Tax News No. 246 June 2017

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Service Business Not required Foreign Business Permission

On June 9, 2017 Minister of Commerce issues Ministerial Regulation governing on service business which is not required foreign business permission (No. 3) B.E. 2560 (2017). The following service business is not included in list three of Foreign Business Act B.E. 2542 (1999) as nowadays such service business consists of Thai personnel who are ready to do the business and can compete against foreigners.

Financial institution business under financial institution law, such as commercial banks, etc.
Business related or necessary to the financial institution business under financial institution law, such as representative offices of banks, agency of financial institution, monetary deposit service which has withdrawal conditions according to demand of customers, agency for receiving application and export premiums as well as agency for loan guarantee of customer, etc.
Business of companies in the financial institution group under financial institution law, such as real estate rent, cash management service, service on preparing documents related to customers’ business, hiring-purchase and leasing, etc.
Business on asset management under asset management corporation law
Service business on being representative offices, regional offices of foreign juristic persons for international trade business
Service business which a party is governmental sectors or state enterprises under budget procedure laws.

Draft of Revenue Code Amendment for Transfer Pricing

Hearing public opinion on a draft of Amendment Act on Revenue Code (No…) B.E. … (Anti-measures on transfer pricing between companies or juristic partnership which have mutual relationship) (Transfer Pricing)(Draft Transfer Pricing Act)

Ministry of Finance proposes the draft of Amendment Act on Revenue Code (No…) B.E. … (Anti-measures on transfer pricing between companies or juristic partnership which have mutual relationship) (Transfer Pricing) (Draft Transfer Pricing Act) in order to resolve and prevent a problem of tax avoidance on transfer pricing between companies or juristic partnership which have mutual relationship. This draft is based on transfer pricing for internal transactions between a group of the companies or juristic partnership because it is controllable and is not subject to market mechanism. The essence of the draft is as follows:

Principles and Necessary Reasons of the Draft of Transfer Pricing Act

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At present, many groups of companies or juristic partnership have relationship in terms of capital, management and control. There may be commercial or financial requirements for making mutual transactions different from independent transactions made by the companies or juristic partnership. In addition, the transactions between parties having the relationship each other are controllable and are not subject to the market mechanism, so they may use for making transfer pricing between companies or juristic partnership having mutual relationship and they can avoid tax which should be paid. Moreover, this method is inclined to be used more increasingly and continuously, which can make adverse impact on tax imposition and financial status of Thailand. Therefore, to resolve and prevent such problem, there shall be provided rules of corporate tax imposition in case companies or juristic partnership have mutual relationship and make transfer pricing into mutual transactions different from independent transactions made by the companies or juristic partnership. Also, it will comply with universal standards and the principle of equity in tax imposition. The amendment of Revenue Code (adding Section 35 Ter, Section 71 Bis, Section 71 Ter) is necessary to be enacted.

Main Points of the Draft of Transfer Pricing Act

The draft of Paragraph 1 of Section 71 Bis of Revenue Code provides that in the event that an assessment officer inspects and figures out that a company or juristic partnership having relationship each other makes commercial and financial requirements mutually different from the company or juristic partnership making transactions independently, the assessment officer authorizes to adjust income and expenses of the company or juristic partnership for corporate income tax computation. The reasonable income and justifiable expenses shall be the income and expenses of which the company or juristic partnership makes the transactions independently. The adjustment shall realize double taxation of parties, which is subject to general standards and international agreement which Thailand concludes with other foreign countries. Also, the adjustment shall be under rules, procedures and conditions as specified in Ministerial Regulation.
The draft of Paragraph 2 of Section 71 Bis of Revenue Code provides the definition of “A company or juristic partnership having mutual relationship”. It includes
1. A juristic person holds shares or is a partner of another juristic person, either directly or indirectly, at least 50 percent of total capital;
2. A shareholder or a partner holding shares or being a partner of another juristic person, either directly or indirectly, at least 50 percent of total capital also holds shares or is the partner of the other juristic person, either directly or indirectly, at least 50 percent of the total capital;
3. Juristic persons have mutual relationship on capital, management or control in a manner that a juristic person cannot carry out a free operation from another juristic person as prescribed by Ministerial Regulation.
The draft of Paragraph 3 of Section 71 Bis of Revenue Code provides prescription of tax refund particularly in the event that an assessment officer has authority to adjust income and expenses of companies or juristic partnership having mutual relationship under Paragraph 1 of Section 71 Bis. Such companies or juristic partnership can file application on tax refund within 3 years as of the last date when they can file tax return as prescribed by law or within 60 days as of the date when they are received a written notice to adjust their income and expenses by the assessment officer.
The draft of Paragraph 1 of Section 71 Ter of Revenue Code states that companies or juristic partnership having mutual relationship and income more than minimum income as prescribed by Ministerial Regulation shall make a report regarding information on the companies or juristic partnership having mutual relationship as well as total values of mutual transactions in an accounting period in accordance with a form designated by the Director-General. Afterward, the companies or juristic partnership shall file the form to an assessment officer, together with filing tax return within the scheduled time under Section 69.
The draft of Paragraph 2 of Section 71 Ter of Revenue Code states that within 5 years as of the date of filing the report under Paragraph 1, an assessment officer approved by the Director-General may inform companies or juristic partnership having mutual relationship and income more than minimum income as prescribed by Ministerial Regulation to submit documents or evidence which shows necessary information for an analysis of transfer pricing in mutual transactions as announced by the Director-General. In addition, an informed person shall comply with the notification within 60 days as of the date when he received it. In case there is a justifiable ground that the informed person cannot abide by the notification, the Director-General can extend the period of compliance. However, the extension shall not exceed 120 days as of the date when he received it.
The draft of Section 35 Ter of Revenue Code provides a criminal fine for any person who does not submit a report or documents or evidence under Section 71 Ter, or who submits incorrect and incomplete report or documents or evidence without justifiable grounds. The person shall be fined not exceeding 200,000 Baht.

Draft of Revenue Code Amendment for e-Business

Hearing public opinion on a draft of Amendment Act on Revenue Code (No…) B.E. … for tax imposition on a business person making electronic transactions (e-Business)

Nature and causes of the problem
1. Since the development of current technology helps a business person who resides in foreign countries be able to carry on business in other countries more comfortably through electronic ways, purchasing goods and receiving services from foreign business persons through electronic channels at the moment are widespread. However, current legal provisions regarding tax imposition on foreign business persons are limited, which have an impact on income of Thailand and cause unfair tax liability between domestic and foreign business persons.
2. Revenue Code stipulates that goods categorized in duty exempted items pursuant to law on customs tariff shall exempt from VAT. At present, Customs Department provides that imported items in each list which cost not exceeding 1,500 Baht shall be exempt from duty under Type 22, Chapter 4 of Royal Decree on Customs Tariff B.E. 2530. Therefore, any goods imported by post and worth not exceeding 1,500 Baht shall also exempt from VAT. Moreover, at the moment the import of goods which cost not exceeding 1,500 Baht by post from abroad are widespread. It has an effect on unfair competition of domestic business persons who shall be levied on VAT even though the sold goods cost less than 1,500 Baht.
Necessity for Enactment
1. For suitable and extensive tax imposition on foreign business persons selling goods or providing services for domestic purchasers in Thailand through electronic ways, including VAT imposition on imported goods by post and for supporting fair competition between domestic and foreign business person, Revenue Code shall be amended so as to be appropriate for current business forms.
Essential Principles
1. A juristic person establishing under foreign law, carrying on business by the use of electronic media and engaging in the business of which features are the followings, resulting in income and profits in Thailand, shall be deemed that the foreign juristic person carries on business in Thailand. The foreign juristic person shall be liable for income tax in Thailand only from the income and profits that occur in Thailand.
  1. The use of local domain in Thailand
  2. The creation of Thai currency payment system or the money transfer system from Thailand
  3. Any other case as prescribed by the Director-General
2. A juristic person establishing under foreign law, carrying on business by the use of electronic media does not engage in the business in Thailand, but the foreign juristic person obtains assessable income from carrying on such business in terms of online advertisement, web hosting service or other types as specified in Ministerial Regulation. A taxpayer shall deduct withholding tax in the rate of 15 percent and remit it to Revenue Department.
3. A business person carrying on business outside Thailand, selling intangible goods or providing services by the use of electronic media for purchasers or users who are not VAT registrants. If the revenue of selling goods or providing services exceeds 1.8 Million Baht per year, the business person shall file application for VAT registration and is liable for VAT under rules, procedures and conditions as announced by the Director-General.
4. In the event that a business person carrying on business outside Thailand sells intangible goods or provides services through websites or application of other people, the website owner or application owner shall become an agent of the business person. The agent shall file application for VAT registration on behalf of the business person. When the VAT registration is effective, the agent will have the same right, responsibilities and liability as the business person.
5. VAT exemption for imported goods by post which cost less than 1,500 Baht shall be repealed.
Purpose for Hearing the Public Opinion
1. To show Essential principles of the draft of amendment act on Revenue Code (No…) B.E… for tax imposition on a business person making electronic transactions (e-Business).

Index of legal movement in relation to business

Interested tax news

Supreme Court no. 5230/2559

Criteria between employment contract or hire of work subject to VAT

Ministerial Regulation Rules on sending out or bringing into Thailand domestic or foreign currency and negotiable instrument B.E.2559(2016)

Notification of Ministry of Finance

Control of Money Exchange (No.6)

Ministerial Regulation No. 327 (B.E. 2560) issued under Revenue Code on Revenue Exemption

Notification of the Director-General of the Revenue Department (No.4)

Rules, procedures, and conditions for the purpose to exempt income tax, value added tax, special business tax, and stamp duty according to the Royal Decree issued under the Revenue Code Governing Revenue Exemption (No.630) B.E. 2560(2017)

Regulation of Revenue Department

Regarding to Preparation, Delivery, Retention of E-Tax Invoice Through the System of e-Tax Invoice by Email B.E. 2560 (2017)

Department Instruction No. Tor.Paw. 279/2560

Application of accrual basis in the computation of income and expenses of company and juristic partnership

Notification of Director-General Governing Value Added Tax (No.214)

Rules, Procedures and Conditions Regarding the Submission of Application for Value Added Tax Registration through Internet Network System and the Issuance of Certificate of Value Added Tax Registration

Notification of the Director-General of the Revenue on Stamp Duty (No. 56)

The Method of duty payment in cash, instead of affixing stamp duty for some types of instruments

Notification of the Director-General of the Revenue Department On Income Tax (No. 293)

Rules, Procedures, and Conditions to Exempt Income Tax An Athlete or A Sports Coach Receives by A Gift from Traditional Occasion As A Reward Due to Attending in A Multi-Sports Events and An International Amateur Sports Competition Only for the Part Not Exceeding 10 Million Baht

Explanation of Revenue Department

Value Added Tax, Special Business Tax and Stamp Duty for real estate mutual fund, real estate mutual fund for solving a problem in financial institution, mutual fund for solving a problem in financial institution and real estate mutual fund and right of claim setting up under Securities Act

Ruling No. GorKor 0702(KM.12)/210 Date 12 January 2017

Personal Income Tax in the case of deducting withholding tax due to souvenir of long working period

Ruling No. GorKor 0702/699 Date 30 January 2017

Corporate income tax and specific business income tax in the event of purchasing non-performing loan (NPL) from the financial institute