the sale of the goods.than the commission for the sale of the goods.

4. 4. The buyer shall directly pay for the goods to the seller.The buyer shall directly pay for the goods to the seller.


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VAT VAT If the foreign seller sells the goods through its agent If the foreign seller sells the goods through its agent in Thailand on a temporary basis, no application for in Thailand on a temporary basis, no application for registration for VAT is required.registration for VAT is required.However, an application for temporary trade is However, an application for temporary trade is allowed. allowed. If the foreign seller sells the goods through its agent If the foreign seller sells the goods through its agent in Thailand on a regular basis, an application for in Thailand on a regular basis, an application for registration for VAT is required.registration for VAT is required.


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DistributorDistributor1. 1. Sale DistributorshipSale Distributorship

The manufacturer appoints a sale distributor and The manufacturer appoints a sale distributor and will will not appoint other distributors but reserve the right not appoint other distributors but reserve the right to to make a direct sale in a country.make a direct sale in a country.

2.2. Exclusive DistributorExclusive DistributorThe manufacturer undertakes that the distribution The manufacturer undertakes that the distribution

in a in a foreign country will be made by an exclusive foreign country will be made by an exclusive distributor in that country.distributor in that country.

The relationship between the manufacturer and the The relationship between the manufacturer and the distributor is a sale agreement and an agency agreement.distributor is a sale agreement and an agency agreement.


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Distributor AgreementDistributor Agreement1.1. The sale agreement between the The sale agreement between the manufacturer manufacturer and the distributor and the distributor 2. 2. The sale agreement between the distributor The sale agreement between the distributor

and the buyer in Thailand.and the buyer in Thailand.

As a result, the manufacturer in a foreign country As a result, the manufacturer in a foreign country has no legal relationship with a buyer in Thailand. has no legal relationship with a buyer in Thailand. Risk on the sale of the goods is with the distributor.Risk on the sale of the goods is with the distributor.

The distributor is not required to file the tax return The distributor is not required to file the tax return and pay tax.and pay tax.


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However, in practice, the Revenue Department accepts only However, in practice, the Revenue Department accepts only the case that the buyer in Thailand pays for the goods to the the case that the buyer in Thailand pays for the goods to the distributor only. If the buyer in Thailand pays for the goods distributor only. If the buyer in Thailand pays for the goods directly to the Manufacturer in a foreign country, it is directly to the Manufacturer in a foreign country, it is deemed by the Revenue Department that the distributor deemed by the Revenue Department that the distributor acts as a representative or a go-between of the acts as a representative or a go-between of the manufacturer and shall file the tax return and pay tax.manufacturer and shall file the tax return and pay tax.

The Supreme Court may agree or disagree with the Revenue The Supreme Court may agree or disagree with the Revenue Department on the issues in relation to the distributor on a Department on the issues in relation to the distributor on a case-by-case basis.case-by-case basis.


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LATEST UPDATES ON RELATED TAX LATEST UPDATES ON RELATED TAX AND COMPLIANCEAND COMPLIANCEII.

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Tax benefitsTax benefits1. 1. Payment for equipment for saving of energyPayment for equipment for saving of energy

The replacement of the existing equipment for saving of energy The replacement of the existing equipment for saving of energy of not more than Baht 50 Million for 5 accounting periods of not more than Baht 50 Million for 5 accounting periods

2.2. Payment of training of employeesPayment of training of employeesTwo times of expenses paid.Two times of expenses paid.

3. 3. Payment for R&DPayment for R&DCorporate income tax is exempted for income of a company or Corporate income tax is exempted for income of a company or a partnership equivalent to 100% of expenses paid for R&D to a partnership equivalent to 100% of expenses paid for R&D to government authorities or a private sector as published in the government authorities or a private sector as published in the government gazette.government gazette.

II. II. LATEST UPDATES ON RELATED TAX AND LATEST UPDATES ON RELATED TAX AND COMPLIANCECOMPLIANCE

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4. 4. Payment for operation of the project under the BOIPayment for operation of the project under the BOI 4.1 100% of payments for transportation, electricity and 4.1 100% of payments for transportation, electricity and water water

supplysupply4.24.2 payments for installation or construction of facilities for payments for installation or construction of facilities for the operation of the business from profits of not more the operation of the business from profits of not more than than 25% of the investment.25% of the investment.

5. 5. Payments for support of educationPayments for support of education2 times of the payment 2 times of the payment

6. 6. Payment for support of learning and entertainmentPayment for support of learning and entertainment2 times of the payment2 times of the payment

7.7. Partial Transfer of Business Partial Transfer of Business Tax exemption for the partial transfer of business to be Tax exemption for the partial transfer of business to be completed within 31 December 2010.completed within 31 December 2010.


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ROH (Regional Operating Headquarters)ROH (Regional Operating Headquarters)The new tax incentives for the ROH are set forth below:The new tax incentives for the ROH are set forth below:1. 1. personal income tax for the income of any foreigner working personal income tax for the income of any foreigner working

for the ROH in Thailand is 15% for a period of 8 years.for the ROH in Thailand is 15% for a period of 8 years.2. 2. personal income tax for the income of any foreigner working personal income tax for the income of any foreigner working

for the ROH outside Thailand is exempted from Thai tax.for the ROH outside Thailand is exempted from Thai tax.3. 3. the profits of the ROH derived from services provided from the profits of the ROH derived from services provided from

the ROH to its affiliated companies outside Thailand are the ROH to its affiliated companies outside Thailand are exempted from corporate income tax.exempted from corporate income tax.

4. 4. corporate income tax for income derived from services corporate income tax for income derived from services provided to affiliated companies in Thailand of the ROH is provided to affiliated companies in Thailand of the ROH is reduced 10% for a period of 15 years.reduced 10% for a period of 15 years.


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IssuesIssues1. 1. the difference on preparation of ROH activity/ the difference on preparation of ROH activity/

account and non-ROH activity/accountaccount and non-ROH activity/account2. 2. application for investment promotion shall be application for investment promotion shall be

submitted to the Office of the BOI.submitted to the Office of the BOI.3. 3. the timing of the letter of notification of the use of the timing of the letter of notification of the use of

the tax benefits.the tax benefits.4. 4. VAT of 0% or 7% depends upon the facts whether VAT of 0% or 7% depends upon the facts whether

service is provided to a company outside Thailand service is provided to a company outside Thailand and the service is used in Thailand or in a foreign and the service is used in Thailand or in a foreign country.country.


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Property TaxProperty TaxA land and building Bill is still under consideration of the A land and building Bill is still under consideration of the Finance Ministry.Finance Ministry.The existing Building and Land ActThe existing Building and Land ActOnly the rental of the land and building is taxable.Only the rental of the land and building is taxable.The rate of the tax is 12.5 % of the annual rental The rate of the tax is 12.5 % of the annual rental received.received.A Land and Building BillA Land and Building BillThe value of the land and the building is taxable The value of the land and the building is taxable regardless of whether the land and the structure can be regardless of whether the land and the structure can be let.let.


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Tax ratesTax rates-- land for commerce – 0.50% of the value of the propertyland for commerce – 0.50% of the value of the property-- land for residence – 0.10% of the value of the propertyland for residence – 0.10% of the value of the property-- land for agriculture – 0.05 % of the value of the land for agriculture – 0.05 % of the value of the

propertypropertyVAT RateVAT Rate

The reduction of the rate of VAT from 10% to 7% due to The reduction of the rate of VAT from 10% to 7% due to expire on 30 September 2010 shall be extended until expire on 30 September 2010 shall be extended until September 2012.September 2012.It should be noted that the Vat reduction has been It should be noted that the Vat reduction has been made since 1999.made since 1999.


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Tax Rates for listed companiesTax Rates for listed companiesAt present, the net profits of companies listed on the MAI At present, the net profits of companies listed on the MAI are subject to 20% corporate income tax. 25% corporate are subject to 20% corporate income tax. 25% corporate income tax is chargeable on the net profits of companies income tax is chargeable on the net profits of companies listed on the SET. It is in the process of consideration listed on the SET. It is in the process of consideration whether the tax benefits for companies listed on the MAI whether the tax benefits for companies listed on the MAI and the SET would be extended after 30 September 2010 and the SET would be extended after 30 September 2010 by the Government. by the Government.

Reduction for transfer of houses and condominium Reduction for transfer of houses and condominium The tax incentives for transfer fees of condominium to The tax incentives for transfer fees of condominium to 0.1% expired on 30 June 2010.0.1% expired on 30 June 2010.


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Bad DebtsBad DebtsDisposition of bad debt losses under tax law shall be Disposition of bad debt losses under tax law shall be the debts which the company has recognized as the debts which the company has recognized as revenue and paid corporate income tax. revenue and paid corporate income tax.

Debt RestructuringDebt RestructuringA financial institution can have a debt restructuring A financial institution can have a debt restructuring with its debtor or a guarantor.with its debtor or a guarantor.


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The debt restructuring results in the following which shall The debt restructuring results in the following which shall be deemed to be a justifiable ground only for the debt be deemed to be a justifiable ground only for the debt restructuring made from 1 January 2010 to 31 December restructuring made from 1 January 2010 to 31 December 2010.2010.

• reduction of interest and other similar actsreduction of interest and other similar acts• transfer of property or provision of service to the transfer of property or provision of service to the

financial institution without any compensation or financial institution without any compensation or compensation or service fee lower than the market compensation or service fee lower than the market price price

• repayment of the principal before payment of repayment of the principal before payment of interest, fees and service fees interest, fees and service fees

A debtor shall include a guarantee.A debtor shall include a guarantee.A financial institution shall include other creditors.A financial institution shall include other creditors.


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MIS , GIS and tax liability MIS , GIS and tax liability A state enterprise entered into an agreement on A state enterprise entered into an agreement on Management Information System and Geographic Management Information System and Geographic Information System : MIS and GIS with the Academic Information System : MIS and GIS with the Academic Service Center of a University.Service Center of a University.

1.1. The University is a juristic person under the Act of The University is a juristic person under the Act of 2008 and is not a partnership or a company. The 2008 and is not a partnership or a company. The Payment paid by the state enterprise to the Center is Payment paid by the state enterprise to the Center is not subject to withholding tax. not subject to withholding tax.

2.2. The Center belongs to a state enterprise under The Center belongs to a state enterprise under supervision of the University. The University is an supervision of the University. The University is an operator and shall pay VAT.operator and shall pay VAT.


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Withholding tax on JewelryWithholding tax on JewelryA person, a group of persons , a partnership or a A person, a group of persons , a partnership or a company making the payment under Section 40(8) company making the payment under Section 40(8) for jewelry to an individual taxpayer shall have 1% for jewelry to an individual taxpayer shall have 1% withholding tax on the payment.withholding tax on the payment.

However, the provision shall not apply to the However, the provision shall not apply to the payment for jewelry to an individual who is a buyer payment for jewelry to an individual who is a buyer

for his consumption without any intention to resell for his consumption without any intention to resell it.it.


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Transfer PricingTransfer PricingPayment for a purchase of goods or provision of services shall be Payment for a purchase of goods or provision of services shall be made at the market price.made at the market price.

Audit of the transfer pricing is conducted on a random basis by Audit of the transfer pricing is conducted on a random basis by the Revenue Department.the Revenue Department.

The revenue Department normally looks at the transfer of The revenue Department normally looks at the transfer of revenues from an affiliated company in Thailand to its parent revenues from an affiliated company in Thailand to its parent company in a foreign country.company in a foreign country.

If affiliated companies charge compensation between related If affiliated companies charge compensation between related transactions at the price lower than the market price, the transactions at the price lower than the market price, the Revenue Department is empowered to assess the revenue of Revenue Department is empowered to assess the revenue of affiliated companies.affiliated companies.


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Examples on the transfer pricingExamples on the transfer pricing

1.1. net profits of a subsidiary in Thailand in the net profits of a subsidiary in Thailand in the present tax year is lower than that in the present tax year is lower than that in the previous tax year.previous tax year.

2.2. profits of a subsidiary is transferred in a form of profits of a subsidiary is transferred in a form of royalty or management fees, advisory fees, or royalty or management fees, advisory fees, or service fees to its parent companyservice fees to its parent company


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Compliance with the transfer pricing regulationsCompliance with the transfer pricing regulations1.1. Comparable Uncontrolled Price Methods (CUP)Comparable Uncontrolled Price Methods (CUP)22 Resale Price Method (RPM)Resale Price Method (RPM)33 Cost Plus Method (CPM)Cost Plus Method (CPM)44 Other methodsOther methods4.14.1 Profit Split Method; and Profit Split Method; and 4.2 4.2 Transactional Net Margin MethodTransactional Net Margin Method


Advance Pricing Agreement or the APA can be Advance Pricing Agreement or the APA can be made with the Revenue Department. made with the Revenue Department.

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Payment of front-end feePayment of front-end feeCompany A as an operator shall pay the front-end fee and Company A as an operator shall pay the front-end fee and interest to the bank. The payments are expenses of Company A interest to the bank. The payments are expenses of Company A for carrying on its business for profits.for carrying on its business for profits.

VAT and prohibited taxVAT and prohibited taxA company purchased land and building. Subsequently, the A company purchased land and building. Subsequently, the company purchased another land and building and terminated company purchased another land and building and terminated the previous agreement on the purchase of land and building the previous agreement on the purchase of land and building and used the number of the previous building and notified the and used the number of the previous building and notified the change later.change later.


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VAT and prohibited taxVAT and prohibited tax It shall be deemed that the Company sold the first land and It shall be deemed that the Company sold the first land and building and the input VAT from the payment for materials and building and the input VAT from the payment for materials and the payment for the design of the first building is the the payment for the design of the first building is the prohibited input VAT to be deducted from the output VAT.prohibited input VAT to be deducted from the output VAT.

On the other hand, the company made the payment for On the other hand, the company made the payment for materials and the payment for the design of the second materials and the payment for the design of the second building, the payments are deemed to be the input tax which is building, the payments are deemed to be the input tax which is direct and relevant to the business operation of the Company, direct and relevant to the business operation of the Company, as a result, the Company can offset the input VAT from the as a result, the Company can offset the input VAT from the output VAT.output VAT.


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VAT foreign sale and Domestic saleVAT foreign sale and Domestic saleIn the first case, the Company sells the goods to a foreign In the first case, the Company sells the goods to a foreign customer on the condition that the foreign customer shall customer on the condition that the foreign customer shall receive the goods at the premise of the company in Thailand. receive the goods at the premise of the company in Thailand. The Customer shall proceed with the export invoice in the The Customer shall proceed with the export invoice in the name of the Company. The Company is entitled to 0% VAT.name of the Company. The Company is entitled to 0% VAT.

In the second case, the Company sells the goods pursuant to In the second case, the Company sells the goods pursuant to the order of the foreign customer. The foreign customer the order of the foreign customer. The foreign customer receives the goods in Thailand. It is a sale of goods in receives the goods in Thailand. It is a sale of goods in Thailand. The Company shall pay 7% VAT.Thailand. The Company shall pay 7% VAT.


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Guarantee PaymentGuarantee PaymentCompany A pays the guarantee to Company B under Company A pays the guarantee to Company B under the joint agreement on payment of the guarantee for the joint agreement on payment of the guarantee for the use of gas. Company A shall return half of the the use of gas. Company A shall return half of the guarantee to Company B.guarantee to Company B.

The guarantee is not deemed value of the tax base The guarantee is not deemed value of the tax base because the guarantee is made under the joint because the guarantee is made under the joint commercial agreement. Company A has not duty to commercial agreement. Company A has not duty to issue its tax invoice.issue its tax invoice.

The guarantee is nevertheless is regarded as revenue The guarantee is nevertheless is regarded as revenue of Company A for the purpose of computation of of Company A for the purpose of computation of corporate income tax.corporate income tax.


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Land and DepreciationLand and Depreciation

The Company purchased land in Chonburi with ore.The Company purchased land in Chonburi with ore.

The Company cannot deduct the payment for the The Company cannot deduct the payment for the purchase of the land as expense.purchase of the land as expense.The Company cannot have depreciation or The Company cannot have depreciation or amortization of the payment for the land.amortization of the payment for the land.


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Interest – Refinance of Domestic Loan by Foreign Loan Interest – Refinance of Domestic Loan by Foreign Loan


RefinanceRefinance

LoanLoan

PurchasePurchase

Company ACompany A

LandLand

Bank B in Bank B in ThailandThailand

Bank C in Bank C in foreign countryforeign country

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Company A borrowed money from Bank B in Thailand Company A borrowed money from Bank B in Thailand to purchase land in Thailand. The loan and its interest to purchase land in Thailand. The loan and its interest are regarded as capital expenditure and cannot be are regarded as capital expenditure and cannot be deducted as revenue expenses. deducted as revenue expenses.

Company A thereafter had a refinance from Bank C in Company A thereafter had a refinance from Bank C in a foreign country to repay the domestic loan. a foreign country to repay the domestic loan.

The interest paid by Company A to Bank C is The interest paid by Company A to Bank C is considered to be capital expenditure.considered to be capital expenditure.

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VAT RulingsVAT Rulings

Sale of fresh milkSale of fresh milkThe business of sale of fresh milk without mixing of The business of sale of fresh milk without mixing of taste, smell and colour is exempted from VAT and taste, smell and colour is exempted from VAT and input tax arising from a purchase of raw material, input tax arising from a purchase of raw material, equipment and machinery for carrying on the business equipment and machinery for carrying on the business is a prohibited input tax.is a prohibited input tax.


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Advisory BusinessAdvisory BusinessCompany A carries on the advisory business to Company A carries on the advisory business to customers in a foreign country and the result of the customers in a foreign country and the result of the work is all used in a foreign country. O % VAT is work is all used in a foreign country. O % VAT is applied. applied.

Free ZoneFree ZoneA company in a free zone takes cars from the free A company in a free zone takes cars from the free zone to be kept at the warehouse of the company zone to be kept at the warehouse of the company outside the free zone, the company is regarded as outside the free zone, the company is regarded as an importer and shall pay VAT on cars and the VAT an importer and shall pay VAT on cars and the VAT liability arises on the date on which the cars are liability arises on the date on which the cars are taken out of the free zone not for export.taken out of the free zone not for export.


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Computer ProgramComputer ProgramA company sells and installs computer programs to A company sells and installs computer programs to its customers and ownership of the software its customers and ownership of the software belongs to the software ownership company. It falls belongs to the software ownership company. It falls under service, not sale and shall be subject to VAT under service, not sale and shall be subject to VAT at the time of the payment.at the time of the payment.

Service out of ThailandService out of ThailandA company proceeded for repair and addition of a A company proceeded for repair and addition of a gymnasium located in Laos which falls within gymnasium located in Laos which falls within service provided out of Thailand. The payment service provided out of Thailand. The payment received by the company is not subject to VAT. The received by the company is not subject to VAT. The company is not required to pay VAT and issue the company is not required to pay VAT and issue the tax invoice.tax invoice.


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Payment for mould delivered in ThailandPayment for mould delivered in ThailandA Thai company made the payment for manufacture of the A Thai company made the payment for manufacture of the mould to a Chinese company which sent its employees to install mould to a Chinese company which sent its employees to install the mould, provided advice and had a test run of the mould for the mould, provided advice and had a test run of the mould for 1 or 2 weeks in Thailand, it is deemed that the Chinese company 1 or 2 weeks in Thailand, it is deemed that the Chinese company carried on its business in Thailand. If an agreement does not carried on its business in Thailand. If an agreement does not provide for the right to make a copy, to modify and to distribute provide for the right to make a copy, to modify and to distribute the use of the mould and for the transfer of technology, the the use of the mould and for the transfer of technology, the payment is regarded as business profit. If the Chinese company payment is regarded as business profit. If the Chinese company has no permanent establishment in Thailand, the Chinese has no permanent establishment in Thailand, the Chinese company is required to pay tax in Thailand.company is required to pay tax in Thailand.

The payment by the Thai company to the Chinese company was The payment by the Thai company to the Chinese company was for the service to the Chinese company provided in a foreign for the service to the Chinese company provided in a foreign country but the service was applied in Thailand, the Thai country but the service was applied in Thailand, the Thai company shall remit the VAT within 7 days.company shall remit the VAT within 7 days.


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Specific Business TaxSpecific Business TaxIf a buyer pays government fee, tax, withholding tax If a buyer pays government fee, tax, withholding tax and specific business tax in place of the seller, the and specific business tax in place of the seller, the seller shall include the fees and the taxes paid by seller shall include the fees and the taxes paid by the buyer as the revenue of the seller for the buyer as the revenue of the seller for computation of corporate income tax in a relevant computation of corporate income tax in a relevant accounting period.accounting period.

The fee and the taxes on the sale and purchase of The fee and the taxes on the sale and purchase of land paid by the buyer in place of the seller are in land paid by the buyer in place of the seller are in the nature of investment on the land and are the nature of investment on the land and are prohibited from being deducted as expenses.prohibited from being deducted as expenses.


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BOI – BOI and Non-BOI businesses BOI – BOI and Non-BOI businesses A company with investment promotion from the A company with investment promotion from the Board of Investment is entitled to deduct an annual Board of Investment is entitled to deduct an annual loss of the tax exemption business from the net loss of the tax exemption business from the net profit of the non-tax exemption business. After the profit of the non-tax exemption business. After the period of exemption of corporate income tax, the period of exemption of corporate income tax, the company has the right to deduct the accumulated company has the right to deduct the accumulated losses of the tax exemption business to deduct from losses of the tax exemption business to deduct from the net profits arising after the period of the the net profits arising after the period of the exemption of corporate income tax.exemption of corporate income tax.


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HOW TO REVISE TREASURY TRANSACTIONS HOW TO REVISE TREASURY TRANSACTIONS FOR MORE FAVOURABLE TAX SAVINGS FOR MORE FAVOURABLE TAX SAVINGS IIIIII..

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Source income and resident income in a source country or a Source income and resident income in a source country or a resident country should be considered.resident country should be considered.A DTA country and a non-DTA country should be studied.A DTA country and a non-DTA country should be studied.Payment for goods is generally exempted from withholding Payment for goods is generally exempted from withholding tax.tax.Combination of a sale of goods and a provision of service is not Combination of a sale of goods and a provision of service is not subject to withholding tax but separation of a sale of goods and subject to withholding tax but separation of a sale of goods and a provision of service results in withholding tax on a service a provision of service results in withholding tax on a service fee. fee. Service fees should be distinguished from royalty.Service fees should be distinguished from royalty.Gross-up provision should be allowed for cross-border Gross-up provision should be allowed for cross-border transaction only.transaction only.A domestic transaction should not have a gross-up provision.A domestic transaction should not have a gross-up provision.Holding company and operating companies should be properly Holding company and operating companies should be properly incorporated in a foreign country.incorporated in a foreign country.

III.III. HOW TO REVISE TREASURY TRANSACTIONS FOR HOW TO REVISE TREASURY TRANSACTIONS FOR MORE MORE FAVOURABLE TAX SAVINGS FAVOURABLE TAX SAVINGS

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Revenue Expenses and capital expenditures should be Revenue Expenses and capital expenditures should be carefully considered.carefully considered.Sale and goods to a DTA foreign companySale and goods to a DTA foreign companyReceipt of services from a DTA foreign companyReceipt of services from a DTA foreign companyTax planning for real estate companyTax planning for real estate companyA relevant DTA should be taken into consideration.A relevant DTA should be taken into consideration.Interest on the loan should be paid by a Thai company Interest on the loan should be paid by a Thai company to a foreign bank, not a foreign company.to a foreign bank, not a foreign company.Use of the network of the DTA for the tax planning Use of the network of the DTA for the tax planning


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Business profits Business profits The payment for use of software is subject to withholding The payment for use of software is subject to withholding tax.tax.Training of personnel for utilization of the software is Training of personnel for utilization of the software is related to the royalty which is chargeable to tax.related to the royalty which is chargeable to tax.

ServiceServiceA company entered into an agreement for preparation of A company entered into an agreement for preparation of food and drink for people for consumption. It is a service food and drink for people for consumption. It is a service on restaurant which is not subject to withholding tax. It the on restaurant which is not subject to withholding tax. It the withholding tax is made, the company can receive the withholding tax is made, the company can receive the refund within 3 years from the last date of the due date of refund within 3 years from the last date of the due date of filing the tax return.filing the tax return.


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DividendDividendUnilateral relief is available for the payment of dividend by a Unilateral relief is available for the payment of dividend by a foreign company to its Thai holding company provided that foreign company to its Thai holding company provided that certain conditions are satisfied.certain conditions are satisfied.

Interest paid to a foreign branchInterest paid to a foreign branchInterest paid to a foreign branch of a Thai bankInterest paid to a foreign branch of a Thai bankCompany A entered into a loan agreement with the Hong Company A entered into a loan agreement with the Hong Kong branch of Bank B which is incorporated under law of Kong branch of Bank B which is incorporated under law of Thailand. The Hong Kong Branch raised its fund from Thailand. The Hong Kong Branch raised its fund from customers in Hong Kong. Company A paid interest to the customers in Hong Kong. Company A paid interest to the Hong Kong Branch , it is regarded as payment of interest to Hong Kong Branch , it is regarded as payment of interest to Bank B in Thailand , Company is not required to withhold tax Bank B in Thailand , Company is not required to withhold tax on the interest.on the interest.As the Hong Kong Branch is operated outside Thailand , the As the Hong Kong Branch is operated outside Thailand , the payment of interest to the Hong Kong branch is not payment of interest to the Hong Kong branch is not chargeable to specific business tax.chargeable to specific business tax.


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Payment of royaltyPayment of royaltyThe rate of withholding tax for payment for the use The rate of withholding tax for payment for the use of software may be reduced under certain DTA of software may be reduced under certain DTA between Thailand and its counterparties. between Thailand and its counterparties.

Sale of shares for capital gainsSale of shares for capital gainsA company in Singapore sells shares of a Thai A company in Singapore sells shares of a Thai Company to another Thai company and receives Company to another Thai company and receives capital gains , the capital gains are subject to 15% capital gains , the capital gains are subject to 15% withholding tax unless the company in Singapore withholding tax unless the company in Singapore does not carries on its business in Thailand , the does not carries on its business in Thailand , the capital gains are exempted from Thai tax. capital gains are exempted from Thai tax.


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Thin capitalizationThin capitalizationIssuesIssues• a multinational corporationa multinational corporation• an associated enterprise an associated enterprise • excessive interest rate excessive interest rate • debt to equity ratiodebt to equity ratio


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Thai taxation law has no provisions on thin capitalization.Thai taxation law has no provisions on thin capitalization.

However, the Office of the BOI may impose the debt to equity However, the Office of the BOI may impose the debt to equity ratio for any company applying for investment promotion in ratio for any company applying for investment promotion in Thailand.Thailand.

Thailand has Foreign Exchange Act to control inward and Thailand has Foreign Exchange Act to control inward and outward remittance of money into and out of Thailand.outward remittance of money into and out of Thailand.

Excessive interest rate may lead to non-deductibility of Excessive interest rate may lead to non-deductibility of excessive interest expenses.excessive interest expenses.

This means that if the interest rate is capped at 15%. But the This means that if the interest rate is capped at 15%. But the interest rate is charged at 20%. Only 5% excessive interest rate interest rate is charged at 20%. Only 5% excessive interest rate is prohibited to be deductible.is prohibited to be deductible.


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Thin capitalization is a form of very low equity financing by a Thin capitalization is a form of very low equity financing by a parent company into its associate enterprise including its parent company into its associate enterprise including its subsidiary, branch or permanent establishment at the same subsidiary, branch or permanent establishment at the same time, the parent company lends a very high loan to its time, the parent company lends a very high loan to its subsidiary.subsidiary.

Thin capitalization applies to the case :Thin capitalization applies to the case :1. A MNC lends money to its subsidiary.1. A MNC lends money to its subsidiary.2. A MNC holds shares in its subsidiary.2. A MNC holds shares in its subsidiary.

In case the MNC is a lender and a shareholder of its subsidiary. In case the MNC is a lender and a shareholder of its subsidiary. Profits of the subsidiary can be transferred by the subsidiary to Profits of the subsidiary can be transferred by the subsidiary to its parent company.its parent company.

Payment for shares is regarded as shareholders equity and Payment for shares is regarded as shareholders equity and cannot be deducted as expenses.cannot be deducted as expenses.But payment of interest is deductible as the tax expenses.But payment of interest is deductible as the tax expenses.


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SWAPSWAP-- select a counter party, not the same bank, for a select a counter party, not the same bank, for a

swap transaction swap transaction -- pay fees in a transaction pay fees in a transaction - avoid default payment avoid default payment

Currency SwapCurrency SwapNo payment is made between difference between No payment is made between difference between cross currencies under cross currency swap. As a cross currencies under cross currency swap. As a result, no assessable income arises.result, no assessable income arises.


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Interest SwapInterest SwapIn general, difference between interest rates under interest In general, difference between interest rates under interest rate swap between company A and Bank A (if company A rate swap between company A and Bank A (if company A enters into a loan agreement with bank B) is regarded as enters into a loan agreement with bank B) is regarded as income under Section 40 (8).income under Section 40 (8).

In particular, difference between interest rates under In particular, difference between interest rates under interest rate swap between company A and Bank B (if interest rate swap between company A and Bank B (if company A enters into a loan agreement with bank B) is company A enters into a loan agreement with bank B) is regarded as income under Section 40 (4).regarded as income under Section 40 (4).

Default PaymentDefault PaymentIn the case of default of payment under interest rate swap, In the case of default of payment under interest rate swap, cross currency swap or cross currency interest swap, interest cross currency swap or cross currency interest swap, interest or penalty is regarded as interest under Section 40 (4) (a).or penalty is regarded as interest under Section 40 (4) (a).


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EFFECTIVE PRACTICES TO EFFECTIVE PRACTICES TO ENHANCE TAX COMPLIANCE ENHANCE TAX COMPLIANCE

IV.IV.

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Existing laws and regulations on taxation have been Existing laws and regulations on taxation have been complied with.complied with.

It is beneficial to update on new tax benefits.It is beneficial to update on new tax benefits.Agreements and legal documents shall be in line with the Agreements and legal documents shall be in line with the requirement for compliance with taxation law. requirement for compliance with taxation law.

Consulting with experienced tax lawyers.Consulting with experienced tax lawyers.

IV. EFFECTIVE PRACTICES TO ENHANCE TAX IV. EFFECTIVE PRACTICES TO ENHANCE TAX COMPLIANCE COMPLIANCE

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HOW TO MEASURE AND IMPROVE THE HOW TO MEASURE AND IMPROVE THE EFFECTIVENESS OF TAX PLANNING AND EFFECTIVENESS OF TAX PLANNING AND COMPLIANCE IN THE CURRENT TIME COMPLIANCE IN THE CURRENT TIME

V.V.

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• Use of tax benefits under the Revenue CodeUse of tax benefits under the Revenue Code• Use of tax lossesUse of tax losses• Tax effectiveness under DTATax effectiveness under DTA• Issues under Tax rulingsIssues under Tax rulings

V. HOW TO MEASURE AND IMPROVE THE V. HOW TO MEASURE AND IMPROVE THE EFFECTIVENESS OF TAX PLANNING AND EFFECTIVENESS OF TAX PLANNING AND COMPLIANCE IN THE CURRENT TIME COMPLIANCE IN THE CURRENT TIME

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V. HOW TO MEASURE AND IMPROVE THE V. HOW TO MEASURE AND IMPROVE THE EFFECTIVENESS OF TAX PLANNING AND EFFECTIVENESS OF TAX PLANNING AND COMPLIANCE IN THE CURRENT TIMECOMPLIANCE IN THE CURRENT TIME

Company DCompany D

Company CCompany C

Company BCompany B

Company ACompany A

Foreign CountryForeign Country

ThailandThailand

Chart 1Chart 1Tax Planning by way of stepping stonesTax Planning by way of stepping stones

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Company CCompany CCompany BCompany B

Company ACompany A

Country 2Country 2

Country 1Country 1

Chart 2Chart 2

Country 3Country 3

Tax Planning by way of stepping stonesTax Planning by way of stepping stones

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Preparing proper documents of transactionsPreparing proper documents of transactions

Reasons can be effectively raised with officials of the Reasons can be effectively raised with officials of the Revenue Department. Revenue Department.


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SCLSCLPicharn Sukparangsee

PARTNER

SIAM CITY LAW OFFICES LIMITED20th Floor, Rajanakarn Building,

183 South Sathorn Road, Bangkok 10120, ThailandTel: (662) 676-6667 – 8

Fax: (662) 676-6188-9E-mail : [email protected]

www.siamcitylaw.com

THANK YOUTHANK YOU

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