Editorial staff

DLO’S Tax Newsletter

Issue 96 December 2018

 

Inside this Issue

Tax Law Update
1. Increasing the personal income tax (PIT) deduction up to 30,000 baht for each child counting from the second legitimate child onwards
2. Preventive measures against transfer pricing between related companies or juristic partnerships (Transfer Pricing)
3. Income Tax exemption for donations made to public health facilities
4. Additional amendments to the income tax exemption on interest on deposits and returns
5. Income tax exemption up to 1.15 times of expenses paid as a daily wage to an employee.
6. Changes to the criteria of the discount rate and exemption of Corporate Income Tax (CIT) for international headquarters (IHQ) with respect to royalty income.
7. Exemption of income tax on the transfer of assets to pay for shares.
8. Double deductible allowances / expenses for donations for the development of science in 2019.

Tax News
1. Stipulating the criteria to calculate net profit to pay the petroleum income tax according to the Petroleum Income Tax Act (No.7), BE 2560

Interesting Deka
Dika                    (Supreme Court Judgment) No. 1105/2561, in re:
Between            Por L.P.                                   Plaintiff
                           Revenue Department           Defendant
Issue :                Prohibited expenses for apartment rental business

Tax Law Update

1. Increasing the personal income tax (PIT) deduction up to 30,000 baht for each child counting from the second legitimate child onwards

        The Act amending the Revenue Code (No. 46) B.E. 2561 provides for an increase of the child allowance (available to personal income tax payers) by increasing this allowance to 30,000 baht for each child counting from the second legitimate child onwards who are born after 2018, such allowance shall apply regardless of whether such child is still alive or not.

        This Act applies to annual assessable income for the tax year of 2018 which is to be submitted to the Revenue Department in 2019 onwards.

        For more details, please see: https://bit.ly/2Q0NnaQ

2. Preventive measures against transfer pricing between related companies or juristic partnerships (Transfer Pricing)

        The Act amending the Revenue Code Act (No. 47), B.E. 2561 stipulates that a company or juristic partnership that is related and having a transaction between them and such company or juristic partnership has a total revenue more than 200 million baht, must report on the relationship between each party and the total value of transactions in each accounting period as prescribed by the Director-General of the Revenue Dept. and such report must be submitted to the assessment officer along with the filing of its annual tax return (P.N.D. 50).

       Furthermore, the Act authorizes the assessment officer to review the records for up to 5 years back and to retrieve additional documents, moreover the company/ juristic partnership must also submit the report to the assessment officer within the following time frames:

       1) In the case of being requested on the first occasion (initial request), the company/ juristic partnership must deliver such requested documents to the assessment officer within 180 days from the requesting date.

     2) In the case of being requested for additional documents aside from 1) above, the company/ juristic partnership must deliver such documents to the assessment officer within 60 days from the requesting date. If the documents cannot be prepared on time due to reasonable grounds, the company/ juristic partnership can submit a request to the Director General of the Revenue Department to extend the deadline for the submission of documents, however such extension (if granted) cannot exceed 120 days.

        A violation for not submitting a document or requested evidence in compliance with the above shall be punishable by a fine of up to 200,000 baht.

        For more details, please see: https://bit.ly/2P5LS61

3. Income Tax exemption for donations made to public health facilities

        The Royal Decree (No. 663) BE 2561, prescribes an income tax exemption for individuals and juristic persons as follows:

           1. Individuals - an individual can deduct up to 2 times the amount of the donation as a deductible allowance, however, when combined with donations to support education it must not exceed 10 percent of the individuals’ income after deducting expenses and deductible allowances.

        2. Juristic Persons - a juristic person can deduct up to 2 times the amount of the expenses of the donation, regardless of whether such donation is in the form of cash or property. However, when combined with expenses from donations to support education and expenses for the construction of a playground or park without charge, such exemption must not exceed 10 percent of the juristic person’s net profit before deducting such donation.

        Furthermore, the abovementioned exemption also exempts Value Added Tax (VAT), Special Business Tax (SBT) and Stamp Duty to the individuals and juristic persons with respect to the transfer, sales or issuing instruments that are related to a donation made to hospitals. The cost of assets or goods which are tax exempted shall not be deducted as an expense in the calculation to pay PIT or CIT.

        For more details, please see: https://bit.ly/2Q3upQQ

4. Additional amendments to the income tax exemption on interest on deposits and returns

        The Royal Decree (No. 664), BE 2561, repeals the Royal Decree (No. 301), B.E. 2539, which previously exempted PIT on deposit interest as follows:

        1. Interest received from deposits with domestic banks.

        2. Interest on deposits received from depositing funds with Savings and Credit Cooperatives under the Cooperative Law.

        The Royal Decree (No. 664) has added the income derived from Returns received from the deposit of savings which are done according to Islamic Mudarabah (Islamic banking) principles with the Bank in Thailand from the 2003 tax year onwards are also exempted from tax subject to the following conditions:

        1. It shall only apply to interest on a deposit or the return of the deposit arising from monthly deposits for a consecutive period not less than 24 months from the initial date of deposit.

        2. The amount of each deposit must not exceed 25,000 baht, whereby the total amount deposited over 24 months must not exceed 600,000 baht.

        For more details, please see: https://bit.ly/2TVcGtm

5. Income tax exemption up to 1.15 times of expenses paid as a daily wage to an employee.

        Royal Decree (No. 665), B.E. 2561, stipulates an income tax exemption up to 1.15 for daily wages paid to employees between April 1, 2018 to December 31, 2018. The actual daily wage paid to an employee is only up to 400 baht per day, this tax exemption shall apply as follows:

        1. Individuals with income under Section 40 (5) (6) (7) (8) of the Revenue Code which is income before deducting any expenses and deductible allowance, provided that such individual has a taxable income not exceeding 100 million baht in the year in which the exemption is to be applied.

        2. For a company or juristic partnership, it can apply such exemption provided that it has total revenue from the sale of goods and services which do not exceeding 100 million baht in the year in which the exemption is to be applied.

        To be eligible for this exemption a taxpayer who has an income under 1.-2. must not hire more than 200 employees.

        For more details, please see: https://bit.ly/2P5LWmh

6. Changes to the criteria of the discount rate and exemption of CIT for IHQ with respect to royalty income.

        The Royal Decree (No. 666), B.E. 2561, has amended the Royal decree (No. 586), B.E. 2558 by stipulating additional conditions which must be complied with in order to receive the reduction in the CIT rate for royalty income derived from research & development (R&D) activities that are carried out in Thailand whereby an IHQ has conducted the R&D itself or otherwise hired another party to carry out such R&D. Royal Decree (No. 586) provides that 10 percent CIT shall be levied from the IHQ’s net profit that is derived from such royalty income.

        Furthermore, this new Decree gives a CIT exemption to IHQs with respect to dividend income that is received from affiliated enterprises that are established under a foreign law, however, it shall only apply to royalty income that complies with the above mentioned conditions.

        This Decree applies to royalty income that is received by an IHQ from July 1, 2018 onwards.

        For more details, please see: https://bit.ly/2E2vq5j

7. Income tax exemption on transfer of assets to pay for shares.

        The Royal Decree (No. 667), B.E. 2561, provides a tax entitlement to individual taxpayers, ordinary partnerships, or non-juristic persons for the transfer of assets or the sale of goods (by appraising such assets or goods) where such transfer is for the payment for shares of a newly registering company/ juristic partnership in Thailand, provided that the company or juristic partnership registration and such transfer completes within the period January 1, 2018 to December 31, 2018.

        Eligible asset transferors will be exempted from applicable income tax and VAT for the transfer of assets into the registered capital of a newly incorporated company or juristic partnership.

        In addition, if a newly incorporated company or juristic partnership has a registered capital not exceeding 5 million baht and has an income from the sale of goods or service not exceeding 30 million baht, it will be entitled to a deduction of the cost of accounting up to 2 times of the audit fee for 5 accounting periods.

        For more details, please see: https://bit.ly/2AldH4N

8. Double deductible allowances / expenses for donations for the development of science in 2019.

        The Royal Decree (No. 668), B.E. 2561, provides an income tax exemption for money donations made to the Science and Technology Development Fund, the Thailand Research Fund, the Fund for National Metrology System Development or to the Public Health System Development Fund. To be eligible for such exemption the donations must be made from the effective date of this Decree until December 31, 2019 and must comply with the following conditions:

        1. Individuals - An individual shall be entitled to deduct up to 2 times the amount of their donation as an allowance provided however that when such donation is combined with other donations to support education, it must not exceed 10 percent of the individuals’ income after deducting expenses and allowances.

        2. Juristic Persons - A juristic person can deduct up to 2 times the amount of their donation as an expense regardless of whether such donation is made in the form of cash or property, subject to the condition that when it is combined with expenditure to support education and expenses to build a playground or park without charge (i.e. the juristic person does not charge any expense from the owner of the land used as a playground or park), however, the deduct expenses must not exceed 10 percent of the juristic persons’ net profit before deducting expenses for the above mentioned donation.

        For more details, please see: https://bit.ly/2zvZemQ

Tax News

1. Stipulating the criteria to calculate net profit to pay the petroleum income tax according to the Petroleum Income Tax Act (No.7), B.E. 2560

        On November 6, 2018, the Cabinet passed a resolution approving the principles/criteria which shall be used to calculate net profit which shall be the basis for determining the amount of petroleum income tax required to be paid according to the Petroleum Income Tax Act (No.7), B.E. 2560 and 3 drafts of ministerial regulation as an additional guideline which in essence contain the following details:

         1.1 With respect to the calculation of expenses related to the petroleum business which have been apportioned from the headquarters and expenses related to the petroleum business that are charged by the affiliated company or juristic partnership.

        1.2 In relation to the transfer of petroleum business, the transferee company can assume the remaining annual losses of the transferor company for tax deduction purposes from the date of the transfer as if no petroleum business was transferred, in accordance with the rules prescribed in the Ministerial Regulations.

        1.3 Stipulates a requirement for the company which is a concessionaire holder or a recipient of a production sharing contract for exploration blocks whereby some of the exploration blocks are subject to the Petroleum Income Tax Act B.E. 2514, shall be required to calculate the revenue, expenses, and net profit with respect to the exploration blocks under such Act as a separate company, as amended by the Petroleum Income Tax Act (No. 7) B.E. 2560.

         However, if any income and expenses cannot be separated clearly it shall be estimated in accordance with the rules prescribed in the Ministerial Regulations.

         For more details, please see: https://bit.ly/2SfaTgU

Interesting Deka
Dika                          (Supreme Court Judgment) No. 1105/2561, in re:
Between                  Por L.P.                                   Plaintiff
                                 Revenue Department           Defendant
Issue :                      Prohibited expenses for apartment rental business

Facts: The Plaintiff operated an apartment rental business including furniture rental and electricity, water, telephone and cable TV were also provided. The Revenue Department’s assessment officer noticed that the Plaintiff made a low revenue recognition and included a prohibited expense in the calculation to pay tax which thereby resulted in a lower net loss claimed by the Plaintiff.

Issue to consider: Are wear and depreciation, car accessories, advertising on cars, gift baskets, and car decorations a prohibited expense? Can such expenses be included in the calculation of net profit??

Judgment of the Supreme Court: The Plaintiff had an expense related to car wear and depreciation, car accessories, advertising on cars, gift baskets, and car decoration. To be able to include such expenses it must be necessary and appropriate for the condition of the business. In this case the Plaintiff only had three directors and the main revenue of the Plaintiff was derived from renting out an apartment. However, the Plaintiff owned 7 cars and claimed the cost of fuel, maintenance, car tax and other expenses, the Court held that these expenses were not appropriate for the businesses and thus cannot be considered as an expense for the purpose of making profits or directly for the business. Furthermore, the Court held that with respect to the expenses relating to car equipment, gift baskets, and car decoration, the Plaintiff failed to prove that these expenses are for the purpose of a particular business or for the purpose of the business making profits. Therefore, the Court determined that the car wear and depreciation, car accessories, advertising on cars, gift baskets, and car decoration are to be considered as a prohibited expense.

Legal Opinion: The author agrees with the judgment of the Supreme Court because the company or juristic partnership will be taxed on net profit which is calculated on the basis of income derived from the business in each accounting period after deducting the legitimate expenses related to income that are accrued in that accounting period regardless of whether the income or expenses have been paid or not, under Section 65 of the Revenue Code. In this case the Plaintiff’s business was a property rental business whereby the main income was derived from the rent of property. The Plaintiff’s action in deducting the cost of car wear and depreciation, car accessories is clearly not related to the duties of the directors in managing the business given that the Company does not need to use a lot of vehicles and does not have major income related to car use. Therefore, the writer agrees that such expenses are not related to the Plaintiff’s income and as such the Court was correct to consider such expenses as not being for the purpose of making profits or for the business under Section 65 Ter (13) of the Revenue Code. Given the Court’s decision the Revenue Department’s assessment officer shall be required to add back these expenses when calculating the Plaintiff’s net profit for CIT would result in a change to the Plaintiff's claimed net loss.

        In addition, the writer would like to point out that even if the improvement of net loss will not result in the Plaintiff being required to pay CIT it is worth noting that the filing of false or incomplete tax returns gives the assessment officer the authority to do the following:

        a. issue a summons to such person for the purpose of an investigation, or

        b. to call upon a witness or to order the person to show/ provide the account, document or other reasonable evidence, and

        c. adjust the amount of assessed tax or the amount calculated in the tax return based on evidence according to Sections 19 and 20 of the Revenue Code, as a result, the net loss can be deducted from the net profit in the next accounting period being lower.

Author: Warinthorn Saruno

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